With the end of the 2017/18 tax year fast approaching, it is important to think about how you can minimise your business and personal tax liability before 5 April 2018 says Clare Elsby, Business Development Director at Elsby & Co Accountants.
If you feel like you’re paying too much tax and would like to find ways to ethically and responsibly reduce your bills you are not alone. Despite taxes remaining one of life’s certainties, here are five key points to consider:
Every individual is entitled to their own personal allowance (PA), which is set at £11,500 in 2017/18. If your spouse or partner has little or no income, you could stand to benefit by spreading income more evenly to make sure that each PA is being fully utilised. Certain rules apply so speak to your accountant or tax advisor before taking any action.
Certain married couples may also be eligible to transfer 10% of their PA to their spouse under the Transferable Tax Allowance, or 'Marriage Allowance'. This is available to married couples or civil partners where one earns no more than £11,500 per annum, and where neither pays tax at the higher or additional rate. It means that £1,150 can be transferred in 2017/18, which could help to reduce a couple's tax liability by up to £230 in this financial year.
Despite relatively low interest rates at present, for many individuals ISAs are still an attractive and tax-free way to save.
For 2017/18, the overall subscription limit for ISAs is £20,000, of which no more than £4,000 can be deposited into a Lifetime ISA. Savers are able to invest in any combination of cash, or stocks and shares ISAs up to the overall limit. However, individuals are only able to pay into a maximum of one Cash ISA, one Stocks and Shares ISA, one Innovative Finance ISA, and one Lifetime ISA.
Many businesses are able to make use of the Annual Investment Allowance, which applies to the first £200,000 of expenditure on most kinds of plant and machinery (excluding cars). The allowance applies to businesses of any size and most business structures. There are, however, provisions to prevent multiple claims.
In many cases, a purchase made just before the end of the current accounting year will mean that the allowances are available a year earlier than if the purchase was made after the year end.
There are ways to ensure that your hard-earned profit is extracted from your business in the most tax-efficient way possible. You may wish to consider incorporating your business, giving you the option to take dividends over a salary or bonus. However you will need to speak with your accountant or financial advisor to see if this course of action is appropriate for you.
You may also consider making employer pension contributions as these can prove to be an effective way of extracting profit from your company.
More and more people are being encouraged to begin saving for their retirement, with the introduction of pensions automatic enrolment. However, if you are not in an appropriate employer scheme, it is essential to make your own arrangements.
Tax relief is available on annual contributions limited to the greater of £3,600 (gross), or the amount of UK relevant earnings, but also subject to the annual allowance, which is typically £40,000. Pension contributions must be paid on or before 5th April 2018 to be applied against 2017/18 income.
Those with both net income over £110,000 and adjusted annual income over £150,000 will see their allowance tapered. The pensions lifetime allowance for 2017/18 is £1 million. If total pension savings exceed the lifetime allowance at retirement, a tax charge will arise.
For further details email firstname.lastname@example.org or telephone 01604 678470. Visit www.elsbyandco.co.uk and search under ‘News, Events and Workshops’ to register for Elsby & Co’s Cloud Accounting workshops.