Getting the basics right is often the most important thing. Sometimes we over-complicate things, thinking about all the clever difficult things we could do and ignoring the basics, so here are some simple basic tax planning ideas.
Warning: All tax planning should be done in conjunction with your tax advisor.
Pensions. You don’t pay income tax on money you put into a pension (although you might pay it when you take it out). The new rules mean you can take the money out whenever you like.
Phones. If you have a company, your mobile should be in the company name, the company pays the bill – generally no tax.
Cars. Remember to claim all those business miles. Whether you have your car in the business or out of the business and the type of car you have are all big issues for tax, so check it over with us first. But unless you have a pick up truck or a low emissions car, you are often better claiming for your miles and owning the car yourself.
Structure. To be a limited company, a sole trader or a partnership is an important decision for tax. Limited companies are more expensive to run but by receiving money as dividends you can avoid National Insurance. It can be better to be a sole trader if you make losses so choose your structure carefully.
ISA. Saving money in an ISA can save you higher rate tax and capital gains tax.
Benefits. Increasingly the benefit system works in conjunction with the tax system, if you have a limited company you can manage the timing of your income to:
- Make the most of working and child tax credits.
- Make sure your kids get help at university.
- Get your child benefit by having an income less than £50,000.
Avoid the highest rate of tax. You pay tax at a marginal rate of 60% (or more) if you earn more than £100,000, ouch! Better if you plan your income to be less than (or much more than) this threshold.
Tax allowable costs. Use your home as an office? Your partner helps with the business? A training course you’d like? These might be allowable deductions from your taxable profits. Thinking through all the tax allowable costs can reduce your profits and your tax bill.
One word of warning, its great having low profits when you work out your tax bill, but less so if you want to use the earnings multiple to justify a mortgage application.
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