With summer holidays just around the corner, it’s nice to have some money saving tips to help you through the rest of the year! Holidays are made for relaxing, but that’s sometimes difficult when they can cost so much. Here are a few tax saving tips you can use to allow yourself to chill out and stop worrying about money while you’re on holiday!
1. Personal allowance
Make sure that your personal allowance is set against the most beneficial income source when completing your 2016/17 tax return. An important point to note is that HMRC’s tax return software sometimes does not do this. Now that the way dividends are taxed has changed, the most beneficial income source to set your personal allowance may not be the same as in previous years. So watch out for this! For more info on this point check out one of our previous blogs.
2. Pension contributions
Making contributions to a pension scheme saves you tax! Depending on whether you are a basic or higher rate tax payer, and what kind of pension you make contributions to, the benefit differs. Contributions made to a personal pension scheme are made net of 20% basic rate tax. This means that if you make a contribution of £100 to your pension scheme you only have to pay £80 and HMRC will pay the other £20 into the scheme. Click here for more information on tax relief on pension contributions.
3. Company car or mileage?
If you have to drive a lot for work, consider whether having a company car or claiming mileage is more tax efficient. When claiming mileage, you use your own car and you can claim 45p per mile for the first 10,000 business miles. You are then charged 25p per mile for any excess miles. For company cars, you are charged a percentage of the list price. This can be little or a lot depending on the cost of the car and the level of fuel emissions. There is quite a lot of scope for tax planning when it comes to company cars, mileage and fuel, and the amount of tax you pay depending on which you choose can vary a lot.
4. Low emissions cars
If you do decide to have a company car, a tip for saving tax is to choose a cheap car with low CO2 emissions. The way that tax is calculated for company cars is a percentage of the list price of the car. The percentage is calculated based on the CO2 emissions. The lower the emissions, the lower the percentage, therefore the less tax you pay.
5. Avoid penalties
An obvious, but important way to cut your tax bill is to make sure you complete your tax return correctly and on time to avoid any penalties! Paper tax returns are due to be submitted to HMRC by 31st of October and Digital tax returns by 31st of January. If you submit your tax return up to three months late you will automatically get a £100 fine. Additional penalties of £10 a day can be issued for a return up to 90 days late. If the return is more than 6 months late there is an additional penalty of the greater of 5% of the tax liability or £300.
6. Pay yourself right
If you are a company director, make sure you pay yourself in the most tax efficient way. Since dividend rules have changed, it is no longer as beneficial to take as many dividends from your company as in previous years. In the 2016/17 & 2017/18 tax year, you can now receive £5,000 tax free dividends. Anything above that is taxed at 7.5%,32.5% or 38.1%. This means that to save tax, it is sensible to avoid taking more dividends from your company than you need. There are no longer tax credits for dividends, so there is potential for a substantial increase in the amount of tax you will pay. It is therefore important to consider whether paying yourself in a different way may be more tax efficient
7. Find a good accountant/tax advisor
Have an accountant who can keep you up to date and alert you to new ways that you can save tax, so you never pay more than you should!
For more information and to find out how Rosslyn Associates could help you save tax, give us a call on 0131 445 1825 or email firstname.lastname@example.org! We will be happy to discuss how we can help you get the most out of your business and save you tax, so you can sit back and relax on your summer holiday!