By Guest Contributor Jonathan Amponsah
2020 is now underway. Did you have tax reduction as a New Year’s resolution? Whether you did or not it’s a good idea to consider ways that you can reduce your company and personal tax bills.
Here are some ideas to get you started:
Get Your Business Structure Right
Structuring your business for tax optimisation goes well beyond choosing between a limited company or a sole trader. You need to get this basic area right; have you thought of an LLP (limited liability partnership) or a group structure? There are many tax benefits with these two structures and they are not just for professional firms or big corporates. Speak to a tax adviser or your accountant about these.
Have a Tax plan
Unless you plan to save tax this year, it’s unlikely to happen and you’re likely to pay more tax than necessary. Avoid retrospective tax planning and aggressive tax schemes – go through this article to see if there are areas you or your accountant have neglected. Despite what you may have heard, there are still plenty of legitimate ways to save tax and sleep well at night. Also, avoid leaving all your taxes till the last minute.
Intelligently claim expenses including holidays and school fees
If you have a limited company, did you know that you can claim things like school fees, golf lessons and holidays though your company and save money? Yes you can and HMRC allows you to do this through the benefit in kind system.
Claim This £4,800 Tax Savings
No one likes to talk about death. But it’s a reality. And very often people pay unnecessary inheritance tax by not claiming the right reliefs.
Gifts of up to £3,000 per year can be made free of Inheritance Tax. Unlike most of the tax allowances, the limit increases to £6,000 if the previous year’s annual exemption was not used. So you get to use last year’s allowance of £3,000. A married couple can therefore make Inheritance Tax exempt gifts including cash totalling £12,000 per tax year.
This simple planning can save a possible tax bill of £4,800 in the event of your demise.
Save £3,000 Off Your Payroll Tax
If you employ staff, do not forget to claim the £3,000 cash off your payroll tax bill. This is not an automatic allowance and must be claimed. There have been cases where small businesses have missed claiming this allowance for a period of 4 years. That’s a lot of money to waste.
Use £78,000 tax allowances first
At the heart of every sensible tax planning is the use and leverage of the tax-free allowances HMRC give us. Make the most of these allowances first as they get wasted if not used. And don’t forget about the allowances of your spouse and children. Did you know that if you add up the income tax allowance, capital gains tax allowance, savings allowance and dividends allowance, you get a whopping £26,000 plus allowances in the year? That’s just for starters. And if you have a spouse or a child who are not using their allowances, then that’s a potential tax-free income of £78,000 (26,000 x 3).
Engage specialist tax advisers
Most business owners naturally turn to their accountants for all things tax. Accountancy and tax are two different professions, although there are many similarities.
However savvy entrepreneurs normally have both an accountant and a tax adviser. Because they know that an accountant is like your GP, who is good and knows all the general rules, but tax advisers are like your surgeons, who are specialists in their field and know the exceptions to the rules. So, whilst an accountant will rightly tell you that entertainment is not tax deductible, a tax adviser will usually lift the rocks and find you some exceptions to the general rule that allows you to claim the entertainment.
Preserve Business Property Relief
A common, and expensive, mistake I see among many business owners is lack of planning around how their businesses should be passed-on tax free when they are not here. The rules, subject to some conditions, allows your life’s work to be enjoyed tax free by your loved ones. But if you do not have a Will or if in your Will you have passed the business to say your spouse, you are wasting this generous tax relief.
Save Income Tax by Using A Property Company
If you’re a landlord with a portfolio of properties in your name, you’re likely to be paying more tax via the self-assessment system because of the recent changes in property tax and, notably, the mortgage interest restriction. Companies are not affected by the mortgage interest restriction and they do pay lower rates of tax. However please do seek specialist tax advice because there are some tax traps to beware of before of proceed.
Embrace tax efficient pensions
Do think long term and make use of tax efficient retirement planning. So instead of merely contributing to a pension scheme (which you get tax relief for, by the way) and leaving the funds in there, why not consider vehicles like SSAS or SIPPS to help you leverage the funds and get a second bite of the tax cherry. These pension schemes, subject to certain rules, are then used to buy, say, a commercial property and the rental income gets additional tax benefits.
I hope this give your food for thought. Please remember that with all tax matters you should talk to a tax adviser first. The fees they charge may very well be mitigated by the amount of business and personal tax they can help you save.
ABOUT THE AUTHOR
Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who advises business owners on entrepreneurial tax reliefs. Jonathan is the founder and CEO of The Tax Guys.
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