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Effective tax planning is essential if you are to minimise your tax bills. Simple tax planning can significantly reduce your tax liabilities.
The self-assessment tax return is an unavoidable burden if you are liable for self-employed tax or have complicated income tax affairs.
Corporation tax is charged on a company's profits. If you trade as a limited company, ensure that paying this tax is as painless as possible.
National Insurance Contributions (NICs) are payable whether you are self-employed or employed by your own company, although different rates apply.
As well as your legal obligations, you’ll want to ensure that payroll is painless and that you use any opportunities to improve your tax-efficiency.
Effective VAT planning aims to ensure that VAT is relatively painless, and that you are reclaiming as much as possible of the VAT you pay.
Capital gains are made when you sell something for more money than you paid for it. As a result, you can be subject to tax. Take professional advice.
Business property taxes apply to businesses with commercial premises.There are two commercial property taxes: business rates and stamp duty land tax.
If you have tax problems or face a tax investigation, it pays to seek professional advice and you must act rather than just hoping for the best.
Income tax allowances can be set against your taxable income, reducing your income tax liability. Your income tax allowances include allowable expenses which you can set against your taxable profits as well as the personal income tax allowance.
If you are self-employed, allowable expenses can be set against your business income to reduce your taxable profits.
Allowable expenses include most business expenditure. The costs of supplies, employees' wages, renting premises, financing costs and so on are all normally allowable expenses. There are a few specific exclusions - such as entertainment expenses. There are also special rules in a few cases, such as motoring expenses which can be claimed as allowable expenses in the normal way or using fixed mileage rates.
Expenditure which is for both business and private purposes is not an allowable expense. However, you can claim an allowable expense if you can identify what proportion of the expense is for business purposes - for example, working out what share of your home telephone bill relates to business use.
Capital expenditure on buying or improving assets such as equipment and premises is not an allowable expense either. Instead, you may be able to claim capital allowances - typically for the cost of plant and machinery. In some cases these allow you to set the entire cost against your taxable profits in the year of purchase. Purchases of cars and higher levels of capital expenditure may need to be gradually set against tax by claiming a writing-down allowance each year.
The key income tax allowance is the tax-free personal allowance. This means that no tax is charged on the first £11,500 (2017/18) of your total income. You may be able to claim additional allowances if you are blind, born between 6 April 1938 and 5 April 1948, born before 6 April 1938, or are married or in a civil partnership and at least one of you was born before 6 April 1935. See the HMRC table of personal allowances and rates.
Since 6 April 2016, the first £5,000 of dividend income is tax-free (no matter what other non-dividend income the recipient has). Under the Dividend Tax Allowance, any dividend income over £5,000 will be taxed at either 7.5% (for basic rate tax payers), 32.5% (higher rate tax band) or 38.1% (additional rate band). Although the first £5,000 of dividend income is tax free, it will still count when calculating whether you are liable to the basic or higher rates of tax on the rest of your income. From April 2018, the dividend allowance will be reduced to £2,000 per year.
Dividends from tax-exempt pension funds and from shares held in an ISA will continue to be tax free.
If you are an employee or company director, you may be able to claim allowances for certain business-related expenses that you have to pay, such as using your own car for business travel or paying membership fees for an approved organisation.
Income tax relief is provided for any pension contributions you make, up to 100% of your earned income subject to a current maximum annual allowance of £40,000. If you are paying into a personal pension scheme, basic rate income tax is reclaimed by the pension provider. Higher rate taxpayers can reclaim the additional tax through their tax return.
Tax relief is also available for any losses your business makes. Depending on the circumstances, these losses can be set against other income or gains in the current year or in previous years, or carried forward to set against future taxable profits.
A few types of business with very variable profits - such as farmers and authors - can claim averaging relief. By averaging out profits for two years, this avoids paying high levels of tax one year and lower ones in another. This can reduce the total amount of higher rate tax payable.
If you cease trading, a special overlap relief may reduce your final tax bill. You may also be entitled to post-cessation relief for additional expenses after you stop trading - for example, if some of your taxable profits turn out to be bad debts.
A few additional personal income tax reliefs may be available to you. These include rent-a-room relief if you have a lodger in your home, and tax relief on gifts to charity. From April 2017, there are two new allowances. It is now possible to earn up to £1,000 from your property without paying tax. For example, income from renting out your driveway or garage. There is also another £1,000 allowance for income earned from occasional jobs such as selling goods or providing services.
Your accountant can advise on what allowable expenses you can claim and what other income tax allowances and reliefs apply to your particular circumstances.