Ten tips to save you tax in 2019

Let’s face it, nobody enjoys paying their tax bill. Are you one of those people who have just settled a painful, and possibly unexpected tax bill on 31 January? If so, here are ten tips that could help to make next year’s payment less damaging to your bank balance…

1.Check your tax code each year.  Your tax code is used by your employer or pension provider to work out how much income tax to deduct from your pay.  If your code is wrong, you may be paying too much (or too little!) tax.  Your tax code can be found on your payslip and a breakdown of how it has been calculated will have been sent to you by HMRC. HMRC do not send these directly to your agent.

2.Claim the marriage allowance.  The marriage allowance lets you transfer 10% of your tax-free personal allowance, or £1,185 in 2018/19, to your spouse, if they earn more than you.  To benefit as a couple, the lower earner must have income of £11,850 or less in the tax year and the higher earner must be a basic rate taxpayer.

3.Make the most of each personal allowance and basic rate band.  The personal allowance is £11,850 and the basic rate tax limit is £34,500 in 2018/19. If you are married, it may be possible to transfer income-generating assets (e.g. rental properties or shares) to a spouse to take advantage of their lower tax brackets.

4.Take advantage of the CGT annual exemption.  Capital gains under the annual exemption (£11,700 in 2018/19) are tax-free.  Where you have already used up your annual exemption, you may wish to consider deferring any further disposals until the following tax year if practically possible.  If you are married, owning assets jointly also ensures that each spouse’s annual exemption is used (assets can be transferred tax free between spouses).

5.Claim tax deductible expenses.  If you are self-employed, you can claim a tax deduction for expenses which are incurred “wholly and exclusively” for the purposes of your business.  This includes office running costs and the salaries of any employees, including your spouse.

6.Use the annual investment allowance.  If you are self-employed, the annual investment allowance provides a 100% tax deduction. From January 2019 the first £1,000,000 spent on eligible plant and machinery qualifies, although prior to this date the limit was £200,000. If your accounting year does not end on 31 December, the actual allowances available to you will depend on the timing and amount of qualifying expenditure.

7.Consider incorporation.  The corporation tax rate, currently 19% and reducing to 17% on 1 April 2020, is significantly lower than income tax rates, which are currently up to 45%.  You will of course need to pay income tax when you take money out of the company, in the form of salary and/ or dividends.  However, to the extent that you do not require the income, you will have the opportunity to accumulate profits within the lower corporate tax environment.

8.Take advantage of the dividend allowance.  Changes to the taxation of dividends saw the introduction of a tax free dividend allowance for the 2017/18 tax year onwards. This allowance has been set at £2,000 a year from 6 April 2019.

9.Maximise pension contributions.  If you contribute to a workplace pension scheme, any pension contributions you make will be deducted from your salary before income tax is calculated.  If you contribute to a personal pension scheme, your pension provider will claim tax relief at 20% on your behalf and add it to your pension pot.  If you are a higher or additional rate taxpayer, you can then claim tax relief on the extra 20% or 25% in your self-assessment tax return.

Making contributions to personal pension funds can be a very efficient form of tax planning. Well managed pension planning affords individuals opportunities to grow their pension pots with government assistance and reduce their income tax liabilities. However, complex rules relating to an annual allowance on contributions in a single tax year and a lifetime allowance on the overall value of an individual’s pension fund(s) mean that it is essential to take tax advice prior to making pension contributions.

10.Use your tax-free ISA allowance.  You can currently save up to £20,000 a year tax-free in an Individual Savings Account (“ISA”).  This can be saved as cash, shares, or a combination of the two.

Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.