Tax planning - is this relevant for me? Emma Boutcher tax expert at Hazlewoods
No matter what you earn, you want to ensure that you are taking home as much of your income tax free as possible.
Some of the points I am going to refer to below are not ground-breaking in any way.
However, they could mean that you end up with a few more pounds in your pocket at the end of the day, with minimal effort on your part.
Employed: Basic rate taxpayers - are you earning under £50,000?
If so, have you considered exploring the following?
- Claiming your professional fees and subscriptions where not paid by the employer.
- A small claim for washing your work uniform, based on your industry.
- Possible transfer of £1,250 of a spouses' unused personal allowance to reduce your tax by £250.
- Potential to earn £1,000 self-employed income tax free.
- Rent out room(s) in your home tax free of up to £7,500 per annum.
- If your employer is not reimbursing you at the appropriate business mileage rates for using your personal car for work purposes, consider making a claim to HMRC for tax relief on the difference.
For the first three points, there is also potential to claim for prior years.
Employed: Higher rate taxpayers - Are you earning over £50,000?
Things to be aware of and consider:
- All of the above points for basic rate taxpayers, apart from the possible transfer of a spouses' unused personal allowance.
- Claim your gift aid donations to extend your basic rate tax band.
- Claim your employee pension contributions to extend your basic rate tax band (not relevant if you salary sacrifice).
- Explore the possibility of diverting income to basic rate spouse taxpayer, where possible.
- Child benefit starts to be clawed back when you earn over £50,000. There is a total clawback at £60,000. The above three points could help prevent a clawback.
- There is a personal allowance clawback for those earning over £100,000, giving an effective tax rate of up to 60 per cent. It may again be worth considering ways to reduce your taxable income as described above.
Director (limited companies): Owner managers
Some key considerations might be:
- Salary, loan interest and dividends? What is the best result for you? It is important to consider your tax planning and have this in place by April 5 each year.
- In many owner-manager businesses consider use of spouse's allowances and their tax planning, as this can produce a better result for the family.
- Employer pension contributions for the working directors.
- Explore tax free benefits - e.g. mobile phone contract in the company's name for directors and key staff.
- If there is a requirement to work from home, consider making a small claim for working from home to the company.
- Mileage claims for business miles driven in your own car to the company.
- Reimbursement of company expenses paid on the company's behalf.
- A claim for trivial benefits of £50 or less each e.g. a high street voucher but capped at a total of £300 per annum for directors of close companies and cannot be in reward for their work or performance.
Some of the above points which are not specific to being employed, could be relevant for somebody who is self-employed.
- It is possible to claim for all expenses which are wholly necessary for the performance of your duties?
- Any expenses which have an element of dual use should have a private use adjustment made. It is worth considering any expenses which have some business use.
Finally, I would recommend seeking professional advice before any tax planning is undertaken, as this article is only intended to give an overview.
Tax legislation is complex and certain conditions may need to be met in order to benefit from the planning ideas listed.
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