As we head towards the end of the tax year, it’s worth taking the time to consider the options for you or your business. Solid tax planning now, could save you thousands. These are the main options available…
Tax Planning for Individuals
Are you a higher rate tax payer? Or, are you close to being a higher rate tax payer? If so, read on, as planning your tax affairs now could save you money.
If your taxable income…
- Exceeds £32,000 (after deducting your £11,000 personal allowance) you will pay Income Tax on any excess at 40%.
- Exceeds £150,000 you will pay Income Tax on any excess at 45%.
- Is between £100,000 and £122,000 you will pay income tax at a marginal rate of up to 60% (due to the gradual loss of your personal allowance in this income band).
To reduce your tax liability you could consider:
- Increasing your pension contributions
- Taking salary sacrifice opportunities (before the rules change from April 2017)
- Making Gift Aid donations
- Transfer income producing assets into joint ownership with your spouse
- Deferring any bonus payments until after 5 April 2017, especially if your income for 2017-18 is planned to drop as compared to 2016-17.
In addition, there are other legitimate planning opportunities you may be able to take advantage of, to minimise your exposure to the higher rates. The key is to thoroughly review the numbers before 5 April 2017.
If your year end is March 2017, timing and trading results for the three quarters BEFORE the end of the tax year are critical.
You could consider the following options to reduce your tax liability:
- Rescheduling capital acquisitions to maximise the use of and impact of tax allowances. Eg If you expect 2017-18 to generate increased profits, you could delay the purchase of new plant until after March 2017, to offset against profits for 2017-18. Or you could bring forward purchases into the 2016-17 year to offset against tax relief
- Deferring or bringing forward expenditure could include tax allowable refurbishments, maintenance for equipment and similar costs.
- You could consider retaining profits within your business (in excess of the annual tax free allowance of £5,000), rather than extracting them as dividends. Ensuring you retain cash in your business, after paying 20% Corporation Tax, rather than creating an additional dividend tax charge. Dividends drawn in excess of £5,000 can be subject to 7.5% (basic rate), 32.5% (higher rate), or 38.1% (additional rate).
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A reminder: Changes to the NLW (National Living Wage) and the NMW (National Minimum Wage)
From April 2017, the National Living Wage (NLW) for the over 25s is being increased to £7.50 per hour. This is an increase from the current NLW rate of £7.20 an hour. For over 25s, this is the equivalent of a pay increase of just over 4%.
The National Minimum Wage (NMW) also increases at the same date to:
For 21 to 24 year olds – from £6.95 to £7.05 per hour
For 18 to 20 year olds – from £5.55 to £5.60 per hour
For 16 to 17 year olds – from £4.00 to £4.05 per hour
For apprentices – from £3.40 to £3.50 per hour
The government will be spending an additional £4.3m to ensure that employers are complying with their legal obligation to pay the NMW.
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