10 Tips To Save Tax
We all like to save tax and there are many simple ways to do so whether you are a higher rate tax payer or not. Here are 10 of our current favourites:
#1 Choose a Low CO2 Emission Company Car
The carbon dioxide emission level of a company car determines the amount of tax you will have to pay – the car benefit charge. This car benefit charge is calculated by multiplying the cost of the car by a certain percentage, which is based on the CO2 emissions. This percentage can vary by as much as 30% from the lowest emission level (up to 75g/km) to the highest (215g/km) so can represent a significant saving. Detailed information is available from the HMRC website – find the link for company car tax information here.
#2 Get a Company Mobile Phone
Mobile phones (including smartphones) are a tax-free benefit if the phone is provided by your employer and the contract is between your employer and the phone company. So if you use your own phone for work but your employer pays the bill you are losing out because you will have to declare this on your P11D and will be taxed as having received a benefit.
#3 Claiming Expenses
If you do not complete a Tax Return each year you may be missing out on the opportunity to claim tax relief for expenses that you have incurred related to your job, for example, for subscriptions to approved professional organisations. You will have to complete form P87 and you must make any claims within 4 years of the end of the tax year in which they occurred. As with many forms the P87 can be downloaded from the HMRC website – you can find the link to information about how to claim allowances and reliefs here.
#4 Save Tax with a Limited Company
If you are self-employed you might not think there is much tax to be saved by becoming a limited company as the corporation tax rate is the same as the basic income tax rate. However, paying yourself dividends will save you the cost of National Insurance contributions because NI does not have to be paid on dividends.
#5 Capital Losses
Have you invested in a property or business that has gone down in value? If so then the losses you have incurred can be offset against any capital gains from other sources or carried forward until you make any capital gains. However, any losses must be declared on your Tax Return within four years to take advantage of this.
#6 Rental Losses
If you rent out property but do not make a profit after allowable expenses then don’t neglect to report the losses to HMRC. If you don’t, then you could miss out on setting the losses against possible future profits from the property and end up paying more tax than you are actually liable for.
#7 Company Cars
Choose a new company car wisely and you could write off the full purchase price against profits in the first year. Low emission cars with CO2 emissions of 95g/km or less bought on or before 31st March 2015 will allow you to claim 100% deduction against profits, which offers a tax saving compared to using the writing down allowances. In addition, low emission cars attract a lower rate of benefit-in-kind tax (see Tip #1).
#8 Capital Expenditure
If your business is considering investing in new equipment that qualifies for capital allowances then choose the date on which any purchases are made carefully as it can affect when you receive the tax relief. Buying assets near the end of the businesses accounting year means relief can be claimed almost immediately whereas buying near the beginning of the accounting period means the relief cannot be claimed for almost a year.
#9 VAT Cash Accounting Scheme
Businesses with a turnover of less than £1.35m (excl VAT) can choose to pay VAT only on cash paid or received by joining this scheme. This means that they are not required to pay VAT on invoices until they have actually been paid. This can have a huge benefit if customer invoices are often late being paid as the company will not have to pay the VAT bill until they themselves have been paid.
#10 Private Lettings Relief
If you let out a house or apartment that used to be your main home (Principal Private Residence – PPR) then you are entitled to tax relief on as much as £40,000 of the gain when you sell the property. If you own it jointly with someone else then the relief amount is doubled. Don’t forget to include this relief when you calculate the chargeable gain when you come to sell.