10 ways save tax on your Self Assessment Tax Return 2

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It’s Self Assessment season, most people who are required to do self assessment will submit their returns in December and January.

You must always send a tax return if you’re:

  • a self-employed sole trader
  • a partner in a business partnership
  • a company director (unless it’s for a non-profit organisation, eg a charity, and you don’t get any pay or benefits, like travel expenses or a company car)
  1. Don’t miss the deadline of 31st January or you will get penalties and interest
  2. If you are new to Self Assessment makesure you get your HMRC log in details early and know your NI and UTR numbers otherwise you won’t be able to file online which could lead to penalties
  3. Claim all your expenses for example a self employed worker will claim for travel , protective clothing (PPE), home office expenses
  4. Don’t forget Pension Contributions if the tax hasn’t been claimed by your pension provider or you are a higher rate tax payer
  5. Don’t forget Donations to Charity if you are a higher rate tax payer
  6. Have you included out of pocket expenses for example parking
  7. If you are employee could you claim a tax allowance for clothing?
  8. Does your company pay mileage below the HMRC rates, you could claim a tax allowance on the difference
  9. Check you have all your motoring expenses included
  10. Makesure you have claimed all your costs on Buy to Let

steve@bicknells.net

10 tax allowances we fail to claim Reply

Tax Money

In 2012 Unbiased.co.uk reported that £12.6 billion was unclaimed by UK tax payers, here is a list with some ideas:

  1. Income Related Tax Credits – Check and find out what you are entitled to – UK Benefits https://www.gov.uk/benefits-adviser
  2. Tax Relief on Pension Contributions – There are estimated to be over 4 million people not paying into a pension, auto enrolment should help to change that, this blogs explains the tax advantages https://stevejbicknell.com/2012/05/02/why-invest-in-a-pension-because-of-tax-relief/
  3. Tax Relief on Charity Donations – Are you using Gift Aid? are you a higher rate tax payer entitled to additional relief?
  4. Saving on Inheritance Tax – Many people don’t have a Will let alone any IHT planning!
  5. Making Use of ISA’s – Why get taxed on the interest on your savings if you could have an ISA? Its easy to get an ISA and you can still have access to your ISA savings if you need it, the current ISA allowance is £11,520 or £5,760 for cash ISA’s
  6. Child Benefit – Use the benefits adviser to check if you can claim – UK Benefits https://www.gov.uk/benefits-adviser
  7. Avoiding tax penalties and late filing – This just requires you to be organised, make sure you know the filing dates http://www.hmrc.gov.uk/sa/deadlines-penalties.htm and get the information needed in plenty of time
  8. Savings on Capital Gains – The current allowance for 2013/14 is £10,900 (previously £10,600) for an individual many people seem to forget they have this allowance
  9. Making Use of Employee Share Schemes – The government love employees to have shares and this year introduced a new share ownership option https://stevejbicknell.com/2013/08/03/employee-shareholders-will-your-employees-want-shares/
  10. Income Tax and Personal Allowances – Consider who should own assets (and get income from those investments)  – you or your spouse – so that you can minimise your tax liability

Steve@bicknells.net

 

10 ways to pay less tax Reply

Money makes rich man very happy

You are entitled to plan your tax affairs in a way that makes sure you do not pay more tax than you have to. There are many legitimate ways in which you can save tax, or example by saving in a tax-free ISA (Individual Savings Account), making donations to charity through Gift Aid, claiming capital allowances on assets used in your business or paying into a pension scheme.

Here are 10 ways to pay less tax:

  1. Choose the right business structure for your business – most businesses start out as sole traders but once they start making profits convert to limited companies, this is because sole traders pay income tax starting at 20% and national insurance class 2, £2.70 per week and class 4, 9% on profits between £7,755 and £41,450, whereas, in a company a you could pay the tax and NI  free salary of £7,748 and then pay dividends from profits after corporation tax of 20%
  2. Employ your family – Children can legally work from the age of 13 which means they can perform activities which are relevant and justifiable in your business. Each member of your family has a tax free allowance of £9,440 (2013/14).
  3. Avoid earning more than £100,000 – Once you earn over £100,000 you start to lose your personal allowance, when earnings are above £118,880 all of your allowance of £9,440 will have been lost
  4. Pay into your Pension – Currently you can pay £50,000 per year into to your pension
  5. Pay Dividends – Generally directors will take a low directors fee and the rest of their income in Dividends
  6. Claim Expenses – You may well have an office at home and use your car for business
  7. Use Company Assets – Sometime the Benefit in Kind Tax works in your favour, so you could get the business to buy the assets for you to use for example a commercial vehicle or computer equipment
  8. Buy Assets – You should be able to buy assets with a loan or on credit but you will get the tax relief as soon as you take ownership
  9. Check for Building Assets – do have integral building assets
  10. R&D – Could you claim R&D tax credits

steve@bicknells.net

Why you should maximise borrowings on your Buy to Let 2

Investment House Meaning Investing In Real Estate

If you own a Buy to Let property as an individual rather than in a limited company it is worth maximising your borrowings against the Buy to Let because the interest will be a tax deductible expense.

It doesn’t matter how you borrow:

  • Mortgage on the Buy to Let
  • Personal Loan
  • Overdraft
  • Re-mortgage of your main residence to invest in your Buy to Let

The rules allowing this are covered in http://www.hmrc.gov.uk/manuals/bimmanual/bim45700.htm

So, for example, if you had a Buy to Let property with low borrowings against it and a mortgage on your main private residence, you could increase your borrowings on the Buy to Let and pay off your private residence mortgage.

But you need to be aware that the maximum you can borrow on the Buy to Let is the market value when it was first let.

Here is an example from Tax Cafe – How to save property tax

Property investors are often unsure whether their interest is deductible. This depends on how the money is used. Use it to buy investment property and the interest is tax deductible. Use it for personal reasons and the interest is not deductible.

There is an exception to this rule: you can generally remortgage an investment property up to its original purchase price and the interest will be tax deductible, whatever you use the money for. For example, let’s say you bought a buy-to-let for £100,000 and the current mortgage is £60,000. You can borrow up to another £40,000 (if the bank will let you!) and all the interest will be tax deductible, no matter how you use it.

 

You will need to keep detailed records of the borrowing and interest for your tax returns.

Alternatively you might focus on paying off your main residence mortgage first to leave the borrowings high on the Buy to Let.

steve@bicknells.net

Ways to Save National Insurance Reply

I have always thought that National Insurance (NI) is a strange tax compared to PAYE because:

  1. For normal employees it isn’t cumulative its based on their earnings in a month or week (although Driectors can opt for Cumulative)
  2. It only applies between the ages of 16 and retirement
  3. Its applied at different rates to the Self Employed and there are 4 classes of NI

But the thing that seems totally bizarre to me is that for each job you have you get new NI limits, so if you had a variety of part time jobs you might not pay any National Insurance because your earnings were below the threshold in them all.

This also applys if you are Director, you get a new cumulative limit with each employer.

The current main Class 1 rates are 12% for employees and 13.8% for employers

http://www.hmrc.gov.uk/rates/nic.htm

If you’re employed you pay Class 1 National Insurance contributions. The rates are:

  • if you earn more than £146 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £146 and £817
  • if you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817

http://www.direct.gov.uk/en/moneytaxandbenefits/taxes/beginnersguidetotax/nationalinsurance/introductiontonationalinsurance/dg_190048

Apart from having multiple jobs or changing jobs here are a few ways that you can save NI:

  1. Salary Sacrifice https://stevejbicknell.com/2011/10/22/salary-sacrifice-could-save-45-8-in-tax-and-ni-how-does-it-work/
  2. Special NI Holiday Schemes https://stevejbicknell.com/2011/10/15/holiday-pay-without-any-national-insurance-to-pay/
  3. Regional Employer NI Holiday – save up to £50,000 https://stevejbicknell.com/2011/10/08/reduce-your-ni-bill-by-50000/
  4. Benefits in Kind – for example Gym membership or Assets placed at the employees disposal – Tax and Class 1A NI is payable but the employee doesn’t pay NI – basically any of th brown boxes on the P11D https://stevejbicknell.com/2011/11/07/tax-free-fitness/https://stevejbicknell.com/2012/04/14/directors-loan-vs-private-use-of-company-assets/

steve@bicknells.net

Tax Advantages of a Classic Car 7

A classic car is one where:

  • the age of the car at the end of the year of assessment is 15 years or more and
  • the market value of the car for the year is £15,000

I found a 1968 Jaguar MkII for sale for £15,000 on

http://www.classiccarsforsale.co.uk/classic-car-page/165880/1968-jaguar-mkii/

The Mark 2 gained a reputation as a capable car among criminals and law enforcement alike; the 3.8 Litre model being particularly fast with its 220 bhp (164 kW) engine driving the car from 0-60 mph (97 km/h) in 8.5 seconds and to a top speed of 125 mph (201 km/h) with enough room for five adults. Popular as getaway cars, they were also employed by the Police to patrol British motorways.

The Mark 2 is also well known as the car driven by fictional TV detective Inspector Morse played by John Thaw

http://en.wikipedia.org/wiki/Jaguar_Mark_2

Assuming the list price was £2,000 (I can’t find the actual list price), the taxable benefit in kind would be £2,000 x 35% (maximum)x 40% (higher rate tax) = £280

As long as the Market Value is below £15,000 these rules apply above £15,000 the market value is used for the calculation, you can pay for your private fuel to avoid the tax on that.

steve@bicknells.net

Tax Year End is coming – are you ready? Reply

Not long to go now, the 5th April 2012 will be here before you know it.

So what should you do to makesure you save as much tax as possible?

Here are my top tips:

Companies & Businesses

From April 2012 the rates of capital allowances will be reduced from (a) 20% to 18% and from on the Main Rate Pool (b) 10% to 8% for  ‘special rate’ expenditure respectively. At the same time the maximum amount of the Annual Investment Allowances (AIA) will be reduced to £25,000 a year (currently £100,000). So you might want to consider buying assets prior to April 2012 to take advantage of the current rates.

Individuals – use your tax allowances

ISA’s – the current limit is £10,680 of which £5,340 can be in a cash ISA

Pensions – tax relief on pension contributions upto £50,000

Tax Check – check to see if you have paid too much tax and claim a refund if you have https://stevejbicknell.wordpress.com/2012/01/21/is-your-tax-code-right/

Tax rates and Thresholds for 2012/13

HM Treasury have summaries these for you http://cdn.hm-treasury.gov.uk/as2011_rates_and_thresholds_201213.pdf

Do you have any ideas to share?

steve@bicknells.net

The tax advantages of cycling to work 6

It might be cold now, but spring is just around the corner and cycling could be just the thing help you keep fit, save money and be kind to the environment.

HMRC like cyclists too, so what do you need to do to qualify for tax savings.

First you will need to get your employer to participate in the scheme, they can do this either by setting up their own scheme or by using www.cyclescheme.co.uk or http://www.bike2workscheme.co.uk/  there are lots of other similar sites too.

The basic rules are:

You must use the bike and/or safety equipment mainly (more than 50 per cent of the time) for ‘qualifying’ journeys. This means a journey or part of a journey:

  • between your home and workplace
  • between one workplace and another
  • to and from the train station to get to work

Taking part in the scheme means that you don’t have to pay a lump sum up front to buy a bike and/or safety equipment. Instead, you could loan the bike and/or equipment from your employer, usually up to the value of £1000.

Making loan repayments

Your employer may want to recover all or part of the cost of loaning you the bike and/or safety equipment. If so, you would then make loan payments back to your employer over an agreed period (typically 12 to 18 months) to spread the cost.

The loan payments are usually taken out of your salary through a ‘salary sacrifice’ arrangement. This means you agree to accept a lower amount of salary in return for a benefit – the loan of a cycle and/or safety equipment.

http://www.direct.gov.uk/en/TravelAndTransport/Cycling/DG_190101

Example of savings using Salary Sacrifice

Cost of bicycle:                                                                   £500

Cost of accessories                                                           £100

Total cost                                                                             £600

Income Tax 20%                                                               £120

Employee National Insurance     12%                       £72

Total Employee Saving                                                   £192

Your employer will save Employers National Insurance of 13.8%   on the salary sacrificed

The Employee can buy the Cycle from the company for a price set using the HMRC valuation table below

Age of cycle Acceptable disposal value percentage
  Original price of the cycle less than £500 Original price £500+
1 year 18% 25%
18 months 16% 21%
2 years 13% 17%
3 years 8% 12%
4 years 3% 7%
5 years Negligible 2%
6 years & over Negligible Negligible

 

In addition you can claim an HMRC mileage allowance for Cycling of 20p per mile and if you employer doesn’t pay the allowance you can claim back the tax on the allowance using form P87 http://www.hmrc.gov.uk/forms/p87.pdf

If you have ‘Cycle to Work’ days your employer can provide free meals and refreshments for cyclists. http://www.hmrc.gov.uk/manuals/eimanual/eim21668.htm

So as the saying goes ‘get on your bike’

steve@bicknells.net

 

Self Employed Tax Allowances 3

Basically when you are self employed you spend money on 3 types of expense:

1. Capital Expenditure – Equipment & Vehicles

2. Business Expenditure – stock, wages, premises

3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses

In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.

For example, you could claim capital allowances on your car,

Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2011 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:

Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 10 per cent) = £2,000
Value to carry forward = £18,000
Capital allowance you can claim = £2,000

If you use your car partly for private and partly for business you simply disallow a % for private use.

On other assets there is an Annual Investment Allowance which is currently £100,000 per year but will drop to £25000 in April 2012.

For most business that will cover all their capital expenditure, but there are further allowances available too.

With regard to private expenditure, there are tax reliefs available for working from home

http://www.hmrc.gov.uk/incometax/relief-household.htm

If you have to spend money on tools or specialist clothing for your job you may be entitled to either:

  • tax relief for the actual amounts you spend
  • a ‘flat rate deduction’

http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm

steve@bicknells.net

How to claim tax relief for employment expenses 4

As an employee you can claim tax relief for expenses incurred in doing your job, for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related

If your claim is less than £2500 you can make your claim using Form P87 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.

steve@bicknells.net

 

Telephone

Self Assessment

Help and advice for customers completing their tax return and supplementary pages, or who need general advice about Self Assessment
Please have your Unique Taxpayer Reference number with you when you phone
Opening hours
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0845 900 0444