By Phil Ellerby
When the end of the tax year’s fast approaching, business owners often want to know about any last-minute tax saving tips that might save them money.
Today we're going to reveal 5 actionable ideas which can help to reduce your tax bill…
Gifts can be made in many ways. But the most obvious route is in the form of cash to a registered charity through the Gift Aid scheme.
If you’ve paid sufficient income or capital gains tax, and make a Gift Aid declaration, charities can claim back 25p from every £1 donated from HM Revenue and Customs (HMRC).
If you pay a higher rate or additional rate of tax, making a ‘gift’ allows an amount of income (to the gross gift) to be pushed down into the lower rate of tax. This means more income is taxed at the lower rate – and can give a higher rate taxpayer further tax relief of up to 25%.
If your income is just over the £100K threshold, the point at which personal allowances are being reduced, making a ‘Gift Aid’ donation can be a no-brainer.
A person with income of £123,700 who makes a net Gift Aid payment of £20,000 would gain tax relief due to the Gift Aid payment of £5,000. On top of this, their lost personal allowance would also be retrieved, providing additional tax relief of £4,740.
What the result?
The actual ‘cost’ of the £20,000 Gift Aid payment ends up being only £10,260 – whilst the charity would actually benefit from receiving £35,000.
Win, win for everyone involved (except perhaps for HMRC).
Paying more into your pension is one of the easiest ways to reduce your taxable income – so you pay less tax.
Any individual can make pension contributions of £2880 net or 100% of their relevant UK earnings - and every contribution will receive income tax relief at the marginal rate you pay tax.
If you pay 20% tax, every 80p paid into a pension will immediately be boosted to £1 by the Government.
If you’re a 40% tax payer, every 60p you pay in will be turned into a £1 in the exact same way.
In theory, a higher rate tax payer earning £56,000 could pay £56,000 into their pension and it would only cost £33,600.
For lower rate taxpayers, tax relief is available on contributions up to the lower annual allowance of £40,000 (or 100% of your income).
Not a bad return on your investment.
If you’re a company director or business owner who takes a low salary and makes their remuneration up with dividends, be careful when it comes to pension contributions.
It’s a complex tax matter and you could incur a Pension Tax Charge of up to £13,500 if you get it wrong.
To avoid making a costly mistake, get in touch for a pension review – it could spot opportunities for additional contributions and potentially save you thousands.
Every business can claim AIA on almost all purchases of plant and machinery (there are a few exceptions) subject to a maximum of £1,000,000 for the tax year which started on 1st January 2019.
It’s actually possible to gain tax relief on EVERYTHING your business spends on these items because the allowance is given at 100% - apportioned over the accounting year.
However, before making a purchase it may prove prudent to review your business plans and the purchase date so you can gain the full 100% tax relief.
Should you need help or advice on this, please get in touch to discuss your business expenditure plans so the maximum AIA is available.
If you’re in a couple, one of the most popular year-end tax saving tips is to transfer assets into the name of the person paying the lowest rate of tax.
When couples own one or more investment properties, the ownership is usually a joint tenancy - meaning each individual jointly owns 100% of the property. In the eyes of the law (and the tax man), they’re one single owner. As such, the tax position is that each person is taxed on half of the rental income.
In some cases, where one of the couple pays a higher rate of tax, it’s often worth transferring the ownership to a ‘tenants in common’ agreement.
This is the legal term for when each person in a couple owns a specified separate share of the property. As such, they can only be taxed on their separate ‘share’ of the rental income.
If the person who pays the lowest rate of tax was to ‘own’ the majority of the property portfolio (perhaps on a 95%-5% split), it could potentially provide a substantial tax saving.
For the 2018/19 tax year, the current rate of Capital Gains Tax (CGT) exemption is £11,700 for any individual - any gain up to that amount (in a tax year) is exempt from CGT.
Because you DON’T pay Capital Gains Tax on any assets you give or sell to a husband, wife or civil partner; it is possible for a couple to maximise their CGT annual exemption shortly before the end of a tax year.
If you own shares or other investments, consider how you can best utilise this annual exemption on a yearly basis.
If your accountant isn’t giving you the sort of actionable advice outlined above, get in touch or call 0113 2189552 – we’ll be happy to step in and help you save tax!