The deadline for paying HMRC any tax you owe and filing your return for 2016/17 is nearly upon us. Even though the tax year ended on 5thApril 2017 there are still ways you can reduce your tax bill. So how can Marden & Co help you achieve this?
Bad timing – you have to wonder why HMRC decided that a month after Christmas is the best time to ask people to pay their self-assessment tax bills. On 31 January 2018 you have to pay any self-assessment tax still owing for 2016/17, plus a 50% payment on account of your tax bill for 2017/18.
However, even at this late hour it’s not too late to reduce the amount of tax payable.
Tax advantaged investments
You can use a special tax break for some types of venture capital schemes; specifically enterprise investment schemes (EISs), seed enterprise investment schemes and social investment tax relief schemes. EISs are the easiest to find.
Investing in an EIS or one of the other schemes qualifies for a flat-rate tax relief that can be carried back to the previous year.
Example. Harry’s self-assessment tax bill for 2016/17 is £30,000, of which £18,000 has been paid on account on the usual due dates (£9,000 on 31 January 2017 and 31 July 2017). He must pay the balance of £12,000 no later than 31 January 2018, plus a payment on account for 2017/18 of £15,000, i.e. half his total tax bill for 2016/17, making a total of £27,000. On 20 January 2018 he invests £20,000 in an EIS fund run by a well-known company specialising in EIS Schemes. The tax relief given for EISs is 30% of the amount invested. Harry amends his 2016/17 tax return to claim the £6,000 relief against his 2016/17 tax bill, reducing it to £24,000. This reduces the amount he has to pay on 31 January, not by £6,000 but by £9,000, i.e. £24,000.00 less £18,000 paid on account… balance payable £6,000; plus a payment on account for 2017/18 of £12,000 giving a total amount payable of £18,000.
So by investing £20,000 he has saved £9,000 in tax, His investment is still worth £20,000 and any gains on the investment are tax-free providing it is kept for 3 Years.
Sounds good? Contact Marden & Co for further details NOW!
If you’re a higher rate taxpayer you’re entitled to 40% tax relief on gift aid payments. Basic rate tax relief is received as a reduction in the amount you pay, and the remainder comes from a reduction in your tax bill. You can claim the latter as if you made the gift aid payment in the previous year, providing you do it by the self-assessment deadline.
Example. Mary was a higher rate taxpayer for 2016/17. Her self-assessment tax bill for that year is £12,000 of which she has paid £4,000 on account. In January 2018 she gives £1,600 to charity, i.e. £2,000 less basic rate tax relief of £400. She amends her 2016/17 tax return to carry back the gift aid payment. This reduces her self-assessment bill to £5,600 and thus her payment on account for 2017/18 by £200. This is a total reduction of £600 on her 31 January 2018 tax bill.
A gift of annual membership to the National Trust, zoo or similar charitable organisation makes a nice Christmas gift, especially as it comes with tax relief for the buyer and the opportunity to carry it back to the previous year to reduce your 31 January payment. You could also pay gift aid payments you intended to make next tax year, to before 31 January 2018, to take advantage of the tax relief carry back option.
We know our stuff and we want to know yours too… that way you can focus on your business whilst we optimise a tax efficient scenario to help save you money.
What next? Contact us here at Marden & Co for a no nonsense, no obligation chat about how we can help – drop us an email via firstname.lastname@example.org or call us now on 01737 464 049