Following George Osborne’s recent Budget it has been claimed that the amount of tax paid by the masses has been reduced, though this has been met with an air of scepticism by many. If you are a house-building or home-buying motorist who’s fond of the occasional beer you would have done rather well, whereas retailers continue to feel the pinch.
The two main tax announcements in The Budget were the increase in the tax free personal allowance to £10,000 from April 2014, for individuals, and a reduction in the main Corporation Tax rate to 20% from April 2015, for companies.
Reductions in tax are always welcome, but there is still at least a year before these reductions will come in to force and large tax bills could still be looming for many.
Whilst not likely to be the first three letter word ending in “x” that springs to mind, tax is something that is suffered (and I mean suffered) by pretty much everybody in one way or another and planning in this regard is often overlooked.
The end of the tax year is upon us so it’s definitely something to think about. There are numerous ways in which tax can be saved, some far more complex than others.
There are, however, some simple actions you can take each year to reduce your exposure to tax, such as:
- If you are in a civil partnership, and in the law changes, a marriage, and only one of you are paying tax at the higher rate you could look to transfer any income generating assets to the spouse with the lower rate of income. This income would then be subject to tax at a lower rate, saving as much as 45% in some cases from 6 April.
- Making capital disposals (e.g. shares) to fully utilise your annual capital gains tax exemption (currently £10,600, increasing to £10,900 from 6 April). Both you and your spouse are entitled to this exemption, so by transferring assets to your spouse prior to sale (which is exempt for tax purposes) you can effectively double your tax free allowance each year.
- If your income is likely to exceed £150,000 for the year it may be worth deferring any payments or bonuses due to you over and above this amount until after 5 April 2013, when the highest tax rate of 50% drops to 45%.
- Making payments to your pension to obtain higher rate tax relief and maximise the contributions you are permitted to make. It can also be tax efficient for your company to pay contributions on your behalf and can enable you to pay a larger amount into your pension than previously thought.
- Taking advantage of the ISA investment limits for the year (currently £11,280, increasing to £11,520 from 6 April).
Just by utilising the 5 suggestions above effectively, substantial tax savings can be made.
There are numerous other tweaks that could reduce your tax bill and these are not just limited to your own personal tax affairs. These can also have a major impact on the tax payable on your business profits, be they through a company, a partnership or self-employment.
On 6 April HM Revenue and Customs will begin issuing Tax Returns for the year ended 5 April 2013. Whilst these are not due to be filed until 31 January 2014 in most cases, there are benefits to filing these as soon as possible.
- If you are expecting a large tax bill you will give yourself much more time to provide for the tax due by doing so.
- Should you be due a refund the sooner you file the Return the quicker you will get the money back, as HMRC are usually not as busy during April and May.
Andrew Josephs is an accountant with ADJ Business Solutions.
As with all comment pieces the views expressed do not necessarly reflect those of PinkNews.co.uk.