- Selective Capital Allowances Planning
- Dividend Allowance
- Gift Aid
- Pension contributions
- Limited Company Research & Development
- Cash in on self-employment profits taxed twice
- Avoid paying more tax than ‘real’ profits on your property investment – making it unsustainable
- Utilise your tax free personal savings allowance
- Invest wisely
- Claim all the allowances you are eligible for
The 5th April 2017 tax year saw many new changes in tax legislation and planning ahead is more important than ever to ensure you work within the rules to not miss out on a tax saving opportunity.
Selective Capital Allowances Planning
Even though you may have spent money on capital items in a tax year, there is no requirement to claim capital allowances at all.
This matters when your circumstances in a tax year mean that if you claimed all of the capital allowances you are eligible for you would lose your personal allowance.
E.g. Vet ABC has profits of £100k and losses of £50k brought forward which can be used to reduce the taxable profits.
It also spent £50k on capital items in the year upon which capital allowances can be claimed. However, an election can be made to reduce the claim to £38.5k instead leaving £11.5k as the taxable profits. (I.e. £100k – £50k – £38.5k = £11.5k).
By restricting the amount of capital allowances claimed you can still make use of your personal allowances (Which is £11,500 in 2017/18) and carry forward the unclaimed capital allowances into the next year instead of losing them.
With the new rates of dividends that came in on the 6th April 2016, dividend income is now taxed at 7.5%, 32.5% and 38.1%, depending on whether your total income (including the dividend itself) puts you into the basic rate, higher rate or top rate bracket.
Along with the new rates the Chancellor has now given every UK tax payer a new £5,000 tax free “dividend allowance” which means the first £5,000 of dividend income is tax-free. To minimize your tax position, it is possible to allocate some shares to a spouse who doesn’t have dividend income to make sure this dividend allowance isn’t lost. This must be done carefully and within the accepted boundaries to be acceptable to HMRC. For 2017-18 this allowance will be reduced to £2,000.
Remember to record all the charity donations you’ve made. These reduce your taxable income.
If you’re a higher rate taxpayer, you can personally claim back tax.
Example – You donate £100 to charity – they claim Gift Aid to make your donation £125. You pay 40% tax so you can personally claim back £25.00 (£125 x 20%).
Care needs to be taken here though. It can sometimes cost you tax. If you’re close to the personal allowance, this could be the case. Speak to an accountant to check what tax you are due back!
When paying into your pension, you receive tax relief on any contributions that you make. This is at the highest rate of income tax that you pay, provided that the total gross pension contributions paid into your pension scheme, by you and anyone else don’t exceed the lower of your annual earnings and the annual allowance.
This could mean that, if you’re a higher rate taxpayer, £10,000 worth of contributions could get you £4,000 tax relief. Meaning you’re receiving at least a £10,000 benefit for only £6,000.
Limited Company Research & Development
Are you doing something that has never been done before – in advance of current technologies and sciences? This could be something as simple as a website or an app.
Millions worth of tax relief is missed by SME’s due to people not knowing about this extremely generous tax relief for qualifying expenditure.
For each £10,000 spent on R&D you could receive £22,500 worth of corporation tax relief. That’s means the expense only really cost you just over half of what you spent at £5,500.
The tax rules surrounding this are very complex and therefore require a professional to ensure the expenses qualify.
Cash in on self-employment profits taxed twice
Again, another relief people know little about.
If your self-employment year-end differs from 5th April, it’s very likely you’ve paid tax twice on your overlap profits and therefore with a little planning, you can get this back!
Many sole traders and businesses have a tax relief just waiting to be used and can ‘cash it in’ at any time they choose.
Avoid paying more tax than ‘real’ profits on your property investment – making it unsustainable
At present, full tax relief is available for interest on a loan used in a property business. The funds may have been used to purchase the buy to let property, to make major repairs, or just to fund the working capital of the property business.
From April 2017, tax relief on interest in property businesses (including single buy to lets) will be restricted so that by 2020, interest will not be an allowable expense in computing the profits of the business.
A letting activity that has a low level of interest in relation to the borrowings will not be too badly affected, but larger property businesses using debt to expand the portfolio will find that their business model has been severely undermined.
Example (single buy to let)
John is a vet and is 49 years old; he is a 40% taxpayer. He has purchased a buy to let property as an investment. He has presently got borrowings of £50,000 on his property which has a current market value of £160,000. His interest rate is 5%. If his interest rate was to rise to 10% he would see the following change:
|2016 - 17||2017 - 18||2020 - 21|
|Repairs and other tax-deductible costs||1,000||1,000||1,000|
|Interest on mortgage||5,000||3,750|
|Net rental profit||1,200||2,450||6,200|
|Tax at 40%||£480||£980||£2,480|
|Less interest relief at 20% on £5,000||£250||£1,000|
|Net tax liability on rental income||£480||£1,230||£1,480|
|Effective rate on “real” rental profit||40%||50.20%||123.30%|
Utilise your tax free personal savings allowance
Do you have a credit balance Director’s loan account (amount owing to you from your Ltd company)?
If so, you could be missing out on utilizing your tax free personal savings allowance.
There are huge tax breaks for investments in EIS / SEIS and VCT’s. To say they are generous is a huge understatement.
For example, you could invest £10,000 into an SEIS and get £5,000 immediate tax relief. What’s more, due to loss relief, even if your investment folds, your actual loss will only be £2,750. You can even carry back to the previous year.
Again, the tax legislation surrounding these different investment schemes are complex and the level of relief depends on the individual person so you should ensure you obtain independent tax advice before proceeding.
Whether it is claiming for use of home as office, or laundry allowance every little helps and working with a Healthcare Accountant means they will be able to maximize the items you can claim for.
Tax is a complicated subject which requires knowledge and expertise.
The above is just a taste of some of the top tips, however, we strongly recommend you seek professional advice on any of the subjects detailed above.
Please contact us on 0800 0147 647 for further help.