In this blog I’m going to throw out a few simple tax saving ideas to implement for the new tax year. By the end you will have some ideas to ensure you keep more of what you earn and give our (waste of space) politicians less.
Remember that tax rules change, and whether a course of action is appropriate depends on your personal circumstances. What works for one person may not for another, so take proper advice before doing any of this stuff.
You are probably aware of lesson 1.0 in director tax planning – the optimum salary/dividend split.
Ignoring pension requirements, for most people the optimum salary from 6 April will be a maximum of £8,632 per year.
That avoids Employers’ NICs but preserves entitlement to state benefits.
The balance of income is typically dividends (no NICs of any sort).
Employers NIC allowance of £3,000 is available to companies with more than one employee. If you are the only employee, think about adding one. Spouse or family member perhaps?
If your company needs some funding, and you lend it the money, you can charge interest on that loan.
The company gets tax relief on the interest paid to you and you may benefit from up to £6,000 of interest income being tax-free.
It will usually be cheaper for a director to borrow personally than for the company to do so.
A director is entitled to charge a commercial unsecured rate to the company in order to cover his own interest charges and to reflect risk.
I’ve written on this before here.
Entering into a simple licence agreement with your company to rent office space at home is a great way of getting tax relief for household expenditure.
Are you making full use of your spouse’s or civil partner’s personal tax allowance and basic rate tax band?
Company shares can be gifted to spouses and civil partners at no tax cost.
Dividends can then be voted in a tax optimal way.
Creating different classes of shares can also be extremely useful in dividend tax planning.
I won’t bore you with the maths, but it is cheaper for your own company to pay into your pension for you, rather than you paying it yourself from your net income.
The annual contribution allowance is £40,000 but you can bring forward unused allowance for up to three years.
The same contribution rules apply to you and your company, but company contributions aren’t limited by your (mainly) salary level as personal contributions are.
That will do for now. The UK’s tax legislation runs to over 17,000 pages so the above isn’t exactly comprehensive. But with complexity comes opportunity so it always pays to review your situation to make sure you are taking advantage where appropriate.
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Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.