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Thursday, April 18, 2024

Making The Best Use of Tax Allowances

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Is your tax shield ready? Tax planning is often misconstrued as a final resort to minimize the overall liability. Each year brings new opportunities to reduce the tax one pays out. Exorbitant tax rates, dynamic policies, and ever-changing regulations are creating a dent in the budget tax planning of individuals, corporates, and businesses all alike.

The UK govt holds all residents and beneficiaries liable to pay tax but allowances and benefits come to the rescue. Knowing where to start is a common challenge faced by the majority. The shared insights below could be of assistance while navigating through such hurdles.

  • Maximizing Personal Allowances:

Personal allowances up to £12570 are at disposal for all individuals whose yearly adjusted net income falls below £100,000. However, upon exceeding the benchmark of £100,000, the deductible amount of Personal allowance gradually starts reducing, eventually lapsing at an adjusted net income of or above £125,140 yearly. The element of tax savings comes into the foray by aiming to maximize personal allowance deductions. If additional personal pension contributions or gift aid donations to registered agencies are made well ahead in the tax year, even if the gains exceed the threshold, the adjusted net income will fall in place overall allowing utilization of personal allowance.

Personal allowance deductions of eligible taxpayers can be transferred to their spouses or registered civil partners through the entitlement of marriage allowance as per HRMC policies provided that both partners are basic-rate taxpayers as per their net income. In line with Finance Act-21, the marriage tax allowance stands at £1260 for the tax year 2021-22. The benefit is passed on as a reduction from their final tax liability up to £252 which aids as the final tax saved.

  • Shield your employment income from tax:

With the norms of Covid-19 restricting movement, the HMRC has come to the aid of individuals working from home by increasing the weekly tax-free allowance to employees up to £6, inclusive of the cost of necessities needed to operate from residencies.

Moreover, workers can enjoy deductions on taxable salaries by utilizing approved mileage allowances of 45p per mile up to 10,000 miles and 25p per mile beyond that for commute involving a business purpose. Alongside, Company Car benefits Company Van Benefits, Company Car Fuel Benefit can also be utilized by employees to reduce their tax liability on their employment income.

For employers & entrepreneurs, the annual employment allowance has been set at £4,000. This can be used by businesses to reduce the amount of employer’s Class 1 NIC liability paid on behalf of employees.

  • Benefits of Pension Contributions:

For workers contributing to pension schemes, the annual allowance for the tax year 2021-22 remains the same at £40,000 but if the adjusted income of an individual exceeds £312,000 or more, they will only be entitled to an annual allowance of £4,000. However, the lifetime allowance has been increased from £1,055,000 to £1,073,100 applicable if the total pension fund exceeds that limit.

  • Safeguards against high capital gains tax rates:

Concerning Capital gains tax, the Finance Act-21 sets the annual exempt amount at £12,300 inducing lower taxing from last year. Entrepreneurs can make the most out of asset disposal relief while e letting off a business or a part but the lifetime qualifying limit has been brought down to 1 million from 10 million. Individual savings accounts could be another vital medium for tax savings as they are exempt from Capital gains tax & henceforth, income can be parked in cash, Stocks & shares up to £20000 a year.

Concluding, the tax burden can be drastically reduced with dedicated efforts of planning & management while operating within the rule of law. Opting for advisory assistance from qualified professionals is a great investment as it can help you mitigate tax liabilities in the long run. Furthermore, onboarding the services of an accounting outsourcing company to manage your tax planning and return filing can be a fruitful venture as one can avail expert advice at a bare minimum cost compared to the UK wage rates.

Outsourcing also mitigates the need to hiring0 in-house staff for performing mundane tasks and relieves one from the associated expenses. Additionally, digitization allows one to get round-the-clock support for accounts outsourcing services across the globe at a fractional cost.


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