The way we organise, whether it be tax planning or ‘playing it by ear’, for our business and personal financial affairs determines the amount of taxes we pay.
Most of us are focussed on outcomes. Outcomes that on the face of it, increase our profits or income without due regard for the effect these transactions have on our tax position.
Six-Figure Salary Rule
A classic example is a rule that removes your entitlement to the annual personal tax allowance if your income exceeds £100,000.
For the tax year 2019-20, your £12,500 personal tax allowance would be reduced by £1 for £2 that your income exceeds £100,000. And so, when your income reaches £125,000 you will no longer be entitled to claim this allowance.
Because you are being taxed at a 40 per cent income tax rate and you also progressively lose your personal tax allowance (between £100,000 and £125,000 ). You are effectively taxed at 60 per cent on this top £25,000 of your income.
The Benefits Of Tax Planning
With the benefit of tax planning, there might be lawful ways that you could reduce your income without compromising your finances. And, maintaining your claim to the personal tax allowance. If your current salary or bonus looks to exceed the personal tax allowance, speak to one of our experts today to see how tax planning can work for you.
Cost-benefit considerations need to be advanced at this point. It is difficult to argue that you adopt a tax planning strategy if the cost of the support you need is more than taxes saved.
Planning requires a three-step process:
- A fact-find to fully understand your present position,
- Research to discover if there are any viable planning opportunities, and
- The agreement of a course of action based on an appreciation of the investment required to provide the necessary advice and the likely tax outcome(s).
Why It’s Best To Invest
If your business or personal financial matters are complex, and you don’t invest in an annual tax planning review, we would be interested in talking with you to see if we could impact your tax footprint in a positive way. Please call, we can help.