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Ways to reduce tax bill for individuals businesses and people of retirement age

Abul Nurujjaman, 

This topic is going to examine ways that people can reduce their tax bill. Individuals can learn about how to personally on see a decrease in the amount of tax they pay. By reading this, people of retirement age can gain knowledge about how it aids in retirement and estate planning. Business and property owners can also pick up tips on efficient and effective ways to ensure they see a fall in their tax payments. 


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Ways To Reduce Tax As An Individual



1) Check your tax code


A lot of the time people can be paying the incorrect tax amount , for example paying £500 instead of £200. This simple error occurs when people have the wrong tax code. This can be avoided by examining the numbers and letters to ensure that the accurate code is being used. 


2) Make the most of Personal allowance 


For 2016-2017 the tax-free personal allowance is £11,000 so make sure that you are making the most of maximising your personal tax allowance. For example, if you are married or in a civil partnership it is possible to transfer income generating assets to your spouse or partner if they have little to no income. Also married couples and civil partners who own assets together can be entitled to£22,000 double allowance. Be careful of laws and regulations in regard to income shifting. All transfers have to be a gift with underlining terms or stipulations.


3) Lowering the tax rate 


Since 6 April 2016, couples that are entitled can transfer £1,100 of personal allowance from their partner with lower income earner to the highest income earner. This saves them both taxes of about £220 which shows a fall in taxes. This is only accessible if the higher income earner is a 20% taxpayer; a transfer is not possible if the earner is 40% tax payer. 


4) Donations to charity 


High Income Child Benefit Tax Charge is paid when one spouse or partner is being paid child benefit and either of the couple’s income is predicted to be £50,000 to £60,000. Donating to charity through Gift Aid can reduce a couple’s taxable income. 


5) Investing a pension scheme



Investing in a pension scheme might get individuals tax cuts on their personal pension contributions. For example taxpayers who earn £100,000 and above after adjusted net income, increasing pension contributions might allow these taxpayers to gain relief at the effective rate of 60%. However, as of April 2016 taxpayers whose adjusted net income is over £150,000, which includes pension contributions, will have their annual allowance reduced to a minimum of £10,000. 


6) Salary sacrifice arrangement 


This can be done by sacrificing a percentage of your salary or wage in order to reduce National Insurance contributions; this will be in exchange for a non-cash benefit. 


7) Children’s Personal Allowances 


Children have a personal allowance so this suggests that earnings of up to £11,000 will not be paid as part of the tax bill for that year. 


8) Tax exempt parental gifts 


Look into investing parental gifts in order to generate tax free earnings or to accrue wealth and also in shares such as JISA (Junior ISA’s).  JISA is a good way for taxpayers to avoid taxation on gifts to their children. 


9) Capital gains tax allowance 


Taxpayers have to understand first that they need to make use of capital gains tax allowance exemption every year particularly in 2016/17 year because capital gains of up to £11,000 is tax free. Married couples and civil partners might be able to transfer assets to their significant other or have both their names on the assets in order to take full advantage of the exemptions. 


10) ISA (Individual Savings AccountInvestment  


A limit of up to £15,240 can be invested in an ISA for the years 2016 to 2017, although JISA’s are for children under the age of 18 and don’t have a child trust fund account, can invest £4,080. New regulations have been developed and introduced in order to give savers the flexibility to withdraw their money and replace from their ISA without it adding to their yearly ISA subscriptions. As from 6 April 2017 adults below the age of 40 can own or invest in a new lifetime ISA. ISA holders can save £4,000 annually and receive a 25% bonus from the government for every pound they invest, until they turn 50. The savings can be used to purchase for a your first property or save for retirement. 


11) Contribute towards Pension scheme


Contributing towards your employers pension scheme will lower your net pay which leads to a reduction in an employees tax payments. 


 12) Environmental friendly


Businesses can look in to purchasing a new company car that produces lower carbon emissions. This will reduce carbon because cars or vehicles that produce lower carbon emissions are now being taxed at a lower rate of their list price. This, however, is in regard to employees that might be entitled to a company car. 




13) Buy to let landlord costs


Landlords who rent out property can reduce an array of expenditure before declaring taxable income. These include the payments for cleaners, letting agency fees, council tax, repairs and accountancy fees and other direct expenses such as phone charges.



14) Rent a room 


Landlords who adopt the rent a room scheme that allows the property owners to receive up to £7,500 (increased in 6 April 2016) in rent each year from an occupant, tax-free. This applies to rent out furnished accommodation in your own home. This scheme does not apply if the landlord has converted the property into separate flats that are rented out.


15) Declare tax deductions for (Furnished or fully equipped holiday rentals) 


Furnished Holiday Lettings (FHL) or rentals regulations allow holiday rentals of United Kingdom properties that meet certain requirements to be dealt with like trade for some certain tax reasons and purposes. Compared to domestic lettings, expenses can include items such as kitchen equipment. The income counts as earnings towards pension contributions purposes which leads to numerous other advantages.





16) Company Vehicle 


For self-employed businesses a company vehicle such as a van can allow them to claim the day to day costs of a van. However, the cost of purchasing a van for example can not be claimed. A percentage can be claimed if the vehicle is used for personal purposes.


17) Financial Losses 


Financial losses for self employed people for example in 2016/17 can be brought forward to off-set or counter balance the future profits in 2017/18.


18) Timing purchases and costs 


Tax payers should increase expenses before the end of the financial year  in order to receive relief for those costs now rather than a year later. This is an effective approach to taxation.



19) Analyse Business Structure 


A key component that affects the tax bill of a business is it s  structure. In the beginning it is recommended that businesses operate as partnership or sole trader.



20) Favourable cash flow


Self employed business owners setting up their business should pick an accounting year that ends at the beginning of the next tax year. Therefore this will increase the delay between the profits earned by the business and the final tax demand.



21) Claim VAT on Fuel 


Employers can compensate employees that use their own cars and pay for their fuel at the HMRC approved mileage rates. This can enable employers to be able to reclaim the VAT that applies to the fuel element of mileage rate.



22) HMRC account payment 


Self employed business owners who have predicted to earn less income in their current financial year can apply to HMRC to have a a decrease in the payments made to their accounts.


Older Taxpayers (Estate and retirement planning)


23) Inheritance tax 


Elderly people can take the advantage of inheritance tax allowances (including the exemptions) which would enable them to give up assets up to a total value of £3000 a year without incurring any taxes.


24) Giving to Charity


Donations made through reputable and qualifying charities can reduce the rate of inheritance tax required for taxpayers to pay on your estate. The maximum rate taxpayers can pay with IHT is 40% if estate value is in surplus of 325,000. 


25) Next generation


For older tax-payers it may be more reasonable to pass on their estate to grandchildren if their own children are grown up and are financially stable. This is because if the older taxpayers assets pass on to their children they will be contributing towards their estate, which will lead to IHT being levied upon their deaths.


26) Up to date will


The wealth acquired over a lifetime should be protected and given to the right individuals upon the death of the person, so having an up to date and well structured will can ensure that your family is protected. Wills can be designed and organised in such a way that it helps reduce taxes.


27) National Insurance 


Men aged 65 and women that are aged 63 have reached the government retirement age, so if they are still working they are entitled to stop making national insurance payments. This is a form of reducing taxes. 


28) State pension 


If you are entitled to full state pension payments you have to ensure that your NIC s are up to date and if not, you might be required to pay NIC s in order to make sure you receive full state pension. Therefore you should plan to take advantage of the state pension you receive. 


29) Bring forward used allowances 


It is possible to bring forward used allowances of the present year if the annual allowance is less than the previous three years pension savings input periods. 


30) Retirement options 


Retirees now have complete control over their pension and how they choose to make an income in their retirement years. This is due to changes in pension regulations. This new regulation means that they have more options, which means they have to be careful about the type of investment decisions they make because this can affect the rest of their life.


Disclaimer: The information provided in this blog is brought to you by Taj Accountants. As you are reading this blog of your own free will, any information taken from this blog is at your risk. Before using the information provided to apply, to your business seek professional or legal advice.Taj accountants will not be liable for any damages.

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