finance

Minimise your tax whilst maximising your profits this tax year

There are huge financial savings to be made by taking the time (or ensuring your accountant takes the time) to understand where your business or personal financial situation can benefit from tax reliefs, and applying them to your annual tax return or self-assessment.

Having the financial know-how can help ensure your year-end accounts look impressive to your all-important stakeholders with increased profits, whilst allowing you to keep as much of your hard-earned money, as opposed to handing it over to the tax man. As we approach the end of the financial year, in this issue, we share some of the methods we continually apply to our clients’ affairs at LWA, with some tax-planning tips to help you optimise your overall tax position.

Capital Gains Tax

You should aim to utilise your annual exemption for 2014/15 of £11,000 per person on Capital disposals (£11,100 for 2015/16). Furthermore, jointly owned assets attract an annual exemption of £22,000 for 2014/15. Don’t forget any Capital Losses can also be carried forward and offset against future gains or utilised in the current year against gains on other assets.

Charitable Donations

If you or your employees have donated to charity, you will know that tax relief on the net amount of contributions are reclaimed from HMRC as Gift Aid. The gross contribution will extend the basic rate band attracting relief at basic rate. Gift aid contributions attract tax relief for Higher Rate Tax payers, for example, if you have donated £100 and are a 45% taxpayer, this amount will be £31.25 on a gross donation of £125 including the gift aid (45%-20% x £125).

Enterprise Investment Scheme (EIS)

CGT exemption may be given on disposal of the shares if held for three years or alternatively, any gain can be deferred if reinvested into other EIS shares. Income Tax Relief is at 30% on new equity investment into qualifying unquoted trading companies, up to a subscription limit of £1 million.

Venture Capital Trusts (VCT’S)

Investments made into the shares of unquoted trading companies are exempt from any tax on dividends received and on any capital gain arising on disposal of the shares. A maximum investment of £200,000 attracts income tax relief of 30% of the investment, on the condition the shares are held for at least five years.

Pension Contributions

This is one of the most tax efficient forms of saving as contributions made personally are paid net of basic rate tax, as the pension provider recovers the basic rate tax from HMRC. Tax Relief is given on the higher of 100% net relevant earnings or £3,600 gross. Higher Rate Tax payers have their basic rate band extended by their gross contribution, however, beware of the controls in place which limit the amount of contributions (£40,000 for 2014/15). It is also important to know that any unused limits from the previous three years can also be considered. You should always consult with your IFA over the amount you can contribute. Making a pension contribution can also assist in the High Income Child Benefit Charge (for every £100 of income in excess of £50,000, there will be £1 tax charge on the recoverable child benefit). You can avoid the charge if you make pension contributions that bring your gross income level to £50,000.

SEIS

Seed Enterprise Investment Schemes attract an Income tax relief that reduces tax liability at 50% in qualifying companies, however, a maximum subscription of £100,000 is allowed. The investment is also CGT exempt if held for more than 3 years.

ISA/NISA

Although interest rates aren’t the greatest, use your ISA allowance to hold some or all of your savings, as all interest earned and dividends received on these funds are free from both income tax and capital gains tax. The overall investment limit being £15,000 which increased from 1st July 2014 from £11,880.

PPI Reclaims

With many PPI claims investigations reaching conclusions, if you have successfully received compensation, it would be advisable to have the tax deducted from the interest from the source, as, you would need to declare any funds gained from a PPI claim on your self-assessment, and therefore pay tax on the interest. If you are a Higher Rate Tax payer there may be additional tax to pay on this interest.

Inheritance Tax

any unused gift from the previous years can be included. For example, if you and your spouse wish to gift some money to your children and didn’t make any gifts in the previous tax year, you can both gift £6,000 each with no tax implications in this financial year. Marital gifts also play a big part of inheritance tax with a maximum of £5,000 from a parent to a child; from a grandparent to a grandchild a maximum of £2,500 is allowed; and marital gifts from others can be a maximum of £1,000. Small gifts can also be made with a maximum of £250 per year per donor. Lifetime gifts known as PET’s will be tax free if the donor survives 7 years from the date of gift. Should the donor pass away within that time, there will still be a tax saving so ensure you maximise on this.

As the current tax year comes to an end, ensure you obtain the best advice to maximise your financial position, retaining as much as your income as possible. So many of us unfortunately give the taxman more of what should in fact be ours, make sure you’re not one of them!

Les Leavitt

Leavitt Walmsley Associates Chartered Certified Accountants www.lwaltd.com