With the self-assessment tax deadline looming, tax adviser and business strategist Faye Watts, of Fuse Accountants, offers 10 tips help you see tax in a whole new light.
- Don’t be afraid of paying more tax
Rather than play small and worry about earning more in your business or moving up a pay grade and the tax implications that brings, look at paying more tax as one of the indicators of being successful. Sure, it’s a responsibility and no one likes it, but the alternative, letting a fear of paying tax hold you back and failing to really go for it, is hardly desirable, and yet many people do it.
- Aim to make the most of your pension relief
Even on the lowest tax grade the government tops it up by an extra 20%, and of course even more on higher levels. You would be crazy not to take advantage of this, and add to your retirement pot.
- Help charities
At the higher tax rates you can also get tax relief on donations under Gift Aid. Charities will also get more, so always tick the Gift Aid box, even if you are only paying the lowest level of tax.
- Think ahead
Consider the tax implications when you plan your will. Financial gifts are potentially free from tax if the giver does not die within seven years of the gift. This isn’t easy. It may involve a potentially awkward conversation with your own parents, or facing up to your own mortality and looking to your own estate and what will happen when you pass on. You will need to consult your tax advisor, solicitor or will writer who can give you up to date advice on subjects like tax thresholds and share the information you need to take control and make decisions that can have potentially massive financial impact even after you are gone.
- Claim all your allowances
If you’re in business make sure that you are making the most of your business expenses and putting them against your income for tax relief. Some employed people even start a business on the side just for this reason, although HMRC will want to know that you’re a genuine trading entity. An accountant will tell you what you’re able to claim for your profession or business and this could potentially include phone bills, subscriptions, use of home, or the dry cleaning of mandatory uniform.
- Max out your ISAs
ISA s are a wonderfully tax efficient way of saving so it makes sense to pay into an ISA. Don’t think you have to stick with the same ISA each year, you can shop around for good deals each year and even move money from older, weak performing ISAs in to your new ISA, or even a high interest paying savings account (dependent on your tax rate).
- Rent out a room
From April 2016 you will be able to receive up to £7,500 tax free from renting out a room in your home to a lodger; at the moment the relief is £4,250. Don’t think that this has to mean taking on a full time lodger. Many people rent out to lodgers who work in the area in the week and head back home to their family at weekends, or list their room on https://www.airbnb.co.uk/. Another alternative is to take in foreign language students. You may have to provide them with breakfast and potentially an evening meal, but the language companies pay well and you know there is a defined end to their stay.
- Double check your PAYE code
Don’t assume your employer always has it correct. I have come across people who have been taxed under the wrong PAYE code for years without knowing it. Occasionally they have been due a reimbursement, yes, but sometimes they can end up owning HMRC money. It is a good idea to double check your code with HMRC yourself and make sure you’re paying exactly what you need to: no more and no less.
- Make the most of your spouse
If one of you earns significantly less than the other, transferring income generating assets between the two of you can be tax efficient. So, if one of you is paying tax at the higher rate, moving their savings into the spouse’s account, where savings are taxed at the lower rate, will save you money.
- Make life decisions with tax implications in mind
Consider everything, from starting up a network marketing business on the side to buying a second home in France, from a tax perspective. If you’re not clear what that is, get professional help, and make it your job to stay up to date on tax changes by reading the financial pages of the broadsheets or reading a website like this. Tax can catch you out, but burying your head in the sand and pretending it’s not there is not the answer.
