Taxed to death (and beyond)
Updated: Jul 1, 2019
I think it was Ben Franklin who once said, "In this world nothing can be said to be certain, except death and taxes."
Taxes. I'm sure you think you pay too much.
And as millionaire novelist Stephen King wrote: "The majority would rather douse their dicks with lighter fluid, strike a match, and dance around singing Disco Inferno than pay one more cent in taxes to Uncle Sugar."
Beat that for a visual representation.
And here's a shocking tax revelation.
Do you know what the average household pays in a lifetime? ...
That's an insane amount.
Imagine the number of 'cheeky' Nandos you can squeeze out of that hefty wedge (still unsure what's cheeky about eating a Nandos? ... that said, I once witnessed a Nandos 'chef' sneeze directly into a tray of wings before proceeding to cook them - perhaps that's what made them cheeky??).
While you digest that mental image (see what I did there) let's put the £826,030 into a little perspective - here's a small number of taxes you have paid, are paying or will pay at some time:
Value Added Tax
Enough? Not quite.
Should you be unfortunate enough to lose someone close, but lucky enough to inherit some money, you'll get taxed 40% on anything above £325,000.
If you're offloading assets that are worth a few quid over what you originally paid, then yes, you'll be taxed on this as well.
And don't think about pulling money out of your pension early because this also has a taxable implication.
You simply cannot avoid paying tax.
Those who have tried are often caught out and suffer greater financial pain as a result.
As a general rule of thumb savvy tax planning is better than underhand tax avoidance.
And you could save yourself a little money by maximising legitimate allowances and tax breaks.
Here's a smal number of things you could quickly and simply look into yourself, have your accountant investigate or ask a business support company like Busines Buddies to delve into:
1. Do not rely on calculations made by HMRC Humans make errors, and those working at HMRC are no different. I came across this interesting blog that talks about a small number of them. It may therefore be well worth your time just double checking what they're telling you.
2. Ensure your tax code is correct Your tax code shows your employer how much tax to deduct from your salary. If it is lower than the tax free allowance threshold (and you do not have taxable benefits in kind), you may be paying too much tax. If it is higher, then you could be in for a nasty shock at the end of the year when you are told that you haven’t paid enough tax.
3. Claim your full tax relief on pension contributions
When you earn tax relief on your pension, some of the money you would have paid goes into your pension rather than to the government. Tax relief is paid on your contributions at the highest rate of income tax you pay i.e. basic-rate taxpayers get 20% relief, higher-rate taxpayers can claim 40% and additional-rate taxpayers can claim 45%.
4. Claim all allowable business expenses If you are employed then the opportunities for claiming deductions against your salary are limited but they are much greater if you are self-employed. You might be surprised by some of the expenses which are allowable, so make sure you look into this - it won't take long to see what else you could benefit from.
5. Take advantage of your personal allowance The basic personal allowance is currently £12,500, and there ways to take advantage of it. Perhaps the most common is where one half of a married couple is a higher rate taxpayer while the other is a nil rate taxpayer. Putting the income-producing savings in the nil rate taxpayers name could save £3,000 per annum.
6. Choose the best employment status Are you employed or self-employed? There are advantages to being self-employed in terms of reducing your tax bill - you will pay less on your earnings than someone who is employed under PAYE. That said, other tax bills come into play such as VAT, so make sure you've done your sums before taking the plunge.
7. Selling a second property without getting stung Investing in property is a great way to create an extra income and nest egg, but may lead to a Capital Gains Tax (CGT) bill when you eventually sell the property. You could reduce the tax bill by lowering taxable income in any one year to reduce CGT from 20% to10%.
8. Fancy a long-term holiday? If you live in the UK for 183 days or more per year you will be classed as ‘resident’ and subject to UK tax. If you live here for less than that you will be safer from the demands from HMRC.
These things will all help, a little - but we're not tax experts, so we can't delve into the nuances here. We would advise seeking the advice of a Tax Advisor if you want to investigate some of these things in more detail.
That said, we can certainly help you manage your books and business to ensure you're never paying more VAT or corporation tax than neccessary.
Just give us a call - why don't you make it the next thing you do? It'll only take 10 minutes, won't cost you a thing and, you never know, you might just find we can help you.