Tax planning is simply a case of making arrangements to pay the minimum amount of income that you are legally obliged to pay. There are numerous exemptions, exceptions and measure you can take to reduce your bill and we recommend using an accountant to ensure you take advantage of all exemptions and aren’t throwing real money at the tax man unnecessarily when dealing with your income tax.
Firstly, let us make clear the difference between tax avoidance and tax evasion. “TA” means utilising all legal avenues to minimise your tax bill and a good accountant will know all the tricks of the trade; it is their job after all.
Leave Income Tax Planning to the experts
Whether self-employed or employed there will likely be some scope to reduce your bill through proper planning. The Accountancy Network will work closely with you to understand you and your business and so be in a position to offer advice on measures that will reduce the amount you have to pay HMRC.
Why Use An Accountant for Tax Planning?
HMRC rarely collect too little tax but frequently the opposite is true. Under current self-assessment regulations, it is the tax-payer’s responsibility to check their return and claim back any overpaid amount or submit a tax return if they have underpaid.
The tax system also allows number of options to help reduce your tax bill:
- Make pension contributions
- Gift Aid contributions
- Equalising income between spouses or civil partners
- Remuneration planning
- Use of losses on certain types of investments and from self-employment
- Relief for interest paid
- Enterprise Investment Scheme investments
- Venture Capital Trusts
- SEED EIS
- Gifts of land or shares to charity
Most clients appreciate our assessment as to what is possible and sensible for them to do regarding tax planning and we can advise on possible tax minimisation strategies. It may well be that the solution lies in using some options to reduce your income tax bill and perhaps secure a lower tax rate.
Unless you are very confident that you have assessed all suitable tax planning options and are not paying more tax than is required, or more than you should due to inaccurate assumptions made by HMRC, we recommend you carry out an appraisal. We can advise on tax minimisation strategies and reduce your tax bill
Almost all of our clients ask us to help prepare their tax returns as nobody want to pay more taxes than they are obliged to. With any mistakes or missed opportunities likely to hit you in the pocket, it’s no wonder this is one of our most popular services.
Unless you are extremely confident that you have conducted a thorough self-assessment of all suitable tax planning options, then we recommend calling an accounting expert for an appraisal. As the measures to reduce your tax bill are legal, you are essentially giving your money to HMRC as a direct result of failing to plan income tax properly.
- Income Tax
- Allowable Expenses
- Income Tax Allowance
- Income Tax Relief
Income tax is a type of tax that is available now. You need to learn about this type of tax before you can start calculating the right amount of tax that you need to pay. This income tax is a type of tax that can be applied to any types of income, such as earnings from employment, company car, earnings from self employment process, pension income, occupational pensions, personal pensions, social security benefits, interest on your savings, income from dividends or shares, rental income, and also income from trust. When your income is classified into one of those types of income, you need to pay the income tax.
However, not all types of income can be taxable. Generally speaking, you don’t have to pay tax for all of your income. When you read the regulations and also tax rules in the UK, you are entitled to have certain amount of tax free every year. This tax free income is very useful to help you reduce the tax legally. You have to know about this information, so you can save your money on this tax. You also need to know about the allowable expenses, tax allowances, and also tax reliefs.
There are some allowable expenses that can be used against your taxable profit. It is recommended for you to calculate the overall allowable expenses, especially if you want to reduce the tax significantly. If you are self employed, you are going to consider several details as allowable expenses, for example business expenditure, cost of suppliers, employees’ wages, financing costs, renting premises, and any other business costs. However, there are some exceptions for these allowable expenses, for example entertainment expenses. These expenses cannot be used to reduce profit in your own company on the income tax calculation.
Most expenses that are used for personal uses cannot be classified as allowable expenses, in order to reduce your taxable profit. Although you are able to claim allowable expenses for reducing your taxable profit, you need to learn about how you can calculate the total amount of allowable expenses for your own business. There are some other limitations that you need to know, especially when you want to learn about all available allowable expenses that are available nowadays. When you buy some additional assets for your company, you cannot include those new assets as allowable expenses in the income tax calculation procedure.
Income Tax Allowance
Income Tax Allowance
When you want to calculate the total amount of income tax for your own, you have to take a look at the current tax allowance that is available nowadays. You need to know the current tax-free personal allowance. There is no tax charged on the first $11,000 income. That is the basic rule of calculating the overall tax allowance for all individuals. You can also claim for additional allowance when you are blind and born between April 6th 1938 to April 5th 1948. Don’t forget to read the HMRC table of personal allowances, in order to check all necessary details from this income tax allowance.
There are some new rules that are added to the regulation. The first $5,000 from your own dividend income is free from tax. Any dividend income that is more than $5,000 will be taxed at about 7.5 percent, 32.5 percent, or 38.1 percent tax rate. You have to read the whole rules and regulations when you want to determine the right income tax rate for your dividend. You also need to know that there are some other additional accounts that are free from tax, for example dividend from pension funds, dividend from ISA shares, and some other important details.
Income Tax Relief
Income Tax Relief
In some cases, you also need to claim for the tax relief. This relief is provided for any types of pension contributions that you have for up to 100 percent of your earned income. You will be able to have tax relief for up to maximum $40,000 annual allowance. Tax relief is also available for any types of loses that can be found in your own business. When you cease a trading, you can also have special overlap relief that can be applied on your final tax bill. It is highly recommended for you to get good advice from your personal accountants, so they can provide the best information about this tax for supporting your needs.