By saving tax in 16/17
Everyone wants to be able to take home a little more income each year, to justify that spa weekend in the Cotswold’s, buying the latest gadget for your home, or to simply have a few extra quid as a cushion for a rainy day .
The views expressed in this article are specifically those of Lansdell & Rose Accountants.
How doctors and dentists can maximise their tax position
If a pay rise isn’t on the cards this year, or even if it is, why not try to maximise your cash position by saving tax?
Tax planning is a complex area, and also it’s often bespoke to the individual, however, here are some basic tax saving tips that could earn you that treat you’ve been waiting for.
Use tax shelters as much as possible
Some financial products are sheltered from tax. ISA’s are a good example, as income earned from interest in an ISA is completely tax-free, meaning you can save your money, and save on paying tax.
New rules this year state that basic tax payers can save up to £1,000 in a regular savings account tax-free too, its £500 for those paying higher rate tax.
The ISA limit in 16/17 is £15,240, so essentially you can save up to £16,240, or £15,740, and earn interest free of paying any tax whatsoever.
Therefore, if you have money to save, make sure you are doing so tax efficiently.
Maximise your pension contributions
Whilst there has been much speculation around changes to the pension system, as yet, the current set-up remains and the current advice remains too.
Maximising your pension contributions each year will help you stay out of the higher rate tax bracket for longer, so essentially paying less tax each year whilst strategically planning for your retirement.
Save as much as you can afford, as it’s a tax-efficient retirement planning strategy.
Claim tax relief on your professional expenses
If you are an employee, you will be able to claim tax relief on certain expenses that are directly related to your employment.
This could include travel, professional fees and subscriptions, working at home costs and dental or medical equipment necessary to perform your trade.
Remember, if you are a director of your own limited company you can claim too, provided you haven’t already received tax relief on the expense in your company accounts.
This claim will directly reduce your tax bill and if all your income is taxed at source, then it is likely you will get a direct refund back into your bank account as a consequence of filing your claim.
Working as a couple
The personal allowance for 16/17 is £11,000. Consider also that this is reduced by £1 for every £2 of income earned over £100,000.
Therefore, finding ways to reduce your tax can help if you work as a couple, particularly if your spouse or partner is non-earning or low-earning.
Last year the marriage tax allowance was introduced making it possible for a non-earning or low-earning spouse or partner to transfer £1,100 of their personal allowance to the higher earner, thereby enabling a tax benefit worth £220.
There may also be an opportunity to pay your partner or spouse a salary from your business for helping with admin related tasks. This reduces the business tax, but also injects income into the family household at the lowest rate of tax. Specific terms apply here and it is best to seek advice.
Discuss salary sacrifice with your employer
Salary sacrifice is where instead of a cash remuneration, a non-cash alternative is provided to the employee, such as childcare vouchers, gym membership, parking vouchers, or pension contributions.
Salary sacrifice can result in less tax for you and for your employer, provided the benefit is tax-exempt, as are those examples provided.
A salary sacrifice pension arrangement can be a way for your pension to get a valuable boost, whist you cut tax paid on any bonuses or salary increases, therefore leaving more in your pocket over the long-term.
Remember, if you are a director of a limited company, you are also an employee and employer, so a company pension could be feasible.
Can you reduce your July 16 payment on account?
Preparing your tax return for 15/16 before 31 July 2016, means you will know if there is any scope to reduce your payment on account.
If there is, this means your money stays in your bank for longer – result!
Work with an accountant
Going solo is a recipe for missing other valuable tax breaks that are more complex and bespoke to your own situation. This particularly applies if you have any unusual activity this year, such as buying and selling assets.
Lansdell & Rose help hundreds of doctors and dentists each year with taking home more money by paying less tax.