As you may be aware the tax year-end is fast approaching and we want to ensure that you don’t miss out on any possible reliefs that could reduce your tax liability. In order to maximise any benefit, it is important to plan ahead to ensure that available reliefs and allowances are utilised.
Income Tax Thresholds
A key part of effective tax planning is to ensure that all allowances are utilised and that you do not unnecessarily exceed tax thresholds.
The rates for 2019/20 are:
- Tax Free Personal Allowance – £12,500
- 20% Basic Rate (7.5% Dividends) – £12,501 to £50,000
- 40% Higher Rate (32.5% Dividends) – £50,001 to £150,000
- 45% Additional Rate (38.1% – Dividends) – Earnings over £150,000
Our Year End Tax Planning Service
The £12,500 personal allowance starts to reduce once earnings reach £100,000. If earnings reach £125,000 the personal allowance is completely lost, which creates a very high (60%) effective tax rate in this band. Any reliefs which can reduce income to below £100,000 is very tax effective.
Dividend Allowance & Personal Savings Allowances
There is a £2,000 tax free dividend allowance and a £1,000 (£500 if higher rate tax payer) savings allowance which is on top of the personal allowance. So you can earn up to £15,500 tax free with the necessary dividend and savings income.
Marriage Allowance lets a spouse transfer up to £1,250 of their own personal allowance to their husband, wife or civil partner. This is only available for people earning less than £12,500 and when their spouse is a basic rate tax payer.
High Income Child Benefit Charge
A tax charge may be payable if you or your spouse earn over £50,000 and either party claims Child Benefit. The Child Benefit is reduced on a sliding scale for every £100 earned over £50,000 with the benefit being reduced to nil when income exceed £60,000.
Capital Gains Tax Allowance
There is a Capital Gains Tax allowance of £12,000 on which no capital gains tax is payable on gains. The allowance is lost if not used so planning around the timing of disposals of shares and other investments can ensure this relief is not lost.
Depending on the size and nature of your business you can outsource your bookkeeping functions to us and we can manage your sales invoicing, purchases, expense claims, and bank reconciliations. If your business is too large or complex for our remote service, then we can advise you on the level of service you need and we work with lots of external bookkeepers that we can make introductions to.
Reducing taxable income and utilising allowances and reliefs
- Ensure that the above reliefs are maximised where available and income split appropriately for spouses.
- Utilise income at lower tax rates such as the dividend tax rate. This is especially useful for owner managed businesses who have flexibility on their earnings.
- Pension contributions can achieve tax relief in a number of ways, from reducing your taxable income to increasing your basic rate tax band. They are a cost-effective way of both reducing tax and providing for the future.
- Review any benefits in kind you may have, it may be cheaper to acquire these yourself.
- Ensure all eligible expenses have been claimed against the relevant income source. Whilst the regime for ‘Employees’ is restrictive there are certain expenses which are eligible for tax relief.
- There are a number of investment vehicles that have tax free status. For example any interest or capital gains earned through an ISA are tax free. Up to £20,000 a year can be invested in an ISA.
- Seed Enterprise Investment Schemes (SEIS) & Enterprise Investment Schemes (EIS) provide a 50% or 30% income tax reducer on investments, meaning you can get up to 50% of the value of your investment back in tax. Venture Capital Trusts (‘’VCTs’’) are also eligible for income tax relief of 30% up to the amount of £200,000. The investments are also eligible for capital gains relief on a future sale. These investments are inherently risky and specialist advice needs to be taken if such investments are being considered.
- Charitable contributions increase your basic rate tax band similar to pension constructions and the charity can also claim a further 20% of the donation value through Gift Aid.
Located in Manchester, Liverpool or the surrounding areas of Bolton, Rochdale or Warrington and would like to discuss how we can help you? To ensure you have maximised any reliefs or to go through any of the above, please call our office on 0161 399 0121 and we would be glad to speak with you.