Top 10 Tax Tips for your Tax Return

A client once said to me that the HMRC 31 January deadline for submission of his Tax Return had the unintended effect of ruining his Christmas Dinner….

My advice was to do it before Christmas, and to make it a bit more enjoyable, I offered him 10 top tax tips.

Let me share these with you.

Act During Your Accounting Year, Not After

Often traders have a good year with great profits, but they don’t undertake any tax planning or mitigation during the year, and expect to create expenditure or acquire capital items after their year-end, and somehow claim it as a cost for a year that has elapsed. Instinctively, you know you can’t do that. So, do it during your good year. Prepare interim Accounts, get your numbers, find out your profit to date, and buy that machine you’ve been thinking of.….before your accounting year ends.

Use All Allowances

Everyone knows about the Personal Allowance - £12,500 in the current year 2019-20 – but don’t forget other allowances that could save you tax. A spouse who earns less than the personal allowance may permit the other to claim Married Allowance for the amount of personal allowance not used. There is also the annual Capital Gains Allowance - £12,000 in 2019-20 – making the annual sale of a selection of shares or other investments worth exploring.

Expenses without Documentation

Engaged in your business full time? HMRC permit annual allowable expenses for which you don’t have receipts of up to £360 per annum.

Pension Contributions

This old chestnut, again?... well, yes. It’s been tampered with, restricted, and knocked about by various governments, and who knows its future, but for a basic rate taxpayer, tax relief on pension contributions still adds 25% into your pension scheme for every £1 you contribute. Put in £4,000 and HMRC will add £1,000.

Maximise your ISAs

If you have excess savings idling in your bank account, consider annually an ISA investment of up to £15,000 – a tax free, CGT free zone. With interest rates as low as they are and the annual Dividend Allowance of £2,000 and Interest Allowance of £500, you may say what’s the point? But these are long term investments, and you are building a portfolio of savings and investments that will never be subject to tax

Trading Allowances for very small businesses

Are you running a part time business which has almost no expenses? Then, why not replace those expenses with the HMRC permitted annual trading allowance of £1,000.

Gift Aid

Taxpayers often forget to keep a record of gift aid donations made to charities and churches. For a higher rate taxpayer, such donations provide further tax relief through your Tax Return to reduce your tax bill or create a refund. Keep the details of the payments you have made.

Use of Home As Office

Are you running your business from home? In a study or even from the kitchen table? Then you can claim a portion of your home running costs as an allowable expense. Work out the square footage of the room or area you work from, calculate the percentage this represents of your entire home floor space, find the receipts for your total household costs, and multiply. Make sure you retain your evidence of cost and basis of calculation.

Budget for Tax

In your first year, HMRC give you up to 9 months after the end of the tax year before you have to pay your income tax. Too often traders do not prepare for tax, spending their profits as received, and ending up using next year’s income to pay last year’s tax bill. If or when next year’s income then declines, they struggle to find the money to pay their tax. Budget and set aside a sensible monthly amount out of earnings, creating a tax fund for later. It’s so much easier when the tax bill arrives.

Understand Payments on Account

If your tax bill exceeds annually £1,000, you will be required to make Payments on Account for the current year, in addition to paying the balance of last year’s tax liability. In a situation of rising profits, this increases the amount of tax payable at 31 January and 31 July each year, but it’s important to understand and realise that these Payments on Account are credited to the tax liability due for the current year.

I do hope these Tips can make your tax life more bearable. Contact us for a consultation to explore further.

Norman Elliott FCA

18 Bachelors Walk Lisburn BT28 1XJ

18 English Street Downpatrick BT30 6AB