Tax tips

General income tax   ShowHide
As you get older, make sure you claim all the additional age-related allowances. You are entitled to a higher personal allowance if you are older than 65 (and even more after reaching 75), though this is gradually withdrawn as your income increases beyond £21,800 (in 2008/09). If you or your spouse were aged 65 on 5 April 2000, you can still claim the married couple allowance (even if you were not married on that date).

Make use of your annual ISA investment allowance for tax-free saving. If you don’t use it, you lose it. You should at least consider making use of a cash ISA. These are tax-free savings accounts that often offer instant access, and usually have very good interest rates.

If you hold any other taxable savings accounts jointly with a partner, then if one of the account holders has a higher tax rate than the other, removing their name from the account will leave the interest received taxable at a lower rate.

If you are making payments into a personal pension or a retirement annuity, then consider making an additional contribution before 5 April in order to make maximum use of the tax relief available for pension payments. You could also delay or bring forward pension contributions so that they fall into those tax years in which you are paying higher rates of tax.

If you are planning on leaving the UK for a period of more than a year, then aim to leave before the end of the tax year, so that you spend a whole tax year overseas.

See if you qualify for tax credits. Couples with combined earnings of up to £66,000 may be able to claim these if they also have children. They need to be claimed each year, as they will not be given to you automatically.

Make every effort to file your self assessment tax return on time. As well as avoiding the £100 late filing penalty, early filing will enable any tax due to be collected through your PAYE coding, and will lower the risk of an Inland Revenue investigation into your affairs.

Make every effort to pay your self assessment tax on time. The 5% late payment surcharges on 28 February and 31 August each year are added automatically and can be expensive.

Employees   ShowHide
Consider whether benefit you gain from any company car is worth the extra tax it costs. With smaller cars or where the private mileage is not high, you can be better off using your own car and charging the company mileage (currently 40p per mile for the first 10,000 miles, 25p per mile thereafter).

If you decide to keep the company car, then the tax can be reduced by choosing a car with a low CO2 emissions rating.  If your private mileage is low, then you can eliminate the tax charge on fuel (a separate charge from use of the car, at a fixed rate regardless of miles travelled) by reimbursing your employer for the fuel relating to those private miles.

Review every PAYE coding notice that you receive. You want to check that you are being given credit for all entitlements such as tax credits, and that you are still actually receiving the benefits- in-kind that you are being taxed on.

If you are a basic rate taxpayer, ask your employer whether they could pay for some benefits in kind for you, instead of some of your salary.  This could save you Employees National Insurance of 11% on the value of the benefit received.  Common benefits include medical insurance, pension contributions, an interest-free loan or a company car.

If you are a member of a trade union, ask them if they have negotiated a fixed deduction with HM Revenue & Customs to cover any costs you incur in doing your job.

Capital gains tax   ShowHide
For capital gains tax purposes, time your asset disposals carefully. By spreading sales over 2 tax years instead of one, you can gain an extra year’s annual exemption. Please note that when selling a property, it is the date of exchange that is important, not the date of completion.

Transfers of assets between spouses are exempt from capital gains tax. You may be able to take advantage of 2 lots of the annual exemption.

In a tax year with no other capital gains, consider selling enough shares in a listed company to fully utilise your £9,600 annual exemption, and replace them with shares in a similar company in the same industry.  Alternatively, have your spouse buy shares in the same company at the same time as you sell them. This will have the least overall effect on your portfolio, and will reduce your exposure to capital gains tax. Immediately buying back shares in the same company no longer achieves this effect.

If you are planning on being overseas for 5 complete tax years, then schedule any sales of assets for one of those years.

VAT   ShowHide
Watch the VAT registration threshold. If your customers cannot recover the VAT you are charging them, you may be better off deliberately restricting your sales to under £67,000 in order to avoid having to register for VAT.

If your turnover is under £150,000, see whether you are better off under the Flat Rate Scheme.

If you know that your VAT return is going to be a few days’ late, then make the payment electronically. This gives you up to 7 extra calendar days to send in the VAT return and make the payment without a penalty being incurred.

If you sell mainly to other VAT registered businesses it may be advantageous to register for VAT even though your turnover is lower than the registration threshold of £67,000. This will enable you to reclaim most of the input VAT that you are charged, or make a profit from the Flat Rate Scheme.

If you account for VAT on a standard invoice basis, and you sell goods or complete a service less than 14 days before the end of your VAT quarter, and you know you will not be paid until after the end of your quarter, then postponing your invoice until the first day of the next quarter will delay you having to pay that VAT by 3 months.

If you regularly receive repayments of VAT, then consider opting for monthly VAT returns to help your cash flow.

Businesses and companies  ShowHide
Unincorporated businesses should consider incorporating into a limited company.

If your business is seasonal, then careful choice of your accounting date can effectively postpone the tax payable from your most profitable period.

If your partner is taxed at a lower rate than you, then consider paying them a small salary for the work they do. To ensure the tax relief on this, the payment should not be excessive for the work carried out, and it must actually be paid out of the business.

Schedule repairs, one-off advertising and equipment purchases for before your year end, to gain the best cash flow advantage of the tax relief.

If you operate a small payroll (fewer than 50 employees), then file your year-end PAYE return electronically. There are cash incentives available for the next 2 years.

If you can control the tax year in which your income is received, then there may be scope to move income from a tax year to one in which it will be taxed at a lower rate. For example, if you are a company director then dividends and employment bonuses could be delayed or brought forward to leave the income taxable at a lower rate.

If you are looking to buy your own business premises, and are also interested in a pension, then a Small Self Administered Pension Scheme combines both and offers very good tax savings.