We are all looking for new ways to maximise our income, and advisers told FTAdviser that one way to do that could be finding ways to help clients save money on their tax bills.
Here are some ways to possibly save a client some money at the end of this new tax year:
1. Check the tax code
If the client is a full or part-time employee it’s likely that they are to be paying tax via pay-as-you-earn. This means the income tax a client has to pay is deducted at source and goes directly to HM Revenue & Customs.
Their tax code is essentially a few numbers and a letter, such as 1257L, and it is shown on the client’s payslip. Those digits determine the amount of tax your client is paying, and it’s not uncommon for errors to creep in.
For example, if a client once had a company car with an engine that consumed enough fuel to fill a small jet, but now has switched to an eco-friendly model, their tax code should be adjusted to ensure your client is paying less.
If in doubt about your client’s tax code, speak to them or their employer.
Carolyn Matravers, chartered financial planner at Old Mill (pictured left) said: “Many of us will be familiar with the HMRC tax codings that come through, but any change in circumstance or tax rules, can generate a change.
"Never assume that the change is correct, always check it."
"Good practice would be to send a copy of any tax notice to your accountant or professional adviser for them to sense check it for you and if you are employed, ask your payroll department to explain how the tax on your benefit package is calculated so that you can understand it."
"This helps them to sense check it is correct and will highlight any errors. If you do feel it is wrong then gather together all your supporting paperwork (P60s, payslips and your HMRC tax notice) and call HMRC.
"They will require evidence, but will talk things through and make any changes necessary."
2. Claim allowable expenses
For clients who are self-employed, there are a host of allowable expenses that can help to bring their tax bill down.
These possible expenses can include office running costs, train fares and website fees, and should be taken off the overall profit, meaning the client only pays tax on the amount left over after these costs.
Matravers commented: “It is always a good idea when self-employed to keep a timeline, as well as all receipts on expenses incurred during the course of the business and a top tip would be to write a small narrative by the side of it.
"It will prove invaluable when completing your tax return to consider what you can include that is allowable for tax purposes."
"Certain deductions could be applied now which will serve to reduce profits and any corresponding tax which is an immediate win, but other deductions may be more relevant later on so don’t disregard any expenditure.
"All too often we forget what we have spent, when we spent it and why over the passage of time so keeping clear records is so important and a great way of claiming what you can to reduce your tax burden.”
3. Check if the client is eligible for tax-free childcare
If you have children and pay for nursery, childminding, or wraparound care, you may be eligible for tax-free childcare.
Under this scheme, the government will pay 20% towards your childcare costs up to a maximum of £2,000 per year, per eligible child.
Tax-free childcare is just one of several childcare schemes available – working parents may also be eligible for varying amounts of free childcare and tax credits. It might be useful to make your client aware of this to see if they are eligible.
Matravers said: “It is so important to explore all benefits available via the Government and through your employer when you have children.
Often employers support the Government schemes as part of a flexible benefit package, so do your homework on this, particularly if you are co-parenting and sharing the childcare."
"Entitlement to 30 hours of free childcare a week for eligible young children can assist greatly with a transition back into the workplace for new parents, without the financial worry."
4. Pay into a pension
Most UK taxpayers get tax relief on the money they pay into a pension fund, which means the government tops up payments into a client’s retirement savings pot.
For basic rate taxpayers, the top-up is 20 per cent - HMRC will add £20 for every £80 you pay into a pension fund.
As well as this form of tax relief, saving for retirement can actually cut the annual tax bill for those earning over £100,000 a year.
This is because the personal allowance (the tax-free annual earnings allowance currently set at £12,570) is gradually reduced by £1 for every £2 earned over £100,000.
Pension contributions reduce a client’s taxable income, so if these contributions keep their annual income below £100,000, they will benefit from the maximum level of personal allowance.
It's vital to plan for a household, rather than an individual when there is one earner.Megan Jenkins, SaltusPaying more into a pension pot can have implications for child benefit, too. Currently, monthly child benefit payments are gradually reduced if the higher-earning parent receives over £50,000 annually, and by the time the income hits £60,000 any entitlement disappears completely.
By paying more into a pension fund, it might be possible to keep your taxable salary just below £50,000, thus ensuring the client receives the full child benefit entitlement, while also enhancing their pension savings for later years.
Megan Jenkins, Partner at Saltus said: “Although it may seem tax effective to decline or not claim your child tax credit, it’s worth noting that without having the claim in place a non-working spouse will not receive their state pension credit for child raising years, thus reducing their potential entitlement to full state pension in retirement.
“This is why it's vital to plan for a household, rather than an individual when there is one earner, as although the situation may be that the tax benefit is fully tapered due to earnings it’s important that it is still claimed.
“For particularly high earners, the annual allowance means that there is no room to contribute at a level that can manage their tax position down to regain their child benefit."
“Pension contributions are a great way to manage your tax position and regain elements like your personal allowance and child benefit. It’s worth bearing in mind that if an employer allows you to do so via salary sacrifice, it can bring further benefits by reducing the gross salary rather than taking contributions from your net pay."
"For example, personal national insurance savings (this is even more valuable with the recent changes in NI rates), employers’ NI savings (in certain circumstances the employer may be generous enough to pay this saving into the employees’ pension as an additional contribution), reduced student loan repayments, and bringing back personal allowance for high earners and child benefit for those earning over £50k.”
5. Make the most of marriage or civil partnership.
The marriage allowance is a tax break that lets a spouse or civil partner transfer £1,260 of their personal allowance to the higher earning partner.
To qualify, you must not pay income tax, or your income must be below the Personal Allowance (£12,750). Your partner should pay Income Tax at the basic rate, which means their income is between £12,751 and £50,270 before receiving the marriage allowance.
The marriage allowance can be worth up to £252 in tax savings per year, yet around 2.4mn qualifying couples are failing to claim the benefit. However, more positive news is that the marriage allowance claims can be backdated up to four years.
Neil Rushton (pictured below), chartered financial planner and STEP associate at Old Mill, said: “Claiming the marriage allowance is a quick win for eligible married couples, a one-off application can be completed within minutes via the HMRC website. With additional planning there are further tax benefits for married couples to take advantage of. For example. the spouse exemption for inheritance tax."
IHT is payable when a person’s estate is worth more than what’s known as the ‘nil rate band’ of £325,000 when they die.
An additional allowance (the residence nil rate band) of up to £175,000 is available, where a family home is left to children, grandchildren or other lineal descendants.
If both allowances apply in full the first £500,000 of an estate would not be subject to inheritance tax, amounts over the nil rate band(s) would generally be subject to inheritance tax at 40 per cent.
He said: "There is no IHT payable on gifts made between spouses, either during their lifetime or on death (assuming both are UK domiciled).
"In addition if you’re married or in a civil partnership and you pass your estate to your spouse, any unused nil rate bands can be added to your spouse’s allowance when you die."
This has the effect of doubling the potential nil rate bands available so that the first £1m of a couple’s estate may not be subject to inheritance tax and defers any tax on assets above this amount until the survivor dies."
Any unused nil rate bands can be added to your spouse’s allowance when you die.Neil Rushton of Old MillRushton adds: “Another is the inter-spouse exemption on capital gains tax.
"When disposing of an asset, for example, a directly held investment or property which has increased in value, individuals have a capital gains tax allowance of £12,300 (for tax year 2022/2023) meaning £12,300 of the gain will not be subject to tax."
If the ownership of the asset was partly transferred to a spouse or civil partner prior to disposal, they would benefit from an inter-spouse exemption, which means the spouse or civil partner making the gift does not end up with a CGT bill"
If the asset is sold following the transfer of ownership there will be two £12,300 CGT allowances available, resulting in a lower tax bill – potentially saving as much as £3,444 tax when disposing an investment property.
"There is also the additional permitted subscription; since December 2014, those that are married or in a civil partnership can reinvest cash and investments in their spouses' Isa into an Isa in their own name (sometimes worth several hundred thousand pounds) enabling the survivor to continue enjoying income and growth from the Isa, tax free", he adds.
The allowance is called an APS, however, not all Isa providers accept the subscription so it is important to check.
6. Encourage them to save if they are single!
It is not all doom and gloom for the single client however.
Most local authorities in England and Wales offer a single person’s council tax discount of 25 per cent. This can be worth around £300 a year, yet many residents fail to claim the benefit.
The government website provides a way to check with a client's council to see if they are eligible for a discount, which will reduce the council tax they pay.
calum.kapoor@ft.com
