With less than a month to go until the end of the tax year, have you checked out all the options for making the most of tax allowances, reliefs and exemptions available to you and your business? Here’s a reminder of the most important points to consider and if it’s too late for this year, why not talk to us early in the new tax year to make sure you take advantage in 2020/21.
Personal tax considerations
If you are in the 45% additional rate of tax, your personal allowances are tapered between earnings of £100,000-£125,000, giving an effective tax rate of 60% in this band. There are ways to reduce your taxable income:
- Pension tax relief: maximise your annual allowance with tax relief on pension contributions or carry forward some of your allowance from up to three previous tax years. If you run a limited company, you can make pension contributions from there to minimise the corporation tax bill (and as there are no National Insurance Contributions to be made on pensions so you save there too).
- Personal savings: for basic-rate taxpayers, the first £1,000 of interest on savings is tax-free with a £500 threshold for higher-rate taxpayers. There’s no savings allowance for additional-rate taxpayers so review which spouse or civil partner is best to hold the taxable savings.
- Capital Gains Tax: make sure you sell assets at a gain to use your annual exemption and consider transferring assets to a spouse to maximise the reliefs available.
- Tax-free and tax-efficient investments: consider using ISAs or National Savings for your tax-free investments. Help To Buy ISAs for first-time buyers are now not available to open, but are replaced by Lifetime ISAs for those under 40. Junior ISAs remain available for minors.
- Charitable donations: Gift Aid donations provide tax relief at your marginal tax rate and any donation made up to 31 January of the following year or the submission date of your tax return can be carried back to the previous tax year.
- Marriage allowance: married couples or civil partners can transfer up to £1,250 of personal allowance from the lower earner to a higher earner in the 20% rate. This is not possible for 40% or additional rate
- Life insurance: taking out life cover through a limited company is tax efficient as the company can offer a death-in-service benefit to employees. This is a tax-free benefit where the policy taken out is a ‘relevant life policy’. Please speak to a Financial Advisor before taking out insurance.
Business tax considerations
Have you planned for these tax implications in your business?
- Capital expenditure: if you need to purchase any equipment, furniture or other large items for your business, it’s a good idea to do this at the end of your business year so that the expenditure can be deducted against your profits.
- Auto-enrolment Workplace Pensions: Are you up to speed on your re-enrolment and re-declaration responsibilities? From April 2020, the minimum contribution for employees remains at 5% with a 3% contribution from employers to make a total of 8%.
- Making Tax Digital (MTD for VAT): VAT registered businesses that turn over more than £85,000 are required to file tax records and submit VAT returns via compatible digital software.
- Research & Development tax relief: R&D tax credits cover a wide range of business sectors and claims for innovation, new product or service development. The tax credit comes as a cash payment or Corporation Tax reduction and can be back-dated for two years.
Making your income stretch further with tax savings and efficiencies is an annual challenge. It is always advisable to speak to a professional tax expert like CRM to explore all the options available – and find out about some new ones too. Contact the friendly team at CRM on 01865 379272 or visit the website www.crmoxford.co.uk