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Effective tax planning is essential if you are to minimise your tax bills. Simple tax planning can significantly reduce your tax liabilities.
The self-assessment tax return is an unavoidable burden if you are liable for self-employed tax or have complicated income tax affairs.
Corporation tax is charged on a company's profits. If you trade as a limited company, ensure that paying this tax is as painless as possible.
National Insurance Contributions (NICs) are payable whether you are self-employed or employed by your own company, although different rates apply.
As well as your legal obligations, you’ll want to ensure that payroll is painless and that you use any opportunities to improve your tax-efficiency.
Effective VAT planning aims to ensure that VAT is relatively painless, and that you are reclaiming as much as possible of the VAT you pay.
Capital gains are made when you sell something for more money than you paid for it. As a result, you can be subject to tax. Take professional advice.
Business property taxes apply to businesses with commercial premises.There are two commercial property taxes: business rates and stamp duty land tax.
If you have tax problems or face a tax investigation, it pays to seek professional advice and you must act rather than just hoping for the best.
Employees pay Class 1 National Insurance contributions. Minimising employees' Class 1 NI contributions directly benefits the employee. It also benefits the employer, by making it easier to recruit and retain employees.
As an employee, you are liable for 'primary' Class 1 National Insurance contributions. Your employer pays 'secondary' Class 1 National Insurance contributions. Both types of Class 1 NI are collected through the PAYE system operated by the employer.
Employees' Class 1 NI contributions are charged at 12% on earnings between the primary threshold of £157 per week and the upper earnings limit of £866 per week in 2017/18 and at 2% on earnings above that.
On 6th April 2016 the new single-tier state pension came into force. As a result of the abolition of the state second pension, it is no longer possible to 'opt out'. The Class 1 NI contributions rebate has now been removed and all employees, with few exceptions, are liable to the same rate of Class 1 NICs on earnings above the primary threshold.
Directors pay Class 1 NI contributions on their employment earnings at the same rates as other employees. But rather than using weekly or monthly earnings, Class 1 NI contributions are based on annual earnings. This means that directors who have fluctuating earnings will pay the same amount of Class 1 NI contributions as they would if their earnings were spread evenly through the year.
If you have more than one job, you can end up paying more Class 1 NI than is due, as the 12% rate could be charged on too large an amount of your total earnings from all your jobs. You can apply to have some Class 1 NI deferred if this is likely to apply or reclaim the excess after the tax year end.
If you are both employed and self-employed, then it is possible to end up paying more in employee's Class 1 and self-employed Class 2 NI contributions than the total annual limit payable. Again, some contributions can be deferred or reclaimed.
Class 1 NI contributions are payable on almost all cash payments an employee receives. Cash tips received directly from a customer, or where the employer has no influence over how tips are shared out, are exempt from NI (but are still taxable). Compulsory service charges are not exempt.
Employees' Class 1 NI contributions are payable on any cash payments, including bonuses and other incentive payments. But Class 1 NI is not generally payable on benefits unless they are either cash or cash-like (for example, vouchers that can be exchanged for cash). So employee benefits such as childcare vouchers can be a useful way of reducing Class 1 NI contributions payable (and in some cases tax as well).
The most significant benefit can be employers' pension contributions. If an employer contributes directly to the employee's pension scheme, no Class 1 NI contributions are payable by either employer or employee. A properly arranged salary sacrifice scheme - where employees accept a lower salary but receive higher pension contributions - offers significant Class 1 NI savings.
If you own your own company, you may be able to make substantial Class 1 NI savings by taking dividends rather than salary. Dividends can only be paid out of distributable profits (so not if the company has accumulated losses) following proper procedures, and cannot be paid selectively only to chosen shareholders. Dividend income over the current allowance of £5,000 will be subject to tax. The dividend allowance will be reduced to £2,000 per year from April 2018.
The 'IR35' rules on personal services companies, and rules on managed services companies, have made it difficult to take advantage of this if you are providing personal services through a company (for example, as an IT contractor). In these cases, the rules broadly ensure that the tax and NI treatment of any payment - including dividends - is the same as for employment income.