How can I pay less tax?
There are a number of ways in which you could potentially pay less tax.
Year end tax planning is essential if you wish to pay less tax and although April may seem a long way off, it is never too early to start planning to reduce your tax before the end of the financial/tax year.
The earlier you begin to plan your tax affairs the more tax planning opportunities will be available to you.
Additional tax savings for pension contributions
In some cases personal contributions into pension schemes can attract tax relief of up to 60%, which makes them an ideal tax-free investment. Pension contributions need to be made by 5 April 2014 for them to be applied against 2013/14 income. Tax relief is available on annual contributions, limited to the greater of £3,600 (gross) or the amount of the UK relevant earnings, but subject also to the annual allowance (currently £50,000 until 5 April 2014).
Note that from 2014/15 the annual allowance will be reduced to £40,000, while the overall tax-advantaged pension saving lifetime allowance will fall from £1.5 million to £1.25 million.
Could you benefit from capital allowances?
For a temporary two-year period from 1 January 2013, businesses can claim a 100% Annual Investment Allowance (AIA) on the first £250,000 spent on most types of plant and machinery (excluding cars). There are also some allowances available to encourage ‘green’ investment, for energy-saving equipment and low CO2 emissions (up to 95 g/km) cars.
Making a purchase just before the end of the accounting year could mean that allowances are available a year earlier than if the purchase was made just after the year end. Spreading the cost of large expenditure over two years could increase the available relief. For more information on capital allowances, please contact us.
Tax-free saving opportunities
Adults (18 or over) with an ISA can save a maximum of £11,520 for the year 2013/14 without having to pay any tax. Investments can be made up until 5 April 2014, so be sure to make full use of this tax-free allowance, as it cannot be carried over into the next financial year.
Dividends: timing is crucial
The top rate of income tax is now set at 45% and the dividend additional rate is 37.5%. It might therefore be practical to consider delaying the payment of your dividends until after the year end. This could provide you with tax savings if your income is likely to exceed £150,000, especially if you expect your income for 2014/15 to be less. Please contact us for more guidance.
Tax and the family
If your spouse or partner has little or no income, consider transferring income (or income-producing assets) to them to ensure that they are able to make full use of their personal allowances (£9,440 in 2013/14). However, care should be taken to avoid falling foul of the settlements legislation governing ‘income shifting’ and you need to consider the legal consequences of transfers.
Children also have their own personal tax allowance, meaning that income of up to £9,440 escapes tax this year, providing it does not originate from parental gifts.
Our website contains a number of guides designed to provide the latest information and we run a number of free to attend events each year to update our clients and contacts. You can also download our Tax App on both Android and Apple devices and this contains the latest tax data as well as a summary of the latest Budget.
We recommend that you always seek professional advice and we would be happy to offer a free initial consultation if you wish to discuss your tax affairs. Please contact us for further guidance and advice or to arrange a free initial consultation with one of our tax accountants on 020 7330 0000.