Did you do your tax before the deadline?
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As the tax year (April 5) drew to a close, did you remember to do that last minute fine tuning which, in many cases, can drastically reduce your tax? Jon Hook, from Norwich Accountancy Services, discusses.
Big ticket items like plant and equipment can have a massive effect but some of the more mundane items that minimise your tax bill include pension contributions and gift aid donations. Both of these payments lead to an extension of your basic rate band (£45,000 in the 17/18) and the deferral of the 40 per cent (or higher rate) tax.
If your income was £50,000 in the 17/18 tax year you would expect to pay tax at 40 per cent on the last £5,000. A pension contribution of £4,000 can eliminate this by shifting the basic rate bracket up to £50,000. (This is done as the £4,000 payment is 'grossed up' to £5,000.) The same applies to a gift aid donation but the key difference is that pension contributions have to be made in-year whereas gift aid donations can be carried back.
The following is an example of how paying £80 can save you £120 by the use of the carry back provisions. Let's call our taxpayer Jack whose income in 17/18 is £45,100. Of Jack's 17/18 income, there is £1,000 of bank interest. As Jack is a higher rate taxpayer he only gets £500 tax free (as opposed to £1,000 for basic rate taxpayers) meaning that he has to pay £120 tax on the interest he earns (£400 @20 per cent and £100 @40per cent.) The problem is that he only realises this after the April deadline. All is not lost though as you can carry back gift aid donations – result! The gift aid donation is grossed up to £100 thereby shifting the basic rate threshold for Jack to £45,100! Jack pays no tax on the interest at all and everyone's a winner!
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Another end of year 'area' missed is repair work. If repair work commenced before the April deadline and you can reliably estimate the cost, then it is possible to accrue the expense in the accounts even though the invoice will not be received until the following tax year. What matters in essence is that the business/landlord has a 'legal or constructive obligation' to pay for a quantifiable cost of repair work by the end of the tax year. Another missed 'trick' is the capturing of capital losses. If you don't claim the loss within four years of when it arises you lose the right to offset it against future capital gains and this could be very costly indeed! There are many things you will and probably already have missed over the years because either you are a/ 'small fry' to your accountant b/ they are apathetic or c/ they are just bean counters. Over the years it has probably cost you '000's which in compound interest terms will drastically change your retirement.
You can contact Jon Hook, at Norwich Accountancy Services, column sponsors, on 01603 630882 www.norwichaccountancyservices.co.uk
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