We are often asked for ideas about how to generate tax savings. It stands to reason that everyone wants to hold onto more of what they earn. Applying these ideas is often very personal to your circumstances, so make sure you pick up the phone or drop us an email before you make any drastic changes. Here are some of the most common ones:

Personal Tax

• Pension payments- Paying into a pension fund is one of the most effective ways to reduce your taxable income and your tax bill. It works differently if you are employed or self-employed, but either way not only is it good future planning, it will save you tax.
• Dividend payments- For director/shareholders it is worth balancing monthly income carefully. A careful blend of salary, dividend, interest on a loan account and pension can maximise earnings whilst minimising tax.
• You can invest up to £20,000 each year into an individual savings account (ISA), and all income and capital gains earned within the ISA are tax free.

Corporation Tax

• Pension payments- Paying into the pension schemes of company directors/employees reduces a company’s taxable profit and lowers corporation tax, whilst at the same time being tax free for the individual.
• Capital purchases- A limited company can write off the value of most plant & machinery, office equipment and computers against profit, reducing its tax liability.

VAT

• If your business has minimal expenses, consider using one of the flat rate schemes to charge less VAT on your sales.
• Save all evidence of VAT paid on purchases and keep accurate records. Make sure you claim back all the VAT you have paid!
• Voluntary VAT registration- The threshold for compulsory registration is £90k sales per annum. It may make sense to register before you get to this point if you deal with customers who are typically VAT registered (e.g. B2B), enabling you to recover VAT you incur. This needs careful consideration before deciding!

Capital Gains Tax

• Every individual has an annual capital gains tax-free allowance of £3k. Time the disposal of assets (e.g. over two years instead of one) to benefit from more than one annual allowance on a gain.
• It is possible to gift part or all of an asset to a spouse / civil partner prior to disposal, so utilising two lots of annual tax-free allowances and saving capital gains tax.
• Try to postpone dividends or bonus payments in a year when you are also disposing of assets to reduce your capital gains liability. The rate of capital gains tax is dependent on income level and is higher if you are a higher rate income taxpayer.

Electric cars – So topical it gets its own section!

• The company benefits – If it buys a brand-new EV it can claim the full purchase price against taxable profit in the year of purchase, reducing its corporation tax bill. Older EVs can also be offset against profit, just more slowly.
• You benefit – The benefit in kind charge on an EV run as a company car is far less than for petrol or diesel cars.
• The environment benefits – Well hopefully this one is obvious by now…

You can change your mind at any time by clicking the unsubscribe link in the footer of any email you receive from us, or by contacting us at hello@northerntonic.co.uk 

We treat your information with care and respect. For more information about our privacy practices, please read our policy.