By David Watkinson
AS we approach the end of the tax year then it is important to consider whether there are ways in which to mitigate your tax liability, either for the current year or for future years.
We shall look at a couple of fairly straightforward things that may be available to you at various income levels.
For some of you then a very straight forward, and free, way of reducing your tax may be available through the Marriage Allowance. This may be worth £252 in the current tax. To be eligible then you must:
1. Be married or in a Civil Partnership
2. with one partner being a non-taxpayer, ie earning less than £12,570
3. the other partner paying tax at basic rate, ie earning less than £50,270
If all of the above conditions apply to you then the lower earner can transfer 10% of their personal allowance to their partner. Once the claim is made then the transfer will apply to future tax years. The claim can be backdated, but only for a limited number of years, currently tax years after 5th April 2017. From 6th April you will only be able to backdate your claim to years after 5th April 2018. However, if you have not claimed before and are eligible for all years then this may be worth more than £1,200!
Applying for the Marriage Allowance is very straight forward. As stated above, the claim must be made by the lower earning partner. Before making the claim you will need:
1. Both your own and your partner’s National Insurance Number
2. Proof of your identity such as your P60, passport details, recent payslips, or recent self assessment tax returns
The easiest way to apply is to go online at www.tax.service.gov.uk/marriage-allowance. Alternatively, you can apply:
– through the self assessment system if you are already registered,
– by telephone call to 0300 200 3300
– by post to: Pay As You Earn and Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom
The other tax reduction methods do have a cost and take the form of tax efficient investments, We must therefore state that we are not authorised to give investment advice, and that you should seek the advice of an independent investment adviser. Also the value of investments can go down as well as up. Subject to these, let us go!
The first method is the much vaunted Personal Pension Contributions. The amount that can be invested in a pension is subject to various limits that we shall not discuss here. Contributions are made net of basic rate tax relief, so you pay £80 and receive an investment of £100, meaning that the tax relief is a bit out of sight but definitely there. Higher rate taxpayers will receive the balance of their tax relief in the form of a tax repayment or lower tax payments. To be eligible for tax relief in the current tax year the pension contribution must be made before the end of the tax year on 5th April.
Pension tax relief is available to everyone, even non-taxpayers. You can make contribution up to an amount equal to your earnings or £3,500, whichever is higher. So a non-earner can pay £2,800 into a pension and receive an investment of £3,500. However, a pension contribution can be extra valuable in a couple of situations, due to the method by which it is calculated.
A pension contribution reduces the taxable income of the taxpayer, and there are a couple of circumstances when this may be very useful.
1. If you have children, then your eligibility for child benefit is reduced if you or your partner have taxable income above £50,000. If your earnings are slightly above this then paying this extra into a pension will reduce your earning to below that level and retain your eligibility for child benefit.
2. Similarly, if you are lucky enough to earn above £100,000 then your personal allowance will be gradually reduced reduced until it becomes £Nil at about £125,000. Once again, paying your excess income into a pension scheme will reduce your earning to below the £100,000 limit and thus retain your personal allowance, or at least reduce the reduction.
WatkinsonBlack have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Our office is now open during all normal office hours. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.
