Don’t Ever Expect HMRC to Help you Minimise your Tax Bill……
HMRC now refers to taxpayers as its customers which suggests a degree of customer service but in the real world this rarely extends to offering “customers” pro-active tax advice.
Never forget…….tax collectors are trained to maximise the assessment and collection of tax. Indeed, individual HMRC bonuses may be linked to the amount they succeed in bringing in to the Treasury.
Tax payers need to be wary and should always check any tax statements they receive in brown envelopes and make sure that they have taken advantage of all the reliefs and allowances available to them.
Take for instance the Personal Allowance – the amount you are allowed to earn before you pay any tax.
Not much to go wrong here you might think?
For 2016-17 your personal tax allowance amounts to £11,000 and this amount will be deducted from your taxable income before any calculation of taxes due is made; or will it?
Three tax planning issues for 2016-17 come to mind:
- Will your total income be under £11,000?
Consider Peter and Jane. They are married, Peter’s income is below £11,000 and Jane earns enough to pay tax at the basic rate, she is not a higher rate taxpayer. Peter could transfer up to £1,100 of his unused personal allowance to Jane. This would save Jane £220 in tax. HMRC are aware of Peter and Jane’s earnings and yet they require the couple to make an election and claim the relief,which is fine if Peter and Jane are aware of it. HMRC are apparently surprised that a large number of couples who could claim the relief do not!
- If you are in business, there is a very generous allowance you can claim if you buy qualifying commercial vehicles or equipment.
Since 1 January 2016, you have been able to deduct the full costs up to £200,000 against your tax. If you are self-employed there is a strong possibility that claims such as this Annual Investment Allowance (AIA) could reduce your taxable income below your £11,000 personal allowance threshold. If this occurs, any unused personal allowance is lost – it cannot be carried forward and claimed in the next tax year. What you could do is restrict your claim for the AIA so your taxable income exactly equals £11,000 and none of your personal allowance is wasted. Any unused AIA could then be used in future years.
But again, for this to work you need to tell HMRC exactly what you want them to do.
- If your income exceeds £100,000 you will lose your entitlement to claim the personal allowance at the rate of £1 lost for every £2 your income exceeds £100,000.
This means that when your income for 2016-17 exceeds £122,000 you can no longer claim the £11,000 tax free deduction at all. Readers who have an interest in numbers will be keen to understand that income in this £100,000 to £122,000 band is taxed at 60%! Tax payers heading for this outcome can take a variety of steps to reduce their earnings below the £100,000 trigger point, but HMRC will not advise you on the steps you could take.
The UK has one of the most complex tax systems in the world and a great many tax payers end up paying too much tax. Many are not aware of the allowances and strategies they could employ to reduce their tax bills to a minimum. We are not suggesting you use any form of tax avoidance, just that you claim the full entitlement to allowances and reliefs that are available to you.
Of course, we would be delighted to be part of the process and help you with this – please contact usat any time for a free consultation.