Failing to plan is planning to fail… Or to a lesser degree, failing to do your tax planning before the end of the tax year may result in you paying more than you owe. Tax planning is, we admit, not the most exciting thing in the world until you actually realise how much it saves you at the end of the year. You work hard for your money so it’s far better to keep as much of it for yourself as you can.
Here is The Financial Management Centre’s guide on how to prepare both yourself and your business during the year in order to save at the end of the year.
ISAs and Junior ISAs
In the financial year 2015/16, government figures show that 12.7 million adults were using an ISA. One of the reasons that ISAs continue to be popular is that the gains made by them are not taxed and neither is withdrawing any money from the accounts you hold.
There is a limit for how much you can put into an ISA and that limit is £20,000 for both Stocks and Shares ISAs and Cash ISAs. The limit for Junior ISAs has been raised to £4,260. These allowances are mot transferred across tax years so if you don’t use it, you lose it.
A couple of years ago, in April 2017, the government launched a new kind of ISA called a Lifetime ISA. This is a savings account that can only be opened by people aged 18-39. You can deposit up to £4,000 annually into these accounts. The downside to the Lifetime ISA is that you cannot withdraw any funds until you either reach 60 years old or until the time when you’re buying your first home.
The last kind of ISA that we will cover is a Junior ISA. The chances are that you are over the age of 18. But this doesn’t mean that you can’t make use of a junior ISA. If you have a child who is under 18, you can give them tax free gifts of up to £4,260 a year.
Once your child reaches 18 years old, this ISA can mature into any of the other ISA variants or your boy or girl can withdraw the money tax-free.
Pensions are another great way to put money away for the long term. You can make tax-free contributions into your pension up to £40,000 a year (for most taxpayers).
For those earning over £150,000, you lose £1 of allowance for every £2 that you earn above the £150,000 limit. If you’re earning £210,000 or more, this tapering system ends and your personal allowance does not drop under £10,000.
£5,000 savings starting rate
If the income from your business or pension is below the 2018/29 personal allowance (£11,850) but you earn income through the interest on your savings, you could qualify for the savings allowance.
Interest of up to £5,000 can be paid to you tax-free on top of your personal savings allowance – this means you could earn as much as £16,850 before paying tax on interest. Please bear in mind that, for every £1 of income above the personal allowance you earn, your £5,000 tax-free interest starting rate threshold also reduces by £1.
If you are self-employed, you can deduct certain expenses from your company’s gross profit in order to reduce your overall corporation tax bill.
Let’s start with your business’ premises. You can deduct the costs of your:
- Electricity bill,
- Water bill,
- Cleaning Costs, and,
- Your business rates.
A portion of these costs can even be deducted if you work from home. However, you will need to work out what proportion of your home is used for business and how long you spend working on your business when you’re at home. Ask us for details on how to do this – it’s easier than you might imagine.
If your business has employees, then you can deduct the costs of:
- Your employee’s wages,
- Your Employers National Insurance Contributions,
- Employee Childcare provisions, and,
- Training a new employee.
Make sure you claim for every allowable expense, including the £3,000 Employment Allowance if you have qualifying staff. Just by keeping track of your business expenditure will save you a great deal in tax at the end of the year. If you haven’t already, dig out as many receipts as you can find now – although it would be better to keep on top of this every month.
Lastly, as a business owner, you can offset any losses made in the previous year against this year’s profits.
The way to account for losses in previous tax years is different for sole traders and partnerships than it is for limited companies. If your loss this year was large enough, it may wipe out most or all of the tax you have to pay this year – offering a silver lining on a rough 12 months for you.
We can help
If you are looking to plan ahead for the end of the tax year and you would like some advice on how to make your business as efficient as possible, get in touch with our team. Please call us today on 0800 470 4820 or email [email protected].