Want clear and simple explanations to tax and accountancy questions? Your questions answered….
I am Debbie Story, a partner at Sleigh & Story, a local firm of qualified accountants. I want to help local people and businesses by giving clear and simple explanations to your tax and accountancy questions.
Q: I paid over £10k in tax last year as a sole trader. Should I trade from a company instead?
A: There can be significant tax savings by operating a business as a limited company, rather than as a sole trader or partnership. The downsides are additional administrative duties (however a good accountant can provide these services) and cost. For a tax bill of £10k the benefits should be higher than the costs, and therefore it would be worth discussing changing the business structure.
Q: Should I have a company car?
A: Company cars are heavily taxed and are usually only chosen for convenience. Tip: To reduce the tax, chose a car with low Co2 emissions. Also the tax does not reduce due to the age of the car, even if it is bought cheaply second hand. Therefore do not assume a cheap car means low taxable benefit, focus on Co2 emissions.
Q: What about private fuel too?
A: Having the additional tax benefit of private fuel can almost double the cost to you of having a company car. You could consider arranging with your employer to reimburse the company for your private use of fuel, to completely eliminate this expensive benefit. Again, convenience is costly.
Q: What forms of tax free savings are there?
The most common forms of tax free savings are in ISAs, National Savings Certificates and Premium Bonds. Currently you can invest up to £10,680 a year in ISAs, up to half can be put in a cash ISA and the rest in a stocks-and-shares ISA.
Tip: interest earned on an ISA rewarding only 1.5% p.a. is the same as 1.9% p.a. interest on a taxed savings account for a basic-rate tax payer and 2.5% for a higher-rate tax payer. Therefore do watch out for low interest ISA accounts, they may not be worthwhile.
Q: I’m a married higher-rate tax payer with a number of investments. Any tax savings tips?
A: Transferring assets to a spouse or civil partner is one of the simplest ways to make a big tax saving, if one of you has to pay higher-rate tax. By moving the assets (e.g. shares, second property) to a spouse who pays tax at the basic-rate, the income will be subject to 20% tax rather than 40%.
It could also help to save you thousands of pounds in capital gains tax. The tax went up to 28 per cent for higher-rate taxpayers in June 2010. Basic-rate taxpayers continue to pay 18 per cent and, crucially, everyone has an annual tax-free allowance of £10,600.
Please email your questions to debbie@sleighandstory.co.uk. I will answer your questions promptly and, with your permission, share the example in future Grapevine articles.
Kind regards
Debbie
