Top UK Tax Tips

You may have read that HMRC is looking at various changes to the way businesses pay their taxes. On the one hand, there is nothing new about this. On the other hand, it could be a red flag about it becoming even more aggressive post COVID19.

Fortunately, there are still plenty of legal ways businesses can save money on taxes and to help you get started, Nottingham accountants, Rogers Spencer share their top five tips.

Keep all your receipts

This may be the most basic tax-saving tip there is but it’s also a really important one. What’s more, these days, there’s really no excuse for not doing it. Digital receipts are easy to file. Paper receipts can be scanned/photographed as soon as they are issued. HMRC is totally fine with being firms providing them with scans/photos as long as they are clearly legible.

Get help from professionals

Ideally, you’ll have a proper bookkeeper to manage your everyday record keeping and have a proper accountant to manage your tax returns. At an absolute minimum, get an accountant to do an annual check on your records and prepare your tax returns for you.

The cost of a bookkeeper and an accountant will probably be tax-deductible. Even if it isn’t, it will be money well-spent. Having your tax returns managed by a professional will give you the reassurance of knowing that they are totally correct. It may also allow you to save money by claiming allowances to which you might not have realized you were entitled.

Make full use of your pension

If you are listed as a company employee, then set your salary with great care. When the pandemic struck, many company directors found themselves effectively barred from the furlough scheme as they did not draw meaningful salaries. Post COVID19 it may be worth reassessing this approach. While it’s to be hoped that nothing similar will occur again, hope is not a strategy.

At the same time, the higher you set your salary, the more you will pay in income tax. In particular, if your headline salary goes over £100K, your tax-free allowance will be reduced by £1 for every £2 you earn. This has the effect of increasing your overall tax liability. One way to address this is to divert money into pension contributions. This lowers your company’s profits (and hence tax liability) while maintaining your personal allowance.

Maximizing your pension contributions may also be a good idea from a broader financial perspective. Retirement can now last decades so it’s advisable to save as much for it as you possibly can. Pensions have always been a very tax-efficient way of doing so. What’s more, the “pensions freedoms” introduced in 2015 have addressed the issues with the old system of mandatory annuities.

Use salary-sacrifice schemes

Similar logic applies to using salary-sacrifice schemes. There are several of these available with options ranging from childcare vouchers to the cycle-to-work scheme. If you need, or just want, the item or service anyway, salary-sacrifice schemes can be a tax-efficient way of getting it. As with pension contributions, they lower your company tax bill without increasing your personal tax bill.

On a slightly separate, but related note, as an individual, if you are married or in a civil partnership, you can transfer some of your income to your spouse. This allows you to make the most of their personal allowance (or lower tax band). You can also make pension contributions on their behalf so they benefit from the tax relief on your income.

Pay yourself a dividend

You can earn up to £2000 of dividend income per year without paying tax. Even after this, paying yourself dividends may be more tax-efficient than paying yourself income.