Like all firms of accountants we are currently deeply involved in ensuring that client’s tax returns for 2011 are submitted by the due date of 31st January 2012. However, it is never too soon to plan for the current taxa year which ends on 5th April 2012. There are some tax saving opportunities available which must be used before the end of the tax year or be lost.
One clear example is an investment into an Individual Savings Plan (ISA). During the current tax year, any individual can invest up to £10,680 into an ISA. Of this, a maximum of £5,340 can be put into a cash ISA, ie into a cash-free bank deposit account. Any balance of the annual limit can be invested into a stocks and shares ISA, ie if no cash is invested into an ISA then the full allowance can be invested in stocks or shares.
You should remember that the limit of £10,680 is for each individual. This means that a married couple can invest up to £21,360 during the current year.
However, also remember that an ISA will only save tax if you are a taxpayer. They do not have any advantage for non-taxpayers, and these should ensure that they do not incur any additional charges. This leads to a simpler form of tax planning for couples. That is to ensure that, when someone is a taxpayer but their spouse is a non-taxpayer, all investments are in the name of the non-taxpaying spouse.
It is also important to consider pension planning. There are limits to the amount that can be invested into pensions each year and obtain tax relief. Firstly, you can only contribute an amount up to your total earned income in the tax year. Secondly, there is an annual limit above which you will not receive any tax relief, and for the current year that limit is £50,000. Again, this is per individual so married couples, both of whom are working, can contribute up to £100,000.
This could lead to some interesting tax planning for “one-man” limited companies. All payments to spouses must be commercially justified, but assuming this to be the case then a spouse can be paid up to the personal allowance, currently £7,475 subject to income limits. For example, assuming a salary of £15,000 can be justified, then the company could pay a salary of £7,475 to the spouse with a further £7,475 being paid into a pension fund. After tax relief, the cost of this to the company would only be £12,000 meaning that the spouse has achieved an investment of £7,475 at a net cost of just under £3,500.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in these and other matters, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.