You need proper tax planning on hand in order to slash your tax bills by making use of all the available allowances.
A personal tax advice can help you draw a tax plan effectively.
Tax planning can significantly improve your take-home income and reduce the risk of errors on your tax return.
In addition, proper tax planning can make your finances much more predictable over the long term.
There are many ways in which you may have to pay tax, such as on investments growth, on your income, on assets you inherit and on some savings interest.
But how much and what types of tax you need to pay can depend on a number of factors, so it is not an easy task to work out what you owe.
That’s why having a professional for personal tax advice can be very useful as they can help you calculate your tax bills and help you find ways to reduce them.
Here, let us go through the popular circumstances when you need personal tax advice.
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This blog post is divided into the following sections
- Tax advice for Personal tax planning
- Do I need tax advice for personal tax planning?
- Different types of tax you may need to pay
- Final thought
Tax advice for personal tax planning
What is personal tax planning?
Tax planning is a process of drafting the transactions in order to minimise tax liabilities by fulfilling all the legal requirements and regulations.
Any businesses with good tax governance seek to slash their tax liabilities by making use of tools made available by the government.
Such tools can include things like deductions, allowances, rebates and exemptions, to name a few.
And all taxpayers are entitled to organise their tax affairs in such a way that they can mitigate their tax liability, as long as they do so within the regulation.
Tax planning vs tax avoidance
As mentioned above, tax planning is the procedure of arranging your finances in a way that you do not pay tax more than you need to.
For instance, tax planning means keeping track of tax-deductible expenses, all your allowances, charitable donations, business losses etc., while reducing your tax bill with the use of ISAs and pensions.
On the flip side, tax avoidance reduces your tax bill by using tricks and legal investment schemes, which are not permitted.
Yet, if HMRC concludes that the sole purpose of the scheme is to avoid tax, then HMRC may decide the scheme is not legal.
You will find many investors who have used tax avoidance schemes in order to save on tax but found that they owe years of unpaid tax, so use such schemes with extreme caution and seek guidance from professionals.
A recent example of such schemes was IRS 35- where previously people have used umbrella companies. All profits extracted in the form of director’s loans which capital gains. HMRC has been clamping down on such tax avoidance schemes, and many taxpayers are receiving big tax bills going back years in time. Remember, ignorance is not acceptable excuses in such situations.
Do I need tax advice for personal tax planning?
If you are a contractor, freelancer, running your business or have multiple income sources, then you will need to complete the self-assessment tax return.
With personal tax advice, you can make sure that you complete your self-assessment tax return accurately and avoiding penalties from HMRC while making sure that you do not pay more tax than you are legally obliged to.
Tax advice will alert you to all the reliefs, allowances and expenses you can claim back and make sure that you do not lose money unnecessarily.
Not just that but by having personal tax advice, you can also save you a huge deal of time and effort. One example of personal tax advice will be to benefit from the HMRC’s Venture Capital Schemes.
Venture capital schemes
Under Venture capital schemes, investors get a tax break for investing in a qualifying business. Popular types schemes along with tax breaks are:
| Scheme | Maximum allowed annual investment | % of investment on which you can claim |
| EIS (Enterprise Investment Scheme) | £1 million£2 million if at least half of that is invested in the knowledge-intensive companies | 30% |
| SEIS (Seed Enterprise Investment Scheme) | £100,000 | 50% |
| SITR (Social Investment Tax Relief) | £1 million | 30% |
| VCT (approved Venture Capital Trust) | £200,000 | 30% |
Essentially, under these schemes, you can claim a portion of your income taxes paid. There are many terms and conditions attached to these schemes, which make these not suitable for everyone.
Here’s the highlight of different taxes you may need to pay how complex it could be without personal tax advice.
Different types of tax you may need to pay
Income tax
It is the tax imposed directly on your personal income.
The amount you pay on income tax depends on 2 things: How much of your income
- is above the Personal Allowance
- falls within each tax band
There are 3 bands of income tax-
- Basic rate (20 %)
- Higher rate (40 %)
- Additional rate (45 %)
You pay basic rate income tax on all your income above your personal allowance of £12,500 in 2020-21 tax year and the higher rate on everything above £50,000 while an additional rate is paid on income above £150,000.
However, your personal allowance starts eroding once your earnings in a tax year exceed £100,000 and is reduces to zero after £125,000.
Also, you can be able to claim the income tax reliefs that mean you pay less income tax.
The HMRC’s website has more information on claiming income tax reliefs.
Here, your tax advisor or accountant can help claim all your business expenses and allowances by providing their personal tax advice.
Capital Gain Tax
Capital Gain Tax (CGT) is a tax amount applied to the gain from the sale of capital assets an individual own.
CGT is calculated from the gain made from an asset an individual held for more than a year.
Typically it’s applicable to:
- Shares
- Investment funds
- Second properties
- Inherited properties
- The sale of a business
- Valuables including art, jewellery, and antiques
- Assets transferred at below their market value
The CGT rate you are charged depends on two things:
1. Whether you are a basic rate, higher rate, or additional rate taxpayer
2. The type of asset you have sold
For the 2020-21 tax year, the CGT rates are as follows:
| CGT on residential property | CGT on other assets | |
| Basic-rate tax payer | 18% | 10% |
| Higher/additional rate tax payer | 28% | 20% |
Again, in order to calculate your CGT bill accurately and also minimise the amount you have to pay, you will need personal tax advice from a tax advisor or an accountant.
National Insurance
You pay this tax in order to qualify for certain benefits and State Pension.
Anyone over 16, earning £183 or more each week, or is self-employed and has a profit of more than £6,475/year is expected to contribute towards the National Insurance.
Also, not everyone pays the same amount as there are different National Insurance classes.
Your earnings and your employment status and play a key role, as well as if you’ve any gaps in your National Insurance records.
In order to calculate them accurately, you will need personal tax advice from a professional.
Inheritance tax
When an individual dies and passes assets to beneficiaries, they may have to pay the inheritance tax (IHT).
IHT needs to be paid within 6 months of death and can create some complications in case the assets have not been released by the time.
In such cases, beneficiaries may have to pay inheritance tax out of their own assets before the estate is settled or take out the bank loan to cover a bill.
The same applies if you inherit assets from someone else, in that you may have to pay the inheritance tax bill before the assets are released to you.
Though, there are many ways to plan ahead for such situations.
Also, inheritance is not counted as income, so you do not have to include it on your self-assessment tax return.
Here, personal tax advice from a tax advisor or an accountant can ease the entire procedure and help you plan ahead.
Hire personal tax accountant
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
Final thought
Overall, having a tax advisor to gain personal tax advice can make all difference. Your tax advisor not just help you in tax planning and minimise your tax bills but goes well beyond that and help you stay on top of all regulations. So, it’s worth having someone in your team who is an expert in doing tax and provide tax advice in the UK and walk you through this complex task with ease.
