Accountancy

We provide a full range of accounting services for How to Pay Less Tax because most of us don’t make full use of our available tax allowances and exemptions. It’s more than likely you could pay less tax on your UK income and savings. According to the Annual Tax Action Report of 2012 by Unbiased.co.uk, we pay a whopping £12.6 billion more than we need to. That equates to an average of more than £4,000 per individual. 

Our End of Year Tax Checklist

Our end of year checklist helps you identify those areas where you can begin to reduce your tax liabilities by ensuring you make full use of all allowances and exemptions -

• Personal Allowance giving you a tax free income of £12,570 per year
• Marriage/Civil Partnership Allowance that reduces your tax bill by up to £250 per year
• Personal Savings Allowance up to £1000 per year Savings Rate Band allowing tax free savings up to £5,000 per year
• ISA Allowance offering tax free income and growth up to £20,000 per year
• Dividend Allowance that permits tax free dividends up to 2,000 per year
• Capital Gains Tax Allowance giving you tax free investment income up to £2,300 per year
• Pension Carry Forward that allows tax relief and tax free growth up to £120,000 per year
• Venture Capitalist Trusts that permit tax relief and tax free growth up to £200,000 per year

Paying Less Tax on Your Income

Every individual has a tax free income allowance of £12,570 per year, including bonuses and both rental and pension incomes. However, if your current income does not reach this threshold, perhaps you can identify ways of increasing your annual income.

Avoiding the 60% Tax Trap

At the other end of the scale, if you earn over £100,000 your tax free personal allowance will be reduced and you’ll pay National Insurance at 2%

meaning that you will effectively pay tax at 60% on income in excess of £100,000 such as a bonus. However, you could avoid this trap by having your bonus paid into your pension fund.

Reducing Your Capital Gains Tax

If you make a profit from the sale of an investment or property you may need to pay capital gains tax. Your annual allowance is £12,300 so anything over this amount will be taxed at between 10 and 20% depending on your income. The tax rate for property is 18-28%. However, if you are married or in a civil partnership, you can hold investments jointly, meaning that your collective allowance would be £24,600. Alternatively, if one of you pays a lower rate of tax you can hold the asset in their name only which could reduce the tax rate from 20% to 10% or in the case of property, from 28% to 18%. Equally, if you have other investments that have been loss making in the same tax year, you may offset those losses against gains made when selling an asset.

Minimising Capital Gains Tax on Restricted Stock Units

In many instances, employees receive shares in the company they work for. These are known as Restricted Stock Units (RSUs). If you continue to hold these shares you may be liable for capital gains tax. There are two ways to minimise the tax payable -

• Immediate Sale - sell the shares and, if you still wish to own them, buy them back in a stocks and shares ISA so no future capital gains tax is payable in the future.
• Spousal Transfer - you can transfer some of the shares to your spouse of civil partner tax free and they may sell them so, in effect, doubling the quantity that may be sold tax free.

Reducing Your Company Tax Bill

If you own a business and make a profit you will pay corporation tax - currently at 19%. However, because employer pension contributions are treated as a deductible expense and attract no income or dividend tax, you can reduce your tax liability by making a pension contribution instead of paying yourself a salary.

For example, if you made a pension contribution of £10,000 instead of a salary you would save up to £4,530.

Reducing Your Income Tax Liability

The most common way to reduce your income and therefore your tax liability is to pay into a pension which will reduce your tax bill by the top rate of tax. For example, if you earn £60,000 and pay £10,000 of that into a pension, you reduce your tax bill by £4,000. Avoiding the Pension Lifetime Allowance Tax Charge When the value of your pension(s) exceed the Pension Lifetime Allowance you will pay tax at a rate of between 25% and 55%. However, there are a number of ways you can minimise this charge which include the following -

• Applying for Pension Lifetime Allowance protection
• Withdrawing the tax free portion of your pension as cash
• Taking your defined benefit pension early
• Setting up an alternative investment pot

If you are a high earner there’s a limit to the amount you can pay into a pension without incurring a tax charge. The Tapered Pension Allowance reduces the amount you may contribute to a pension down to £4,000 in any one tax year. If you pay in more than this, you could face a tax charge of 45%. However, it may be possible to avoid the tax charge by carrying forward unused pension allowances from previous years and this could help you. Alternatively, you could reduce your pension contributions or ask that your employer pays you an increased salary instead of pension contributions that exceed the threshold. Your professional E&G tax adviser will guide you through all the details.