It’s true that “every little helps”, especially when it comes to saving a few pennies on the tax bill.
Certax Accounting has produced a handy leaflet with 30 (legitimate we hasten to add) ways you can reduce your tax bill. Here are the highlights:-
- Check your PAYE Tax Code Avoid paying the wrong amount by checking the series of numbers and letters in your tax code to ascertain whether the correct code is being applied. For more details, see http://www.hmrc.gov.uk/incometax/tax-codes.htm
- Maximise personal allowances Make sure you are making the most of the tax-free personal allowance (PA) for 2012/13. If you’re under 65 it is £8,105. If your spouse/partner has little or no income, consider transferring income to them so that they are able to make full use of their PA. A word of warning though. You need to ensure that any transfer must be an outright gift with no strings attached. Contact Certax to give you advice before taking any action.
- Minimise the income tax rate Similarly, it’s costly for one spouse/partner to pay income tax at 40% or 50% while the other pays tax at only 20%. So once again, where one has a lower marginal tax rate, consider transferring income-producing investments into their name.
- Don’t forget the kids Every child has their own PA, so income of up to £8,105 will escape tax this year. Income generated by parental gifts is subject to a limit of £100 (gross) per parent unless the child has reached 18 or is married. Prevent children being taxed at source by completing form R85. If you have students working during the holidays, avoid tax being deducted from their pay by completing for P385 (but this form will be abolished on 6th April 2013). Take out a JISA for kids under 18 who do not have a Child Trust Fund account. See below.
- Invest in an ISA You can invest up to £11,280 in an ISA this tax year (£5,640 can be invested in cash). The new JISA for children under 18 who do not have a Child Trust Fund Account allows investments of up to £3,600 in 2012/13. 16 and 17 year olds can also invest up to £5,640 in an adult cash ISA even if they already have a JISA.
TAX AND PROPERTY
- Rent out a Room Under the rent a room scheme, income from letting furnished rooms in your main residence is exempt from tax, as long as the gross annual rent does not exceed £4,250 or £2,125 if you share the income. Note that this scheme does NOT apply if your home is converted into separate flats that you rent out, or if you let unfurnished accommodation in your home.
- Claim landlord expenses Do you rent out your property? Then you can deduct a range of expenses from the rental income, such as water rates, council tax, gas, electricity, maintenance and repairs to the property, etc. You won’t be able to deduct ‘improvements’ but these could score for relief against future capital gain. You could also claim 10% wear and tear allowance if you are letting a residential property fully furnished. There are a host of other expenses you could claim, see the leaflet for full details.
- Claim special energy-saving incentives You could claim the Landlord’s Energy Saving Allowance – possibly up to £1,500 per property each year, available if you’re installing energy saving improvements such as loft, floor, cavity insulation etc.
- Review the structure of your business Have your accountant explain the best structure for your business. While it might be beneficial early on in your start-up to operate as a sole trader, as your profits increase it might be more beneficial to form a limited company.
- Review your capital expenditure to maximise claims for capital allowances. Businesses can potentially claim up to 100% Annual Investment Allowance on the first £25,000 of expenditure on most types of plant and machinery, except cars.
- Make the most of losses Consider carrying these forward to set them against future profits, or against other income for immediate relief.
- Go for Green Transport Switching to a green car with low CO2 emissions could reduce your tax liablity, because they are taxed at a lower rate.
- Write a Will and keep it up to date: Something none of us wants to think about, but a well-draft Will will can ensure that your hard earned cash goes to the right people. It can also be structured to save you tax. However, it is important that it is drafted professionally as well as reviewed regularly to ensure it reflects changes in family or financial circumstances.
- Utilise Inheritance Tax allowances: Make the most of inheritance tax allowance (IHT), including the annual exemption, which allows you to give away cash or assets up to a total value of £3,000 a year without incurring any taxes. Speak to Certax for a full review.
- Check your state pension entitlement: Whatever your pension arrangements, plan ahead to maximise the amount you will receive. As a first step, check that your NICs are up to date and if necessary, pay voluntary NICs to ensure that you receive the full state pension. You can check whether you are likely to have a gap in your NICs record by requesting information about your State Pension forecast from the Future Pension Centre at www.direct.gov.uk – click this link, it will open in a new window onto the direct.gov website.
- Shop around for your annuity: According to the Association of British Insurers, over half of all pension investors simply purchase the default annuity deal they are offered by their current provider. However, research suggests that shopping around for a better deal could increase your pension income significantly. Talk to an expert about the alternative options available to you.
The above are highlights only. For a full explanation of these points, please click this link to access the full guide, provided by Certax Accounting.
Disclaimer: This information is for guidance only and has been provided as a sponsored article by Certax Accounting. Professional advice should be obtained before acting on any of the information contained herein.
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