Interesting to read Fidelity International last week suggesting that high earners could be facing tax bills amounting to 68% of their earnings. Whether you agree with their figure, apparently calculated by taking into account tax and national insurance rate changes as well as the recent hike in VAT, there’s no doubt that under the new tax regime many high earners will face significant increases in their tax liability unless they take specialist advice and take advantage of every tax mitigation strategy available to them.
So what can you do to limit your own tax burden this year?
- Sole trader? Consider becoming a limited company or look at contracting via a bigger company (if you want to know about this call me and I can explain how it works)
- Company director? Look into tax efficient profit extraction strategies like Employee Benefit Trusts
- Buying property? If you’re buying commercial property worth more than £1.5m or residential property worth more than £600,000 there are legitimate tax mitigation strategies you can use to reduce stamp duty costs by up to 75%
- Pensions? Pensions have an obvious tax saving benefit as all contributions are tax-fee but for business owners holding premises in a pension provides a significant opportunity to save even more
- Savings? Look at an ISA. You can invest up to £10,200 each tax year into a stocks and shares ISA and all gain on the investment is tax free
Tax avoidance
Tax avoidance is legal and involves a tax payer arranging their financial affairs in such a way that they minimise the amount of tax they pay. Indeed there is case law upholding the taxpayer’s right to do just that.
As accountants working with owner managed business we would have few clients if we didn’t help them arrange their finances to pay less tax. Remember it is all about the profits that you keep, not the profits that you earn.
Andy Parker
Chartered Accountant and Tax Planning Advisor