Family remuneration planning and tax reliefs
If your partner earns less than the personal allowance of £11,500 per year and helps out in your business you can pay them a wage to reduce your taxable profits. A wage of between £113 and £157 per week will not create a national insurance charge, but it will help your partner gain credits toward the state pension and other state benefits.
It is also possible to pay any of your children who are aged at least 13 a wage to reduce your taxable profits if they also work in the business. This can be a purely administrative role but just be careful with the number of hours they can work!
On the theme of children, if you have a child under 16 or still in full-time education, have you made a provisional claim for the Child Tax Credit? If your taxable income suddenly drops due to losses or other tax deductions, you can amend your existing claim to receive the tax credit from the start of the tax year. If you waited to make a fresh claim, it would only be backdated for three months.
Have you claimed child benefit for your younger children? As you may know if you are a higher rate tax-payer, the amount will be restricted for those with earnings between £50,000 and £60,000 and nil if you earn over £60,000. However, if your child is under 12 a nil child benefit claim may still be worth claiming, especially if one parent isn’t working or is on a low income. This way they can still collect national insurance stamps towards their state pension.
If you are a sole trader paying 40% tax and your spouse helps out in the business but is a lower rate taxpayer, have you considered making them a partner in your business to allocate some profits to them at a lower rate of tax? If on the other hand you’re operating as a limited company, one option is to gift them some shares to pass dividend income to them. Each tax payer has the first £5,000 of dividend income tax-free at the moment.
Company tax planning
Have you considered whether cars used in the business are better owned personally by you or by the business? If you own the car personally you will not be taxed on a benefit in kind and can claim mileage allowance for the business journeys at the approved rate of 45p or 25p per mile. Which is best for you will depend on your car and various other factors.
Another tax saving tip is to make sure you buy assets such as equipment, computers, motor vehicles, etc at the right time to maximise the tax relief. If you purchase equipment just before your year end, you will bring forward the tax relief for capital allowances, which will normally be due at 100% of the cost for the first year.
Do you work from home? Make sure you are claiming for use of home. You can claim a proportion of items such as mortgage interest as well as gas, electricity, water rates etc. Alternatively, keep it simple and claim HMRC’s approved flat rate.
When buying your next buy-to-let property in joint names, you may want to carefully consider the legal and beneficial ownership of the property, which can be in two different proportions. The rental income can be divided between you according to the beneficial proportion of the property you each own, e.g. 20% : 80%, giving the lower earning partner a bigger share, so the rents may be taxed at the lower income tax rates. You have to submit a form to HMRC to override the standard rules but it can pay off in a big way. Also, if you own business property, have you looked at whether it is better to hold it personally or in the company?
Contributing to a registered pension scheme? You automatically get basic rate tax relief on your contributions. If you are a 40% taxpayer you can also claim an additional 20% tax relief through your tax return. This means when you contribute £4,000 (net of 20% tax) to the pension scheme, you will get a further tax reduction of £1,000, and the pension scheme will receive a total of £5,000. This is especially important to check now that auto-enrolment is in full swing.
If you give to charity and have made a gift aid declaration so that the charity can reclaim the basic rate tax relief on the gift, you can still also claim the higher rate tax relief in the same way as your pension contribution. On that note, please make sure that you have told us about any charitable donations.
And finally, if your personal income has fallen this year, do please make sure that you tell us. We can then reduce your payments on account due on 31 January 2018 and 31 July 2018, rather than leaving it until your 17/18 tax return is completed and claiming the tax back. We’d rather the money be in your pocket than HMRC’s!