The basic income tax personal allowance for 2014/15 is £10,000. There is a higher allowance of £10,500 for those aged over 65 although this allowance starts to be lost once income exceeds £100,000.
The basic rate of tax (20 per cent) is paid on taxable income of up to £31,865 and once again it is advisable to review your income to ensure this band is utilised and that higher rate tax liabilities are minimised. Once taxable income exceeds £31,865 tax is paid at 40 per cent or even 45 per cent for the highest earners.
Making pension contributions or gifts to charity will reduce higher rate tax liabilities.
For a family business, consider paying a salary to all members of the family involved to utilise their personal allowance, or basic rate band.
Can the timing of bonus payments be altered to assist with this? Possibly – but ensure that the payment date doesn’t affect the employer’s entitlement to tax relief, and also that the level of remuneration does not exceed the rate that would be paid to someone unrelated to do the same work.
Could a remuneration package be agreed whereby a lower salary is taken but the employer makes a higher pension contribution for the employee? This is another option, but the total remuneration package should not exceed the market rate for the employee’s role in the business.
Married couples or civil partners with significantly different levels of income should consider reorganising the ownership of income-producing assets to lower their overall tax liability.
For people in receipt of Child Benefit, the High Income Child Benefit Charge will apply if either they or their live-in partner has an individual income in excess of £50,000 – in which case, consider taking measures to reduce taxable income or electing not to receive Child Benefit.
Everyone should review whether there are any tax refunds to claim, including on behalf of children, for example in respect of any tax deducted at source from bank interest, or trust distributions, or where expenses claims can be made in respect of certain employment-related expenses.
While the above suggestions may assist in reducing tax liabilities, taxpayers should always take professional advice in order to ensure that there are no unforeseen consequences of their actions.
For more information call Scott Patten on 01754 899899 or email firstname.lastname@example.org