Top personal tax tips from Burton Sweet’s Rachel Finch

Burton Sweet logoThere is one question that I am asked on an almost daily basis – “How do I pay no tax?”.  In my experience there are only 2 ways to achieve this, earn less than £7,475 per year or move to a tax haven.  Most people are reluctant to do the first and cannot afford to do the second!

Whilst as an Accountant I cannot magic away your tax liability, below are 5 top personal tax tips to reduce your liability and spread your tax burden:

Interest Free Loan From HMRC! – If you complete and submit your Tax Return before 31st December, and you are an employee or a pensioner then you may be able to have the amount you owe collected through the PAYE scheme.  This means that:

  • your underpayment is collected in 12 smaller chunks
  • you pay nothing until April 2012
  • you do not pay interest on the outstanding money.

So you effectively get a 12 month loan interest free from the government!

Think As A Family – We are all required to pay tax on our own individual earnings and assets. However,  if one spouse or civil partner pays tax at a lower rate than the other then moving income-producing assets, such as shares, investment funds, bank and building society accounts and jointly owned property, into the name of the partner who pays the lower rate of tax could save the family tax overall.

Avoid the 60% tax rate (no that isn’t a typing error!)- While references to the 60% tax rate will not be seen in any official literature, this is nevertheless the effective top rate of income tax rate for anyone with taxable income of more than £100,000. This is because you lose £1 of your personal allowance for every £2 that your income exceeds £100,000.  So you actually pay 60% on income between £100,001 and £114,950!

There are a number of options available to reduce or even avoid the 60% rate, such as deferring income from one accounting year to the next or making tax efficient investments such as pension contributions.

Childcare Vouchers – Parents of young children who pay for childcare normally have to do so out of their post tax income.  However, if your employer runs a Childcare Voucher scheme you may be able to receive up to £55 per week (per parent) in childcare vouchers.  The amount you can claim depends upon your income level.

A Basic Rate Tax payer needs to earn just over £80 per week to take home net pay of £55.  With the voucher the £55 is taken from your Gross salary, so you save both Tax and National Insurance and still receive £25 per week gross pay.

Review your PAYE Code – In recent months, there have been numerous errors generated from HMRC’s new computer system, which have led to people paying the wrong tax through their tax code. As a result people have been receiving demands for underpaid tax from several years ago.  These underpayments can often be avoided by ensuring that you have a correct PAYE code, ie making sure that any adjustment for a pension is correct, and if you have expenses paid by your employer that the figure used is reasonable. As well as ensuring that you are getting the right level of Personal allowance if you are over 65 or your income is over £100,000.

Even if you have not received a letter saying your tax has been over or underpaid, it is still worth checking your code as HMRC often use old or even incorrect data when generating the codes.

Rachel Finch is the Tax Advisory Partner at Burton Sweet Chartered Accountants and Business Advisors.  She specialises in providing advice to business owners and individuals on a wide range of issues from Income Tax and Corporate Tax through to International Tax and Corporate restructuring.

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