Tax laws change every year, and sometimes more frequently as the government introduces and then abolishes tax incentives, sometimes at very short notice. This can make it hard to keep track of the tax-saving ideas that currently work. These tax tips are designed to act as quick prompts to help you judge which ideas might be relevant to you or your business.
From 6 April 2016, the first £5,000 you receive in dividends from investments is tax free. Basic rate taxpayers will pay 7.5% tax on dividends they receive above the threshold however. Higher rate taxpayers pay 32.5% and additional rate taxpayers 38.1%.
Gift Aid & Tax Relief
Making donations to charity through Gift Aid can reduce your taxable income.
If you are in a higher tax bracket, you can claim back the difference between the basic and higher rate of income tax on any Gift Aid donations.
Motor Vehicle Running Costs
Tax relief is available for the cost of the vehicle in the form of capital allowances. The following costs can be claimed: Fuel, Repairs & Maintenance (servicing, MOT, oil, tyres etc.), Insurance, Break down cover, warranty cover and interest on a loan or other finance to purchase the vehicle.
VAT On Cars
If a car is on finance lease then the business can recover 50% of the lease payments assuming the business is registered and fully taxable for VAT purposes. This represents a major advantage for VAT registered businesses leasing cars rather than buying them.
From 6 April 2016, married couples and civil partners can transfer £1,100 of personal allowance from the lower earning partner to the higher earner, saving them up to £220 tax. Only available if the higher earner is a 20% taxpayer- no transfer possible is they are a 40% taxpayer.
Childcare Schemes and Tax Credits
If you are an employee and pay for childcare, ask your employer if they have a childcare scheme. Salary sacrifice childcare schemes are easy to establish and can result in substantial savings for both employees and employers.
VAT Flat Rate Scheme
Many businesses could benefit by joining the flat rate scheme. The scheme can save time and money. The scheme allows you to account for VAT at a single flat rate on all your sales. This flat rate is reduced from the normal standard rate of 20% to allow for the fact that you generally cannot claim the VAT on your purchases.
Tax Relief on Motoring Costs
Small businesses have an important tax planning decision to make when it comes to motoring costs. If you make the right choice you could enjoy thousands of pounds of additional tax relief.
Employee Tax Free Benefits
Instead of a pay rise you can give your employees tax free benefits which include; Workplace car parking, staff parties (£150 per head), Training, Wedding gifts, business mileage payments, long service awards, qualifying child care, and pension contribution.
Pay in to a Pension Scheme
Contributions to your employer's pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged. Contributions start at 1% and is based on the earnings. Employees will be able to opt out which means the employer will not have to pay anything.
Travel can be in many forms such as trains, taxis, planes & cars. Whatever method you travel by, the cost is an allowable expense for tax purposes if the journey is classed as a business journey.
Use your tax-free Isa allowance. From 6 April 2016 the annual limit will stay at £15,240, the same as it was for 2015. This can all be put in cash Isa, all in a stocks and shares Isa or split between both cash and stocks and shares. See our guide to tax on savings and investments for more details.
Every business owner incurs subsistence expenditure such as meals and drinks. To claim a bigger deduction it is essential to get a receipt for every last penny of your business subsistence. It doesn’t have doesn’t necessarily have to be printed on a till receipt.
Capital gains tax (CGT) allowance
Remember that capital gains in the 2016/17 tax year under £11,100 are tax-free. Married couples and civil partners who own assets jointly can claim a double allowance of £22,200.
Capital Allowance Claims
If you are a landlord or run your own business, take advantage of the annual investment allowance (AIA) to claim for capital expenditure on items such as tools and computers. From January 2016, you can claim relief on up to £200,000 a year.
Up to £10 million of capital gains per person can qualify for Entrepreneurs Relief. Entrepreneurs Relief applies on a per person basis, the more people who own the business for example your partner or children, then the more tax you could save.
Benefits of a Company
There are plenty of benefits of a company such as; limited liability protection, ownership flexibility, lower costs, bigger pension contributions & company cars.
If you're self-employed, don’t forget to claim all your tax-deductible expenses, including cash expenditure where eligible.
Cash-flow boost for self-employed
If you are setting up as self-employed, you may be able to improve your cash flow by choosing an accounting year that ends early in the tax year. This maximises the delay between earning your profits and your final tax demand.
If you are self-employed, you can carry forward losses from one year and offset them against profits from the next.
Rent a Room Relief
Rent a room relief is an optional scheme that lets you receive up to £7,500 (increased 6 April 2016, from previous limit of 4,250) in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home.
If you rent out property, you can deduct a range of costs before declaring your taxable income. These include the wages of gardeners and cleaners, and letting agency fees.
Tax Relief on your mortgage
You can claim tax relief on the interest on a mortgage you take out to buy a rental property – even if the rental property is abroad. This relief will be reduced from April 2017 onwards.
Reduce Capital Gains Tax (CGT) on a Rental Property
Landlords are normally liable for CGT when they sell a rental property. If it has been your main home at some time in the past, you can claim tax relief for the last eighteen months of ownership.
No CGT on shares held in an ISA
There is no capital gains tax to pay when you sell shares or units held in an Isa. For more details see Tax on savings and investments.
Use Junior ISAs or Children’s Bonus Bonds to avoid being taxed on gifts you make to your own children.
Transfer savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do. See our guide to tax and your partner for more information.
Personal Savings Allowance
From 6 April 2016, the first £1,000 of interest you receive from savings is tax free, if you are a basic rate taxpayer. If you are a higher-rate taxpayer, the threshold is £500. It is only if your savings income exceeds the allowance that any tax is due on it. This will no longer be deducted at source; if tax is due you can pay it via self-assessment or have it deducted via PAYE through an adjustment in your tax code.
Make sure you stop making National Insurance contributions if you carry on working beyond state retirement age (currently 63 for women and 65 for men).
Lifetime gifts are not normally counted as part of your estate for inheritance tax purposes if you live for a further seven years after making them. Known as potentially exempt transfers (PETs) they can reduce your residual estate significantly.
Season Ticket Loan
If you are a commuter, check to see if your employer will give you a tax-free loan to buy your season ticket.
If you are entitled to a company car, consider whether it would be more tax-efficient to take a cash equivalent in pay instead.
If you are changing your company car, consider a low-emissions model. These are now taxed at a lower percentage of their list price, than cars with a high CO2 rating.
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