OUR TOP TAX TIPS ...
Whether you are an individual, employer or small business we can show you ways to ensure you aren't paying more tax than you need to. Please choose the relevant section below:
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TAX TIPS FOR INDIVIDUALS ...
Did you know that you could be saving yourself money by making some small changes to how you run your finances? Read below for our top money-saving Tax Tips which will help you make the most of every penny…
CMA’s Top Tax Tips for the Individual:
1. Have you considered investments that give you a tax free return? For example: National Savings Certificates, Friendly Societies and ISAs. Tip: You can invest up to £11,520 a year in an ISA with up to £5,760 cash in 2013-14 (£11,280 a year and £5,640 in cash in 2013-13)
2. If your spouse pays tax at a lower rate than you, have you considered passing some of your investments to them in order to reduce your combined tax bills?
3. Have you considered using childcare vouchers to save Tax and National Insurance for both employees with young children and the business? Tip: Employers can pay child care vouchers to employees of up to £55 per week where the individuals joined the employer’s scheme before 6 April 2011, without the employee suffering Tax or National Insurance. Where the individuals joined the scheme on or after 6 April 2011, then higher rate tax payers can get up to £28 per week and £25 per week in 2013-14 (£22 in 2012-13) for additional rate taxpayers without the employee suffering Tax and National Insurance. On top of this, the employer can save 13.8% National Insurance on the payments.
4. Have you made a will? Have you updated it recently? Is it IHT efficient? Tip: There are many compelling reasons for writing a will. For example, without one, it could be up to the courts to decide who will be the guardians of your children and thousands of pounds in unnecessary tax and legal costs may be incurred. Why make things even worse for your loved ones? Make a will now! Tip: If you are having a will drawn up, it may be worth considering having a Lasting Power of Attorney drafted at the same time, to save costs. This enables you to nominate a trusted individual to deal with your affairs in the unfortunate even that you cannot deal with them.
5. What happens to your family and business if you are ill or die? Do you have life assurance, permanent health insurance and critical illness cover? Have you reviewed your policies recently? Are they still the best policies for you?
6. If you are planning on moving home, have you explored the possibility of having a business loan instead of a mortgage? Tip: Business loads can get up to 45% tax relief in 2013-14 (50% in 2012-13), whereas mortgages no longer get any tax relief. What this means is that, for a £100,000 loan with 6% interest, the 45% tax relief could save you up to £2,700 per year, ie. saving you up to £67,500 over 25 years! There are many issues so professional advice is essential.
7. Have you considered changing your mortgage? Tip: Some banks and building societies offer subsidies to people switching mortgage, while some are increasing their rates. What price are you paying for inertia? Professional advice should be taken, as many deals may not be as good as they look.
8. As there is no tax relief on mortgages, have you considered reducing your mortgage or using a flexible or offset mortgage? Tip: If the net interest rate you earn on your savings is less than the interest rate you are paying on your mortgage, then you will save money by using your savings to pay of some or your entire mortgage.
9. Have you maximised the government contributions into pensions for your children? Tip: You can contribute up to £2,880 net per child into personal pensions for them each year. The government will add up to a further £720 per annum for each. The investment will not suffer any annual taxes and cannot be drawn until the child reaches at least 55.
10. If you are intending to pay for private education for your children, have you taken steps to either put enough money aside to fund it, and/or explored the possible tax breaks to make the money go further? Tip: There are no tax breaks specifically designed to help parents finances their children’s education. However, if you are fortunate enough to have other family members (usually grandparents) who want to contribute towards the costs, then there are some very efficient ways of making this possible. Care is needed, especially with the changes to trusts in the 2006 Budget, and professional advice should be taken.
11. If you give money to charity, have you made sure that the Taxman makes your donation even bigger by using Gift Aid and payroll giving for example? Tip: It is quite easy to get the Taxman to contribute a significant amount (to both charity and possibly to you) every time you make a donation. It is also possible to make a gift in one tax year and carry it back to the previous year, subject to certain conditions.
12. Have you made full use of the fact that each of your children can earn up to £9,440 per year in 2013-14 ($8,105 in 2012-13) as income and £10,900 per year in Capital Gains, completely tax free? Tip: Grandparents can be the key here, since it is not as simple as parents putting money in their children’s names. So you will need professional advice.
13. If your estate is large, have you considered: Inheritance Tax planning? Taking out an insurance policy that will pay your inheritance tax bills when you die? Using lifetime gifts to avoid paying inheritance tax altogether? Tip: One of the saddest aspects of our job is having to tell families that up to 40% of everything their loved ones worked so to build up and earn must be handed over to the Taxman. And it is made even sadder by the fact that it is all so unnecessary. The truth is that, by acting early enough, most people can prevent the Taxman getting as much. There are many issues involved in getting this right, so professional advice is needed.
14. Have you used the legitimate ways to reduce your tax bills by transferring income from a spouse paying tax at higher rates to a spouse paying tax at lower rates? Tip: At the very least, you should aim to make sure that neither spouse wastes their £9,440 tax free allowance in 2013-14 (£8,105 in 2012-13) – but early professional advice is essential. In particular, care needs to be taken not to divert income deriving from a spouses company if that spouse substantially performs the work.
15. Have you reviewed your investments to ensure that they are appropriate and performing well? Are they giving you the right balance of income and capital growth? Tip: Financial advice should be taken to ensure the right investments are made for your circumstances and the risks you wish to take.
16. If some of your investments have done very well and grown in value, have you considered whether it is sensible to sell some of them in order to save yourself even higher tax bills in the future? Tip: Everybody is allowed to make £10,900 in tax free capital gains per year, but many people waste this tax free allowance and end up paying higher tax bills. Don’t join them! Tip: ‘Bed and breakfasting’ investment is no longer possible but you may still be able to save tax by selling shares and buying them back more than 30 days later, or having your spouse buy them back.
17. Have you made sure that the non-taxpayers in your family receive their interest gross – ie. without their bank or building society deducting tax? Tip: Banks and buildings won’t do this automatically. You will need to ask them for form R85, and will need to complete one for each account.
18. Have you considered the three main ways of getting tax relief on the full cost of your investments and not just the interest you earn on those investments? Tip: The main examples are pensions, venture capital trusts and investments under the enterprise investment scheme. Some of these can be very risky. Never invest more that you can afford to lose and always take professional advice before investing.
19. If you own any buy-to-let properties, have you considered owning them jointly with your spouse/civil partner? Tip: For Capital Gains Tax purposes and Inheritance Tax purposes, it can often be more advantageous to hold assets jointly. However, if one of the couple is a higher tax rate payer and the other pays tax at a basic rate, then annual income tax bills may be higher than necessary. Owning the property jointly, as tenants-in-common, will allow the couple to allocate income in unequal shares, eg. say 90% to the basic rate spouse and 10% to the higher rate tax payer
TAX TIPS FOR EMPLOYERS ...
Are you a business with employees looking to save money wherever possible? Read our top tax tips to see whether you could be making savings with minimal effort.
1. Do you have a company pension scheme? Are you making the most of pensions as a highly tax efficient way of rewarding and retaining key staff? Tip: Employer contributions into a pension scheme can provide significant savings for both the employer and the employee. With the advent of auto-enrolment changes and the requirement for all employers to be making contributions for employees in the near future, it is worth considering how to make savings now.
2. Do you fully understand how to calculate the tax value of benefits in kind? Tip: As an employer, it is your responsibility to calculate these tax values and include them on your employees’ P11Ds. Many of the calculations are not intuitive, and if you get them wrong you could find yourself facing a fine of up to £3000 per incorrect P11D!
3. Have you told the Taxman about any changes to your company cars and who uses them? Tip: Changes to company cars can be reported on form P46 (car) or online and can save employees from paying the wrong amount of tax in the year and receiving a large tax bill later.
4. If you provide company cars, have you checked in the last year whether you and your employees could be better off by changing your company car and petrol policy? Tip: The last few years have seen dramatic changes to the way company cars are taxed. Inevitably, the tax on most types of cars is now higher – especially for cars with high CO2 emissions.
5. If your employees use their own cars for company business, do you know how the mileage rules affect them and the business? Tip: Employers are able to pay employees up to 45p per business mile tax free, dropping to 25p per business mile after 10,000 business miles for using their cars on business journeys. Where employees receive less than these limits for business journeys in their own cars they can claim the difference as a deduction against their wages and reduce their tax bill.
6. Have you considered providing your employees with new, low emission cars? Tip: The tax paid by employees on low emission cars is now less than on high emission cars, and you can also claim 100% tax relief when you buy certain low emission cars. Note: this 100% relief is much more generous than the normal capital allowances on standard and high emission cars. It is surprising what cars are now included. A list can be found at: www.comcar.co.uk
7. Are you utilising the rules for employees taking home company vans? Tip: From 6 April 2007, unrestricted private use will generate a benefit in kind chargeable to tax of £3000 per annum with an additional £550 chargeable if fuel is also provided. Carefully documented procedures restricting private use could avoid this tax. Remember that the definition of ‘van’ may include pick-up trucks.
8. Have you considered changing your mortgage? Tip: Some banks and building societies offer subsidies to people switching mortgage, while some are increasing their rates. What price are you paying for inertia? Professional advice should b taken, as many deals may not be as good as they look.
9. As there is no tax relief on mortgages, have you considered reducing your mortgage or using a flexible or offset mortgage? Tip: If the net interest rate you earn on your savings is less than the interest rate you are paying on your mortgage, then you will save money by using your savings to pay of some or your entire mortgage.
10. If your employees work from home, are you using the rules so that you can reimburse them tax free? Tip: It is possible for you to pay £4pw tax-free without the employee providing any evidence that they have spent any money and larger amounts if they provide proof of spending.
11. Have you looked into whether it is possible to cut your costs and improve your cash flow by paying you PAYE and National Insurance quarterly instead of monthly? Tip: This is possible if your average monthly PAYE and NIC payments are less than £1,500.
1. Have you explored how to use pensions to cut the tax bill on wages and salaries? 2. HaTip: Under what are known as ‘salary sacrifice’ schemes, it is possible to save up to 25.8% in National Insurance contributions made. These savings can, of course, be shared between you and your staff so that everybody is better off.
13. Have you considered using one of the more ‘exotic’ types of pension schemes to give you more control and flexibility and allow you and your staff to build up even bigger nest-eggs? Tip: Some of your options might include an Executive Pension Plan (EPP), a Small Self Administered Scheme (SSAS) or a Self Invested Personal Pension (SIPP). These schemes allow you to invest in a wider range of assets, which may include the premises occupied by your business.
14. If your income is more than £150,000 have you considered the impact of the changes on your pension contributions? Tip: Individuals with income excess of £150,000 can claim a further 25% in 2013-14 (30% in 2012-13) tax relief on pension contributions in addition to the 20% reclaimed by the pension provider, subject to meeting certain limits. Higher rate tax payers can still reclaim 20%
Are you certain that you make the most of the tax-free benefits in kind for your staff? Some of the possibilities include:
• Providing mobile phones (no more than 1 per employee)
• Subsidising certain forms of transport to and from work – including bus fares
• Providing workplace nurseries and crèches
• Sporting and recreational facilities
• Health checks
• Car parking
• Paying relocation expenses
• Up to £150 per person per year for staff parties
• Making cash awards for contributions to a staff suggestion scheme
• Allowing staff to use pool cars for business purposes
• Paying staff up to an extra 5p per mile if they use their own car to take fellow employees on the same business trip
• Providing company bicycles
• And even…paying employees up to 20p per mile when they use their own personal bicycles on business journeys! (or up to 24p per mile for a motorbike)
15. If you use contract works and freelancers, have you made absolutely sure that the Taxman has no grounds for treating them as your employees? Tip: This area can be a real minefield. Many businesses have unexpectedly found themselves with very expensive tax and National Insurance bills for people that they thought were contractors and/or freelancers – but who the Tax man regarded as employees.
16. Have you looked into the possibility of motivating and rewarding staff by giving them share options? Tip: Some commentator regard the government’s Enterprise Management Initiative scheme as a ‘must’ for small businesses who want to motivate and reward their team. Not only is the scheme very flexible but the tax and National Insurance savings are very attractive, despite the changes to Capital Gains tax.
17. If you have relatively low waged employees and/or employees with children, have you advised them to claim Working Tax Credits and Child Tax Credits? Tip: You may be eligible to claim these too.
18.Have you advised your employees to check their 2014/15 PAYE coding to make sure that the details are correct and that they are receiving the correct allowances? And have you done this for your own notice of coding?
19. Have you asked the Inland Revenue for P11D dispensations to reduce your paperwork? Tip: By agreeing a dispensation with the Revenue in advance of making the payment, you do not have to report it on a P11D
TAX TIPS FOR SMALL BUSINESSES ...
Did you know that you could be saving money just by making a few changes to the way you run your business and finances? Read our Top Tax Tips for hints and advice about how you could be saving yourself money with minimal effort.
1. Are you sure that you are taking money out of your business in the most tax efficient way? Tip: If your business is a limited company it often makes more sense to get your money out by a combination of salary and dividends as well as other tax efficient strategies. It is worth regularly considering the most tax-efficient options to maximise tax savings
2. Have you made the most of your opportunities to save tax by investing in a personal pension? Tip: Subject to certain limits, pension contributions made personally are tax allowable – which means that the effective cost may be as little as 55p to invest £1 in a pension (50p in 2012/13). If you don’t provide for your retirement, who else will?
3. If you are about to invest in a new car, computer or any other business equipment, have you considered the best time to buy them and the best way to pay for them? Tip: You will get tax relief a lot quicker if you make the investment shortly before rather than shortly after your business year-end. Tip: A 100% annual investment allowance of up to £250,000 (£25,000 before 1 Jan 2013) on most plant and machinery is available.
4. If your business has made losses, have you made sure that those losses are being used to reduce your current tax bills by as much as possible? Tip: If you are self-employed, it may be possible to set off the losses against your other income, or even against income from the previous year. Tip: The loss available may be restricted, including for non-active sole-traders or partners and professional advice should be taken. It may also be possible to use the losses to reduce your National Insurance bills.
5. Have you considered recently, (ie. In the last 12 months) whether your business would be better off trading as a sole-trader, partnership limited company or limited liability partnership? Tip: The many changes announced in recent Budgets have moved the goalposts.
6. Have you correctly recorded dividend payments by your company on board minutes and dividend vouchers? Tip: HM Revenue and Customs may declare payments as loans or salary if proper paperwork is not in place for the dividend payments.
7. Have you considered using different classes of shares for company shareholders? Tip: Different classes of shares may allow the company directors to pay different levels of dividends to different shareholders, without extra complications of paperwork.
8. Have you considered making greater use of business gifts as a marketing tool? Tip: The cost of business gifts is tax deductible for the business if the gif (a) contains a conspicuous advert for your business and (b) is NOT food, drink, tobacco or tokens or vouchers exchangeable for goods and (c) does not amount to more than £50 per person, per year.
9. If your sales are less than £1.35m per year, are you making VAT potentially much easier and cheaper for your business by making the most of the cash accounting scheme or the annual accounting scheme? Tip: Many businesses find that annual VAT accounting saves them a lot of time, and cash accounting dramatically improves their cash flow. As such, both are well worth exploring.
10. Do you always time the payment of dividends and bonuses from your company so that they fall into the ‘right’ tax year for you? Tip: The timing of dividends and bonuses can have a big effect on how much tax you pay on them – and when it must be paid.
11. Are you paying your spouse a tax-efficient salary? Tip: The salary must be sensible and reflect the work done – and must actually be paid. Details will need to be submitted to the HMRC especially if a state pension record is required. If their earnings exceed £109 per week, their earnings will qualify them for both basic state pension and the additional state pension and below £148 there will be no NIC liability.
12. Have you reviewed your pension arrangements recently? Tip: April 2006 saw the introduction of new pensions regulations, which increase the amounts that can be invested in a pension fund subject to certain limits, broaden the rules on what the pension scheme can invest an relax the rules on retirement.
13. If you are a sole trader, have you considered taking your spouse into partnership? Tip: Care must be taken to ensure that your spouse’s share of profits is not disproportionate to their share of involvement, and it must be run as a genuine partnership (eg. both names on bank accounts, stationery etc.)
14. If you are a sole trader making losses or low profits, have you considered whether to pay class 2 National Insurance Contributions? Tip: If profits are below the small earnings exception, currently £5,725 (£5,595 in 2012/13), then you can claim exception from paying class 2 National Insurance Contributions to build up entitlement to a State Pension.
15. Have you considered whether there are any benefits from converting partnership/business loans and/or surpluses into personal loans – or vice versa? Tip: In general, finance used for business purposes will receive tax relief. However, care is always needed to ensure that tax relief can actually be claimed whenever setting up financial arrangements.
16. If you are a sole trader, or partnership, have you considered making key employees partners? Tip: Significant National Insurance payments can be made for both you and the key individuals by making them partners. It can also tie them into the business, but care is required.
17. If you have subscribed for shares in an unquoted company or lost money, have you made a claim for tax relief? Tip: Subject to certain conditions, it may be possible to obtain income tax relief on losses incurred on your shares.
18. If you run a very profitable limited company, have you done everything possible to make sure that your profits are taxed at 20% or 23% from 1 April 2013 instead of 23.75%? Tip: Companies with profits of up to £300,000 are taxed at 20% while for profits of more than £1.5m the tax rate is 23% from April 2013. However, for profits of between £300,001 and £1.5m the tax rate effectively increases to 23.75% for the financial year to 31 March 2014. Tip: You cannot usually get round this by setting up lots of companies in an attempt to keep them all paying the lowest rates of corporation tax, since there are ‘associated companies’ rules designed to make that impossible. Professional advice should always be taken. Tip: A review of expenses and how profits are taken out of the company can significantly reduce this tax bill.
19. If you run a company of partnership and sell your personal services, knowledge of skills, have you taken appropriate steps to ensure that the IR35 rules won’t cost your business a fortune in additional tax? Tip: PAYE and National Insurance Contributions will be applied to all payments made to individuals by Managed Service Companies.
20. Have you planned ahead and taken action to minimise your tax bills when you eventually come to sell the business? Tip: Do you really want the Taxman to take up to 59% of everything your business is worth? The amounts involved could be huge. But with proper planning and an early stage you should be able to keep much more of your money in your pocket…and not in the Taxman’s.
