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Cut down your business and personal tax: 9 ways to help achieve this

Written by Jonathan Amponsah on Monday, 03 February 2020. Posted in Financial management, Finance

According to a research carried out by unbiased.co.uk, UK taxpayers overpay their tax bills by a whopping £4.9billion.

Cut down your business and personal tax: 9 ways to help achieve this

According to a research carried out by unbiased.co.uk, UK taxpayers overpay their tax bills by a whopping £4.9billion. And the main reason is lack of tax planning. So, here are 9 quick things to do that may help improve your cash balance this year. Remember that even if you save £600 in tax, that’s money that you don’t have to work hard for. And if your day rate is £600, well that’s a day off work to spend with your loved ones.

1. Check how you’re showing income in your accounts

If you usually receive money before any work is carried out, the income should be shown in your accounts when you’ve performed the work. And this should be matched with the costs and expenses of doing the work. By not checking this, you could be paying more tax earlier than you should do. So, let’s say you’ve received £2,000 in March work to be delivered in May, make sure this is not shown as income (hence profits) in your March accounts to avoid overpaying your taxes early. 

2. Claim all expenses including golf lessons and school fees

Do you have a limited company?  If so, are you aware that you can claim items such as school fees, golf lessons and holidays though your company and save money? HMRC allows you to do this through the benefit in kind system.

And don’t forget to claim these overlooked expenses

  1. Provision for director’s remuneration to be paid up to nine months your accounting year
  2. Bad debt provision (make sure you have taken steps to recover the money)
  3. Interest paid, including on loans you have made to the business
  4. Use of home as office (reasonable amounts only to avoid more tax later)

3. Keep proper records and receipts

Ok, I know that it’s not fun to collate and keep all those pesky receipts. However, by not keeping them or not having any other evidence to prove the expenses, you are literally giving away your piggy bank to HMRC. Always remember that failing to get a VAT receipt is like putting your hand in your pocket, grabbing some coins and carelessly throwing them away. 

With so many apps on the market that can help you, the task of keeping proper tax records has become less taxing.

4. Review your VAT scheme

If you’re registered for VAT and you’re currently on the flat rate scheme, please get this reviewed today. As a result of recent rules (limited cost trader), you may well be better off switching from the flat rate to the cash accounting scheme. Ask your accountant to do the comparison for you. Again, remember that even if you save £300 or £500 by doing this, that’s money in your pocket. 

5. Use capital allowance or crystallise your losses

You are allowed tax free capital gains allowance of £11,700. Just like your muscle, if you don’t use this allowance, you lose it. If it makes financial sense to sell some of your investments, then doing so just before the tax year and just after the tax year will reduce your tax bill. Why? Because you get to use two allowances and defer the tax on the second sale until January 2021.

And depending on your level of gains, you may not have any tax to pay at all.

Where your investments have not done well or have fallen in value as the case may be for many crypto currency or bitcoin investors, then selling them before the tax year means that you get to crystallise any losses you’ve made which can then be used against any profits from your other investments or carried forward into future years. 

6. Pay your staff tax free income

If you have staff, did you know that there are various legal ways to pay them tax free income?

Firstly, there is something called staff suggestion scheme.

There are two kinds of staff awards:

  • encouragement awards - for good suggestions, or to reward your employees for special effort
  • financial benefit awards - for suggestions that will save or make your business money

Encouragement awards are tax free up to £25. But financial benefit awards are exempt up to £5,000. That’s right £5,000.

Secondly there are various approved share option schemes including EMI (Enterprise Management Incentive) which are highly tax efficient and beneficial. Please beware that these rules come with strings attached so always seek advice.

7. Explore Enterprise Investment Scheme (EIS)/Seed Enterprise Investment Scheme (SEIS)

The above schemes offer some really generous tax breaks in the form of income tax refunds, free capital gains tax and free inheritance tax for investors. The ways this works is that if you invest in an SEIS registered business, you can claim 50% of the investment back against any tax income tax you’ve already paid at source. In addition, you won’t have any capital gains tax to pay if you sell the investment having made a profit, after three years. There are conditions that you will have to meet so, before you go ahead, please speak with a qualified adviser.

8. Save Those Penalties

Penalties are painful right…? Think about those £60 parking fines. Tax penalties start from £100 and can reach £1,500 and beyond. And there are several types including late filing, incorrect filings and late payment of tax. Try to avoid these if you can. However, when you receive them, please do not rush to pay because very often you can either get these removed, reduced or suspended for 2 years. Appeal them and do not always go for what HMRC tells you about having reasonable excuse because what they list on their site is not an exhaustive list. There are other ways to appeal.

9. Seek Advice

Fear of tax, busy lives and complicated tax rules are some of the reasons why taxpayers overpay their tax bills. But there are plenty of good tax accountants out there who can take the burden from you and ensure you keep more of what you earn. Yes, they do charge but very often you will find that the good ones are really worth their fees.

About the Author

Jonathan Amponsah

Jonathan Amponsah

Jonathan Amponsah CTA FCCA is an award winning chartered tax adviser and accountant who has advises business owners on business streamlining apps and processes to make business less taxing. Jonathan is the founder and CEO of The Tax Guys.

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