At the start of a new year thoughts generally turn to New Year’s resolutions and good intentions for the coming 12 months. As we reflect on the past year and prepare for the year ahead, friends and family are declaring the usual ‘I will eat more healthily’, ‘I will work out every day’, ‘I will save more money’. As usual, only a fraction of the resolutions are likely to be successful!
This year we would like to inspire you to set some financial New Year’s resolutions which will allow you to be better advised and keep on top of your income and tax affairs. Here are our top 5 suggestions:
1) Undertake tax planning 2018 before the end of the tax year
The current tax year ends on 5 April 2018. There is plenty of tax planning that can be done towards the end of the tax year, but it is important this is not left until the last minute. Consider things such as:
- Making personal pension contributions or gift aid donations which may reduce the rate at which your income is taxed. Well timed payments could save you tax of up to 60%.
- Making capital disposals which use up your capital gains tax annual exemption (£11,300 for the current tax year), or to use up capital losses brought forward.
- Maximise the use of ISA allowances
- Undertake remuneration planning to ensure income is withdrawn from your personal company in the most tax efficient manner
2) Talk to your accountant
This seems like an obvious one but on many occasions a transaction can be structured in a different way to reduce the tax exposure. However this cannot be done retrospectively, therefore it is wise to seek advice before you undertake a transaction. Keeping us in the loop with regard to your investments, business interests and intentions is critical to us being able to provide proactive advice and mitigate any potential tax liabilities arising. Often simple planning such as placing an asset into joint names with a spouse before a sale, can save thousands of pounds of tax. We always have your best interests in mind and promise we don’t bite!
3) Finalise your tax return earlier
At this time of year, our tax team are very busy ensuring all our client’s personal tax returns are submitted before the deadline of 31 January 2018. I’m sure many late offenders put off the task of sorting their paperwork in favour of other much more exciting things! So what are the advantages of finalising your tax return earlier?
Filing the return early gives you good notice of any tax payment that is due by the end of January. If you file the return in April, straight after the end of the tax year, this gives you 9 months to plan and budget for the payment that is due. Alternatively, if you are due a refund of tax for the year, submitting the return early will mean that this is repaid to you much earlier.
Tax returns can be enquired into by HMRC for up to 12 months after they have been filed. Submitting the return earlier means the enquiry window will close that much earlier and you can have peace of mind that no further questions will be raised regarding your return.
Finally, preparing the return closer to the end of the tax year means that it is generally easier to remember that one off bit of income you received, or that asset you disposed of, rather than having to cast your mind back just under two years previous to remember what was going on! This means that actually collating all the details to prepare the return should be that much easier.
4) Think about the future
We all lead busy lives and most of us are thinking about our plans for next week, next month, or next year. Rarely do we stop to consider what we will be doing in 5 or 10 years time.
Considering the longer term can help focus the mind and ensure the actions you take now, put you in good stead to meet you future financial aspirations, whether that is making provision for your retirement or providing for future generations of your family.
A significant amount of individuals do not have an up to date will resulting in their assets not necessarily ending up where they want them to. Wills should be considered in conjunction with your inheritance tax (IHT) exposure, to make sure that they are tax efficient and minimise any IHT liabilities on your death.
Considering your IHT position at an early stage also means that you have much longer to take action to mitigate the IHT liability following your death. It is worth making a list of your current assets along with their values and discussing this with your accountant to quantify the position, should the worst happen tomorrow. With this information you can then consider what actions can be taken to improve the situation.
5) Setting up your personal tax account
Making Tax Digital (MTD) is part of HMRC’s plan to “revolutionise” our tax system and make it one of the most ‘digitally advanced’ tax systems in the world. Ultimately MTD will fundamentally change how and when businesses and landlords provide information to HMRC. In the summer it was announced that the proposals are currently on hold until 2020.
Whilst this is a relief for many in the short term, business owners and landlords with turnover or gross rents of more than £10,000 may still be required to keep their accounting records in a digital format from April 2020 under the revised proposals. Although 2020 may seem a long way off, you should consider altering the way in which you keep your records in advance of the changes being introduced so that you are prepared.
Beyond this, we do not know what the provisions will mean for many private tax clients although we are led to believe the current tax return may be replaced at some time in the future.
A further part of MTD is the introduction of the “Personal Tax Account” (PTA). Your PTA brings together much of your tax information in one place and includes useful information such as PAYE coding notices, which you are able to go in and change if you consider are incorrect, and your state pension entitlement. Activating your PTA will also mean any tax refunds due are paid to you more quickly.
Whilst the MTD provisions have been temporarily suspended, we would still recommend that you activate your PTA with HMRC. If you need any assistance in activating your account please get in touch.