Avoid tax without public shame – Albert Goodman column
Sheldon Cole, Tax Partner at South West accountancy firm, Albert Goodman, discusses the various ways tax bills can be reduced.
In 1929, Lord Clyde famously said, “The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer’s pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue.”
The distinction between tax avoidance and evasion is no longer so clear, with perceived offenders being judged publicly against the benchmark of morality.
Jimmy Carr’s tax affairs
Even the Prime Minister, David Cameron, entered the morality debate when comedian Jimmy Carr’s tax affairs became public.
However there are a number of ways to reduce tax bills, which will not offend the authorities or the public.
Invest in an ISA
Adults can invest up to £11,280 in an ISA in this financial year, of which £5,640 can be in a cash account. ISAs offer freedom from tax on interest and dividends and exemption from capital gains tax on realisation.
For those willing to take a slightly higher risk, Enterprise Investment Schemes (EIS) and Seed EIS allow, respectively, up to £1million to be invested into a company with income tax relief of up to 30 per cent, or up to £100,000 investment with up to 50 per cent income tax relief. Both schemes also benefit from capital gains tax exemptions.
Personal pension contributions up to the annual limit (currently £50,000) qualify for tax relief at up to 50 per cent. For investors with an income between £100,000 and £116,210, a pension contribution can also serve to restore the value of the personal allowance that would otherwise be lost and secure tax relief at an effective rate of 60 per cent.
Salary or bonus sacrifice
Employees (particularly of companies they own) can benefit from agreeing a salary or bonus sacrifice, and having the money paid into their pension. By doing so, both income tax and National Insurance contributions can be avoided.
Sole traders or partners in partnerships who have trading losses can set these against personal income received in the same or preceding year. Loss relief can also be claimed against capital gains tax.
As well as considering forward looking tax planning ideas, accurate tax compliance is equally important. Particularly at this time of year, as the deadline for self-assessment is looming on 31st January 2013.
Ensuring that all relevant data is gathered from banks, building societies, stockbrokers, etc., the appropriate records have been retained, all tax reliefs and credits are claimed, and returns are filed on time is critical. Not least, because there are new penalties for late filing.
If you would like assistance with tax planning or you would like assistance with completing your tax return contact Sheldon Cole, Tax Partner at Albert Goodman on email@example.com.