Press Room
Grant Thornton's top tax tips to help you through this credit
crunch
If you are writing on how individuals can reduce their
tax bills during this economic downturn, please consider these
comments from Francesca Lagerberg, Head of National Tax at Grant
Thornton.
Top tax tips for individuals
- Use all your allowances - Each member of the
family, even a minor, is treated as a separate taxpayer and has his
or her own personal allowances and exemptions. Spreading assets and
income around the family can therefore reduce the overall tax bill.
However, there are pitfalls to avoid. For example, if parents give
capital that generates income of more than £100 a year – excluding
income from child trust funds and National Savings Children’s Bonus
Bonds – to children under 18, the parents are then taxed on that
income until the child either becomes 18 or marries before reaching
that age.
You may be concerned that the transfer of assets could give rise to
tax bills. However, those who are married or in a registered civil
partnership can transfer assets between themselves without any tax
applying. This could lead to capital gains tax savings, where, for
example, one spouse transfers part of a share portfolio to the
other, enabling both of them to utilise their capital gains tax
annual exemptions on a sale.
Changes are expected to the tax rules that apply when couples and
others allocate income between each other (eg the settlements
legislation and the proposed income shifting rules). Transfers of
assets in order to utilise capital losses could potentially be
caught by targeted anti-avoidance rules.
- Check your PAYE code so you are not paying the wrong amount of
tax - If the coding notice is wrong, too much tax could be being
deducted and this will not be picked up by your employer.
Furthermore, the tax authority will assume that you have checked
your code and that you are happy for the tax to be collected.
- Maximise your contributions to Individual Savings
Accounts (ISAs) - An ISA is a tax-efficient investment for
savings. The maximum permitted contribution this year is £7,200. If
ISAs form a key element of your savings and tax mitigation
strategy, and since unused contribution allowances cannot be
carried forward, it is important to utilise your full allowance
before the end of the tax year.
- National Savings Certificates - This type of investment also
offers tax-free saving. You can invest up to £15,000 in each issue
without it affecting any other tax-free investments you have and,
with interest rates fixed for the length of your chosen term, you
will know how much interest you will earn each year.
- Do not leave it until the last minute - File early to claim tax
repayments. You don't have to wait until the tax return filing
deadline to claim a repayment of tax if you are due one. You may be
due a repayment if, for example, you have made pension
contributions or gift aid payments on which you wish to claim
higher rate tax relief or if you are due any other reliefs that you
are making a claim for through your tax return.
- Salary sacrifice opportunities - Look at salary sacrifice
opportunities available through your employer. For example, if you
have children and your employer offers childcare vouchers in
exchange for legally reducing your salary then £2,916 of your old
salary can be received as childcare vouchers that are free from
income tax and National Insurance.
NB Be aware that HMRC is looking very closely at certain salary
sacrifice schemes which it considers are less 'acceptable' eg those
involving retail items, food and utility costs.
- Rent-a-room relief - If you rent out furnished accommodation in
your only or main residence, rental income of up to £4,250 per
annum may be left out of account when calculating taxable income.
Taking in a lodger could help out both parties - the homeowner in
meeting their mortgage repayments and for the lodger it may
represent cheaper accommodation if rents are set to rise as
predicted.
- Using your own car for business - An employer can reimburse up
to 40p per mile tax free for the first 10,000 miles travelled. The
rate then drops to 25p per mile for income tax (but remains at 40p
per mile for National Insurance). These are the maximum amounts
that can be reimbursed by employers. If your employer pays less, it
is a little known fact that you can claim tax relief for the
difference.
- Choosing your company car - as the tax charge is based on both
the list price of the car and its emissions, both are worth taking
into account when considering your choice of company car.
Qualifying low emissions cars (QUALECs) create a taxable benefit of
only 10 per cent of the list price of the car.
- Pension contributions - even though you may be more worried
about your income now, don't forget about saving for the future.
Pensions are extremely tax efficient too. Not only are
contributions to a pension fund fully allowable for income tax but
the assets in the fund can grow tax free. Even better, if you can
persuade your employer to make contributions to your pension, not
only is that contribution in effect tax-free salary but both you
and your employer will avoid paying National Insurance on that
amount.
- Inheritance tax shelters - you may be less inclined to make
lifetime gifts at the moment, but you should not forget sensible
tips for ensuring that assets do not form part of your estate for
inheritance tax purposes. For example, life assurance policies
should be written in trust so that they do not form part of your
estate on death and worsen the inheritance tax position. If the
proceeds go directly to the beneficiaries, there is no tax to pay,
but if they fall into the estate they could be charged to
inheritance tax.
- Separate your personal wealth from your business - If you are
not planning to invest cash back into your company, then consider
paying it out to the shareholders by way of dividend.
- Investing in your business - if you reinvest the profits of
your business, ensure that you do so in a tax efficient manner.
Some capital expenditure can benefit from immediate tax relief for
100% of the cost including the annual investment allowance for the
first £50,000 of qualifying expenditure. Loss-making companies may
claim a credit against their PAYE and NIC costs instead of an
immediate write off for investment in energy-efficient or
water-saving plant. A business can claim 100% allowances for a
surprising range of new cars if the car is electrically propelled
or has a carbon dioxide (CO2) emissions rating not exceeding
110g/km. Where capital allowances are due on expenditure, there is
a cash flow advantage if the expenditure is incurred near the end
of the accounting period.
- Pay your tax on time - Delaying payment will cost more in the
long run as interest penalties and surcharges will be levied.
However, if you will have trouble paying your tax bill, speak to HM
Revenue and Customs as you may be able to negotiate paying on an
instalment basis.