Ethical tax planning – is it worthwhile?

The way we organise our business and personal financial affairs determines the amount of taxes we pay and it is important to note that there is such a thing as ethical tax planning.

Most of us are focused on outcomes, outcomes that on the face of it increase our profits or income without much, if any, regard for the effect these transactions have on our tax position.

A classic example of this is the rule which removes entitlement to the annual personal tax allowance once income exceeds £100,000.

For the tax year 2022-23, your £12,570 personal tax free allowance would be reduced by £1 for every £2 that your income exceeds £100,000.

As a result, when your income reaches £125,140 you will no longer be entitled to claim this allowance at all.

You are then being taxed at 40% and you also progressively lose your personal tax allowance at income levels between £100,000 and £125,140 – effectively giving rise to a tax rate of 60% on this top £25,140 of your income.

With the benefit of hindsight, or more practically, with the benefit of ethical tax planning, there will be lawful ways that you could reduce your taxable income without compromising your finances whilst also maintaining a valid claim to the personal tax free allowance.

Clearly, cost benefit calculations need to be carefully considered at this point.

It is pointless embarking upon a tax planning strategy if the cost of the support you need to put everything in place is more than taxes saved.

What you should be ideally looking to do is to reduce your tax bill for each year going forward by incurring a one off cost at the start.

Planning requires a three-step process:

• A fact-find to fully understand your present position
• Research to discover if there are any viable planning opportunities, and
• The agreement of a course of action based on an appreciation of the cost in obtaining the necessary advice compared to the likely tax outcome(s).

If your business or personal financial matters are complex and you don’t invest in an annual tax planning review, we would be very interested in talking with you to see if we could reduce your tax bills in a positive way for years to come

Come and see us at one of our offices in Chelmsford, Sutton, Wanstead and Saffron Walden or give us a call to see how we can help.