On the 5th of April, the current tax year will end and you will have to get your tax return ready. As a self-employed professional or small business owner, this is a great opportunity to make sure everything is in order and you aren’t paying more tax than you should. Maximize your allowances and top up your pension to reduce your tax liabilities as much as possible.
Personal Tax Allowance
If you are married and your partner is not working you should consider transferring join savings accounts or other investments to them so they can maximize their personal tax allowance, currently at £7,475 for people under 65 years old. This is important because your personal allowance cannot be carried forward to the next year. You may want to talk with your accountant about making your partner a director of your company in order to maximize the amount of tax free dividends if you are a higher rate taxpayer.
Maximize ISA allowances (Individual Savings Account)
An ISA is a tax-efficient way to save money, because you don’t pay capital gains tax and income tax on the income derived from it. You may be able to save money by investing up to £10,680 on a Stocks and Shares ISA or up to £5,340 on a Cash ISA, and the remaining up to £10,680 on a Stocks and Shares ISA. Since as a basic rate taxpayer you need to pay 20% of your savings interest to the taxman, maximizing your ISA allowance means you can keep at least that 20% for yourself, and ear a quarter more interest. Higher rate taxpayers who pay 40% interest on savings income benefit even more, two-thirds.
Pension Contributions
Tax allowance for approved pension schemes is 20%, or the basic rate tax. This means for each £80 you add to your pension up to £50.00 the taxman will pay £20. If you are a higher rate tax payer, you may be able to claim additional tax relief. So if you want to be as tax efficient as possible, making an extra contribution to your pension pot before the edn of the tax year is a great way to saving some money. Pension plans are sometimes allowable self-employed expenses.
Minimize Capital Gains Tax Liability
Capital gains tax is paid on sales of property, shares, investments, business, or disposal of any asset that creates an income. You will be paying 18% of you are a lower rate tax-payer or 28% if you are a higher rate tax-payer, but you have a tax free allowance that currently amounts to £10,600 for the 2011/12 tax year. Consider disposing of assets in ways that maximize your allowance, and sharing ownership with your spouse or partner so both of you can make use of the tax-free allowance.
If you have a financial advisor or accountant now it’s the best moment to have a chat about minimizing your tax load and saving money before the end of the tax year.
No comments yet.