Wednesday, March 10, 2010
What can you do to reduce your income tax liability if you are self employed or own your own Limited Company? There are many things that you can do that are Tax Avoidance as opposed to Tax Evasion. The first, Tax Avoidance, is legal where as Tax Evasion is not.
Here are some simple ideas which are Tax Avoidance but as in all things one should take independent professional advice before committing them selves to any course of action.
If your wife or children help you in your business then of course you should provide a commercial form of remuneration for the work that they do. Obviously this has to be on a commercial basis and be in line with what you would be paying some one who was not a member of your family. The arrangement should be at arms length.
We come across many situations where the wife takes calls and make appointments but does not earn a salary. If she has no other income then her personal allowances can be used to a very good effect both as a legitimate tax deduction in her husbands' business but also to use up her tax free allowances and providing income which is tax free up and to the point that she earns more than her personal allowances.
The same can be said for children who can use computers and perhaps provide data entry services for their parents business. A few hours a week on this type of work can easily build up to say £2,000 a year. This money could be put towards an education fund or even to start a pension plan.
If the wife uses her own car for business errands (not a vehicle owned by the business) then she could claim mileage expenses on the business miles travelled.
If the business is based at home then a charge can be made for "Use of home as office" and again this has to be commercial based on actual space and costs incurred. This could include a percentage of light and heating and any other additional costs that the business has incurred.
With a Limited liability company you can pay a dividend and save National Insurance.
You might also set up the company with different classes of share capital which could be issued to members of your family. This way it may be possible to steer income to members of your family even if they were not working for you. Again over a few years this could provide quite a useful nest egg.
Tax does not need to Taxing but some planning does help.
Pension Planning is not as effective as it once was due to the fact in part that under Gordon Brown the current UK Prime Minister when he was chancellor of the exchequer he has made it far less attractive in terms of growth. At his first budget in 1997 he struck a harmful blow at Pension Funds as he cancelled advance corporation tax at a stroke which meant that the pension funds could no longer reclaim the tax on their dividend income. In my view that was a touch less than cautious as by making the stock market a much less attractive for pension funds to invest for income he helped create a UK stock exchange slump. With that came the fact that many pension providers ran into to very serious problems and indeed the oldest mutual company UK Company was brought to its knees in 2001.
So as regards pension planning there may be opportunities to consider but it might be a good idea to use up your ISA investment opportunities first as the income from those will be tax free whilst pension income is taxable. Also the ISA is accessible whilst the pension would not be until you reached the age of 55.
A wide mix of savings products is a good idea and pensions should form part of that mix but a much less and lower element than previously due to the meddling of Gordon Brown.
The Author writes many articles on Income Tax, Tax and Pension Planning for more information please go to UK Tax Refunds
Article Source: http://EzineArticles.com/?expert=Peter_E_Jones
