Plan 4 Saving Tax

 Tax saving guide

 

How to Save Tax and Stay Within the Law

We all want to pay less tax but no one wants to find themselves facing the stress of a tax investigation. While there are often ways to reduce your tax liability in a perfectly legitimate way, there are plenty of other means that are clearly illegal. There is a crucial distinction between tax avoidance and tax evasion. The former is using the tax regime to your own advantage, but within the law. The latter is using illegal means to the same end. The recent strengthening of HMRC powers ought to be a serious deterrent against doing anything that may remotely appear illegitimate.

Some people visit a tax advisor simply wanting to minimise their tax liability. I always tell them they may have the wrong goal in sight. In the end it is the amount of disposable income that you should aim to maximise, not merely focussing on paying as little tax as possible. While tax mitigation is part of that, maximising income is important too, as is acting with proper consideration your overall view of life. Taking a step back and examining your life goals is usually a good idea before focussing in on your tax liability.

For example, we have clients who could avoid paying any UK tax by living abroad for the majority of the year. Yet this would make regular access to their children from a former marriage much more difficult. In this kind of situation, saving the maximum amount of taxes is rarely the highest priority. Others may be able to reduce their tax liability by structuring their business in a different way, yet they would lose key clients or suppliers by doing so. In this case, the tax saving is outweighed by the loss of profits.

So there are two activities involved here. The first is profit maximisation; ensuring you maximise your earnings. The second is minimising your tax bill. You want to both earn more and retain more disposable income. Profit improvement is not the subject of this article but it is often the most important part of the equation. Please do not neglect this if you run a business.

There are simple things you can do to retain as much income as possible, particularly if you run a business. Diligence in recording all your expenses and understanding which of these can be offset against income for tax purposes can save you significant amounts in taxes every year. It is not only complex tax schemes that produce financial savings. Getting the basics right is always important and finding good advice is the key to doing this. A trusted advisor who is interested in building a long-term relationship with you ought to save you money.

Different situations provide opportunities for tax savings. If you are non-domiciled and not ordinarily resident, and work outside the UK for part of the year, then significant tax savings are likely to be possible. If you are married and rent property, then simply putting the property in joint names will produce a tax saving on the sale of the property. It is hard to give specific advice without a full understanding of your circumstances but, at the very least, you ought to be reviewing your tax affairs annually as both your circumstances and the tax regime may change. Make sure you take some action in the interest of your wealth and your peace of mind.

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