The association of Government authorities say that they’re committed to fixing loose ends permitting the super-rich to avoid paying their tax. Basically, the argument making the rounds is that “avoiding tax” is morally incorrect.
But, whilst some of us are affluent enough to give good reasons for moving assets to on offshore tax refuge, using intricate trust arrangements or employing a deluge of accountants; there are far simpler means that are absolutely legal, which can contribute considerably towards reducing your escalating tax bills.
It has been noticed by certain critics that politicians are failing to differentiate between tax avoidance and tax evasion. Tax evasion comprises of breaking of tax rules, which is of course not legitimate. On the other hand, tax avoidance entails of adhering to the rules and regulations related to tax, but planning your finances cautiously in such a way that you don’t end up paying more tax than what you actually have to.
This might be as easy as employing tax efficient savings schemes, such as pension bonds, ISAS and premium, or using legal tax reliefs efficiently. Also, there is a general agreement that middle-class tax payers are rightly entitled to employ the know-how of accountants in order to cut down on their tax bills.
In fact, it could perhaps be argued that we as tax payers and citizens have to be more cautious and watchful about such measures. This is chiefly because most of the families are feeling the strain on their funds; all thanks to the ever increasing inflation, the new 50p top tax rate, rise in the National Insurance contributions- and adding to the fact that many individuals also face added tax demands for which the HMRC’s computer errors are legally responsible.
Nevertheless, there are several methods to embark upon when faced with tax situations, and by following the recommendations mentioned below you can ensure that you’re keeping your tax bills to its minimum:
- Tackle the Tax Situation as a Family and Not as an Individual
Everyone is legally responsible to file tax returns on their own individual proceeds and assets. Yet, it’s likely to reduce the gross amount you have to pay in tax; thanks to several allowances and reliefs that civil partners can avail.
All that you are required to do is to make arrangements for your funds appropriately. However, if you or your partner has to pay tax at a reduced rate in comparison to the other person, you will find that it works in your favour.
Professionals suggest switching the ownership of revenue generating possessions like, shares, building and banking society accounts, investment funds and mutually owned properties to the partner who is paying a lower tax rate. In this manner, you’ll end up paying reasonably lower amount in tax on savings, dividends and rent interest.
Experts say the generally mutually owned earnings is taxed 50 by 50 and can be modified by making a particular election wherein it can be shown that there is a legitimate absolute gift of possessions. If you’re not legally married and are transferring possessions, then this could perhaps generate a CGT (Capital Gains Tax) bill.
- Divide Income Tax Payments amongst the Family Members
Every member of your family who is capable enough of working and earning can have a personal allowance. So, if you’re earning in excess than the basic rate limit for income tax, say for instance you possess invoicing appointments; you could possibly use your partner. In this way, at least some range of income could be tax free for your partner, along with a permissible expense to you.
You’ll have to make National Insurance contributions, but if you’re earning less than the lower limit, then you need not pay any amount. Although, no freedom is then being accumulated to some state benefits, which includes that state pension.
If you have kids who are aged over 16 and you’re still funding them, then you could probably employ them also in your business when they’re on vacation and make them earn. This would turn out to be advantageous for them and not to mention, the wage is tax deductable.
Nevertheless, it’s crucial that you’re sure to give good reason for the extent of payment and that you’re able to produce proof if the HMRC requires. With this you’ll be able to prove that you’re actually paying your kids for the work they are doing for you. You’ll also have to consider the legislation related to the National Minimum Wage though; certain exceptions can be made for the family members living at home.
- Examine your Tax Code
The issues with the HM Revenue & Custom’s computers have resulted into thousands of individuals paying the wrong tax because of their tax codes. Although you might not be one of the six million taxpayers who have been receiving a letter saying that their tax has been under or overpaid, it is still recommended to examine your tax code.
Older people must confirm whether they’re receiving an appropriate higher personal allowance. Individuals older than 65 years of age are likely to earn £9,490 before their tax is charged, which could perhaps rise to £9,640 for the ones who are 75 years and above. The normal personal allowance is £6,475.
- Take into Account Tax-Efficient Investment
Tax breaks aren’t just offered by the standard ISAS. Investors could probably make a bigger dent in their tax bills by simply putting away their funds in some Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT). Both the plans are intended with an aim to attract and motivate private investment within small scale companies.
As a part of the EIS rules and regulations, tax payers are now given the liberty to invest up to £500,000 in small scale companies. Buying shares in a qualifying business would give direct diminution in tax of 20%, so if you invest £10,000 then it’ll be broken down into a diminution of £2,000 in your tax bill. Thus, the maximum investment could wipe £100,000 off of your tax bill. This way, your shares will be free from capital gains and inheritance tax.
You can even try investing in a wider range of shares through VCT. In this manner, you can earn a tax diminution of 30% of the sum amount, which you have invested in, up to £200,000. A £10,000 could knock off £3,000 from your tax bill; the maximum investment that could cut down your tax by £60,000. Yes, these investments could be risky, since they aren’t assured to perform well and the resulting losses could outweigh the amount you saved in tax.
- Going Offshore
Often, for people in Britain, there’s a little tax benefit in employing the most popular offshore region, like the Isle of Man, Liechtenstein, Channel Islands or Luxembourg. Tax payers are supposed to declare their worldwide incomes, including the interest paid on their bank accounts held overseas. HM Revenue & Customs are now able to access information on all of these accounts; all thanks to the brand new data sharing structure.
However, certain offshore bonds might still be beneficial to those paying higher rate taxes, as they significantly permit people to postpone their tax. These products are intricate and quite expensive, which is why you need to seek independent guidance.
- Give Up a Part of your Income
Some of the non-taxable advantages can be gained by giving up a part of your income. These benefits usually include national insurance bills and childcare voucher.
Making payments for childcare with the help of your childcare vouchers could help you save around £1000s every year in your tax. These vouchers are offered by the government through a particular plan that is handled through employers.
The amount is basically deducted from your pre tax income. Though, it might not sound as a big deal, yet the advantage you’ll be able to avail on your tax could be immense. For instance, a parent can be paid around £55 every week by the employer, which would amount to a sum total of £886 per year.
- Stick to your Basics
Maximising the LSA savings and pension could perhaps prove to be enormously tax efficient, yet most of the individuals fail to avail the benefit. In LSA an individual could easily attain a tax relief on £10,200 and roughly half of the benefit could be availed as cash.
Some professionals believe that investing around £20,400 per year would alleviate a couple of paying taxes on earnings or growth. Say for example, if we assume return on investment to be 6% per annum, then an individual could possibly obtain a tax free profit of just over £95,000, after a period of 10 years.
- Insure Yourself
One way through which you could avoid tax is not having any kind of source of income. Yes, this is a drastic solution to the tax problem for most of the individuals, as they continually try avoiding for this to turn out to be a reality.
For example, people who are self-employed are very susceptible to periods of being without a job and usually aren’t paid if they’re unable to work through illness.
A simple answer to this is to insure yourself with some other main person that you’ve employed, who is capable of ensuring the sustainability of your business. This is likely to be against the risk, as the premiums don’t get tax relief grants, the payments are surely made free of tax. It is best to have a life cover as it’s an important product.
Eventually with the help of these legal ways you can surely trim down on your tax bills. However, it is not possible for you to completely cut it off. So, if you’re finding it really difficult to pay your tax, look for additional sources of income. Some avenues for additional income might be staring you right in the face all along, such as PPI. If have any pending PPI, then opting for PPI Claims immediately could be the best way to get an immediate revenue injection. It will not only help you get a refund, but also in paying off your tax bills.