R&D Tax Relief Scheme Changes 2021

Changes to the SME R&D tax relief

Changes announced late last year concerning the R&D tax relief scheme come into force on April 1 this year, are you ready?

R&D Tax Relief Scheme Changes 2021Aiming to put UK at the forefront of R&D and help companies compete on the world stage, the government has introduced various R&D tax reliefs, including R&D for small or medium-sized enterprise (SME), universities and charities, as well as R&D Expenditure Credit for large companies.

From 1 April 2021, the new SME R&D tax credit scheme will take effect, with the introduction of a cap on the amount of credits that could be claimed.

An overview of the SME R&D tax relief scheme

When the SME R&D tax credit schemed was first introduced in 2000, it had a cap on the amount of credits that a company could claim. In 2012, the cap was removed, thereby allowing eligible companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, making it a total of 230% deduction. Even when a company was making losses, it could still claim a tax credit worth up to 14.5% of the surrendarable losses.

The system was subject to abuse and fraud – HMRC announced that they had detected and prevented fraudulent claims amounting to over £300m in recent times. Many deceptions included people setting up a UK-based entity just to claim tax credit despite no R&D work was actually performed in the UK.

Consequently, from 1 April 2021, the government will introduce a cap, limiting the payable R&D tax credit to three times the total PAYE and NIC liability of the company for the year, plus £20,000. This also means that the first £20,000 of repayable tax credit claim will be exempt from the cap, thereby protecting smaller SMEs with few employees.

For a genuine SME that employs people to carry out R&D work in the UK, the new changes will have little or no impact. However, for a company that doesn’t have any real UK-based activities, or one that doesn’t employ people but relies on subcontractors, the new rule will discourage them from making an R&D tax credit claim.

Exemption

The new changes will not apply to companies that:

  • Have employees creating, preparing to create, or managing Intellectual Property (IP), and;
  • Do not spend more than 15% of its qualifying R&D expenditure on subcontracting R&D to, or the provision of externally provided workers (EPWs) by, connected persons.

R&D and IP creation

Ideally, R&D work would lead to IP creation, and if this is the case, your company could also take advantage of the Patent Box – a scheme that allows companies to apply a lower rate of Corporate Tax to profits earned from its patented inventions.

‘Related party PAYE’

In calculating PAYE and NIC liabilities, claimants may include related third parties, i.e. those companies performing R&D activities on the claimants behalf, as long as the work is directly attributable to the development activity.

Talk to Tax Agility

The first step is to seek professional guidance on this issue if you aren’t sure how it is going to impact your business.


Business people Celebrate Merry Christmas And Happy New Year

Tax rules for staff parties and annual events

Business people Celebrate Merry Christmas And Happy New Year

Beware of the £150 per head exemption before organising your office party.

The idea to get your team members away from work and their daily routines for a social function is sound and meaningful. Rightly so, HMRC recognises the importance of such social event and allows tax exemption to small business owners who look to reward their employees with a staff party or a social event.

Important tax rules on staff parties and annual events

HMRC is stringent when it comes to the extra perks you provide to your staff and the perks are subject to PAYE tax and National Insurance.

But once a year, HMRC allows you to spend £150 per employee which is an exemption, meaning you can claim them as a business expense. To qualify, the event must:

  • Occur annually. It can be a Christmas party or a summer event.
  • Cost less than £150 per employee. This cost includes VAT and other related expenses such as the event itself and transport.
  • Available to all employees.
  • Available to their partners, meaning their partners are also subject to the £150 per head limit.
  • Applicable to shareholders who are also directors or employees.

What happens if my event costs average more than £150 per person?

If your annual event exceeds the £150 tax exemption per person, you cannot claim the first £150. Instead, you must report the whole amount to HMRC and pay National Insurance on the full cost of the event accordingly. In this instance, it is best to get help from your accountant as you will also need to complete form P11D for each employee.

Can I host more than one annual event?

Yes. Employers can host multiple annual events but must ensure that the combined cost of the events is no more than £150 per employee for the year. However, to make it easier, most business owners choose to use their tax exemption budget during a single occasion.

Let Tax Agility manage your taxes

Tax is probably not the favourite subject among many small business owners. In the UK, tax is a complicated subject and how much tax your business has to pay depends on its structure, the VAT option it chooses, and how much money it makes. We understand that not all small business owners can keep abreast of the latest tax changes, which is why our accountants for small business owners are here to assist.

When it comes to taxes, you can count on us to provide services pertaining to:

  • Corporate tax
  • VAT
  • Employers’ PAYE
  • National Insurance
  • Business rates
  • Income tax (for directors and shareholders)

Whatever you need, we are committed to making your business a success - contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a free, no obligation meeting.

If you enjoyed this article, you may also be interested in:

This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Happy family - man, woman, two kids

Tax planning for families

Family

Family tax planning is a smart way to utilise all of the exemptions and allowances legally afforded to you.

In the UK, every individual has a personal tax-free allowance and is taxed independently. This applies to working parents, retired grandparents and also children. Because of this tax structure, it is possible to use legitimate means to reduce the joint size of your family’s tax bill.

Strategic (but non-aggressive) family tax planning can benefit contractors, small business owners, and even working adults. If you plan to undertake some form of family tax planning, however small it may be, we advise you to speak with a qualified and independent accountant first, whether it is our team at Tax Agility or an equally experienced professional. To give you an idea about family tax planning, we aim to discuss family tax planning in detail and highlight essential areas in this article.

What is family tax planning?

Family tax planning is a tax strategy, which maximises the usage of the many tax exemptions and tax allowances that exist within the legal framework for members of a family household. Often this happens through the careful shifting of income from the hands of the primary wage earner to their spouse or children.

The rationale that dictates this strategy is that anyone who does not earn as much as the primary earner of a household will be taxed at a lower tax band. Therefore, the maximum amount of taxable income that can be legally transferred to another family member should be utilised to minimise taxes and maximise household income.

Every person in a household is entitled to an annual personal allowance (or PA) on any income. A personal allowance is a threshold above which income tax is levied on an individual’s income. The personal allowance for tax year 2019/20 is £12,500 for individuals earning less than £100,000 a year. Once the £12,500 threshold is hit during the tax year, that person has to start paying taxes on any income they earn that is above that amount.

For example, if you earn £10,000 in the 2019/20 tax year, you do not have to pay any tax for that year. But if you earn £200,000 in the same year, you will lose your personal allowance and pay a higher tax rate on the vast majority of your income.

Examples of family tax planning strategies

Finding ways to spread income across various members of a household is the key to minimising the amount of tax which your family will pay in a year, and maximising how much income is tax-free or paid to a lower tax band. This can be done in a variety of ways – however, these strategies must be approached with proper regard for rules and regulations.

Make your family members shareholders

A highly popular approach among company directors when it comes to lowering tax bills is to make your spouse or a family member a shareholder in your company. This arrangement allows them to receive dividend payments instead of salary; and because dividend is taxed on a lower rate than salary, the overall tax bill is reduced accordingly.

Putting your family members on payroll

If your business has a legitimate need, like you need a weekend driver to take care of deliveries and your son is free, you can employ him and pay him commercially viable wages. The payment to your son is a tax-deductible expense in your company accounts. Follow the link to the article “Does HMRC object to putting family members on the payroll” if you would like to know more.

Marriage allowance

One legitimate strategy is to make use of marriage allowance, which allows an individual who earns less than £12,500 a year to transfer £1,250 of their personal allowance to their spouse or partner. By doing just that, you can immediately reduce your tax bill up to £250. To qualify:

  • You must be married or in a civil partnership
  • The lesser earner receives an income which is below the personal allowance threshold, i.e. £12,500
  • The spouse or partner earns between £12,501 and £50,000 and pays income tax at the basic rate

Junior ISA

In theory, you can give as much as you like to your children if they are below 18 years old. But if they put the money in the bank and earn interest, then they can only earn up to £100 in interest. To get around this, you can consider making use of a Junior ISA.

A Junior ISA does not have the £100 interest limit, and the account holder does not pay tax on interest on the cash they save (for cash Junior ISA), or the account holder does not pay tax on any capital growth or dividends they receive (for stocks and shares Junior ISA).

At present, you can contribute £4,368 a year to a Junior ISA account. The amount you can contribute is usually increased every year, meaning by the time your child reaches 18, they are likely to have a substantial amount of savings in their Junior ISA account for which they do not have to pay tax on interest earned.

Inheritance tax

When it comes to inheritance tax, how much can you give to your children tax-free is one of the questions we are asked regularly. The answer lies in how well you plan.

You can give your children £3,000 worth of gifts a year tax-free as long as the gift takes place seven years before your death. This is known as annual exemption. If the years between gift and death is less than seven years, a tiered-tax system applies. Visit this HMRC page if you would like more information.

When you pass, the first £325,000 of what you own is not taxed. But anything above this amount is subject to 40% inheritance tax. The threshold is increased to £475,000 if you give away your home to your children or grandchildren.

Often you will see an oversimplified example using a house that you own to illustrate inheritance tax. In reality, your estate is likely to include more than a house. If you are a small business owner, any ownership of a business, or share you own in a business, is considered your estate and is subject to inheritance tax. But – here is the bit that requires some planning – your family members can benefit from Business Relief (either 50% or 100%) on some assets (property, building, machinery and unlisted shares) in your estate which you pass on to them either when you are alive or as part of your will. If you would like to know more about inheritance tax and business relief, get in touch with us today by calling 020 8108 0090.

Capital Gains Tax

As the name suggests, Capital Gains Tax applies when you sell something that has increased in value. There are many ways to lower your capital gains tax legitimately, including making use of annual exemptions, making gains through an ISA, pension and investment bonds, transferring the asset to your spouse, switching asset class, reducing your taxable income, and investing in small companies to name but a few. As there is no one-size-fits-all approach, it is best that you talk to one of our experienced chartered accountants first.

Planning for the future

Family tax planning is an excellent method of ensuring that you, your partner and your children will benefit from the many allowances and exemptions that are available in both the short-term and the long-term – including contingency plans that will protect your family in the event that something happens to you.

However, in order to fully utilise the breadth of opportunities available as part of a family tax planning strategy, such strategies should not be approached without the advice of a professional who has experience in tax planning for families. At Tax Agility, our team of experienced chartered accountants can work with you to navigate the complicated world of tax planning, help you to explore the available options, and ensure that you have the best strategy in place for your family.

In order for us to implement the most effective strategy for your family, we need to understand your financial position first. For this reason, we offer our first consultation free of charge to allow us to learn about your family’s financial circumstances and create an effective accounting solution.

Simply get in touch on 020 8108 0090 or contact us via our Online Form today, so that we can create a strategic family tax planning guide to suit your needs.

This article was first published in 2014 and has been updated on 14/08/19.

If you found this helpful, take a look at:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Universal Credit

Introduced in 2013, Universal Credit aims to reform the benefits system by replacing existing income-related benefits, namely:

  • Housing Benefit
  • Income Support
  • Child Tax Credits
  • Working Tax Credits
  • Income-based Jobseeker’s Allowance (JSA)
  • Income-related employment and support allowance (ESA)

Under this scheme, recipients who are out of work or on a low income will receive a single monthly payment to assist with living costs.

The objective of Universal Credit is to simplify the welfare system, help get people back into work, reduce in-work poverty and help detect fraud and error. However, it isn’t without controversy. The Government has made a vague promise that existing tax credit recipients will not lose out through Universal Credit, and the Secretary of State for Work and Pensions announced that the Department of Work and Pensions (DWP) had succeeded in helping 3.4 million people find employment since 2010.

But other institutions are less optimistic. The Institute of Chartered Accountants in England and Wales (ICAEW) said that ‘by and large, the new system will be less generous to claimants than tax credits’.

What’s the difference between Universal Credit and the existing Tax Credit system?

There are some key differences between the systems:

  • Claimants will now receive a single monthly payment
  • More people will be able to manage their claim online
  • It will be available to those who are in work but have a low income

The amount of the single monthly payment will depend on an individual’s circumstances. It is made up of a single monthly allowance, supplemented by additional elements for childcare, limited capability for work, housing and carers.

The single monthly payment is supposedly designed to reflect the salary system of the vast majority of employed people receiving wages monthly. According to the government, Universal Credit will thus encourage claimants to take more responsibility for their finances and also prepare people for the transition into work.

What do you need to do if you currently receive Tax Credits?

The short answer is nothing. HMRC has made it clear that the Tax Credit Office will contact those affected by the changes. At present, there are more than one million people on universal credit and the government’s plan is to roll it out for almost seven million people by 2023. To find out if you’re eligible to receive Universal Credit, see this step-by-step guide on the gov.uk site.

Will Universal Credit affect child maintenance payments?

Universal Credit will not replace Child Benefit, which recipients will still receive in addition to Universal Credit. This will also not affect the amount of Universal Credit that claimants are entitled to. In addition, Universal Credit will not affect Bereavement Allowance, Carers Allowance, Disability Living Allowance, Maternity Allowance, among others.

Is Universal Credit taxable?

Universal Credit is a tax-free state benefit, which means the monthly payments are not considered taxable income. While other benefits may be taxable, the government supports Universal Credit recipients through this state-benefits system.

For more information, the DWP has produced an FAQ document which is useful. Alternatively, you can contact our tax accountants to if you have any questions.

Published on 09 Jan 2013 and updated on 06 Feb 2019, this blog is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.


Personal tax allowance: exceptions

Personal tax allowance: Exceptions

Personal tax allowance: exceptionsThough the personal tax allowance can give you savings on your income up to £11,850, there are many other ways of saving more money due to the numerous special circumstances and exceptions laid out by HMRC. Allow the tax experts at Tax Agility to guide you through the most important ones.

Tax on savings interest

Most people can earn some interest from their savings without paying tax. The starting rate for tax savings is £5,000 but is subject to certain conditions. The amount that you don’t have to pay tax on depends on your primary income and personal tax allowance:

  • If your primary income is £16,850 or more - You’re not eligible for the starting rate for savings.
  • If your primary income is less than £16,850 - Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.

Remember that this applies to with a personal tax allowance of £11,850. If your personal tax allowance is higher, then the bands are calculated by adding £5,000 to your own personal tax allowance and using that value instead. Additionally, you are entitled to an extra £1000 of tax-free income if you are a basic rate taxpayer, called personal savings allowance. This is cut to £500 if you’re a higher rate taxpayer, with additional rate taxpayers getting no allowance.

Tax on dividends

You may get a dividend payment if you own shares in a company. You only have to pay tax if your dividends go above your dividend allowance in the tax year. The dividend allowance was calculated differently before 06 April 2016, but it has since been changed to a fixed amount each year. Depending on which tax band you are in you can have different rates of tax:

  • Basic rate – 7.5%
  • Higher rate – 32.5%
  • Additional rate – 38.1%

As of 2018/19, there is an allowance of up to £2,000 for dividend income with anything above that taxed according to the above rates. The dividend income must be added to any other taxable income when calculating what you need to pay.

Tax on property and trading income

There are two aspects to tax on property and trading income, both with restrictions, but both allowing £1,000 of tax-free income if you pass. The first aspect concerns income from trading, obtained explicitly from any of the following sources:

  • Self-employment
  • Casual services such as babysitting or gardening
  • Hiring personal equipment such as power tools

If you receive income from these sources, then £1,000 of it is tax-free. Furthermore, if your total gross annual income from trading is less than £1,000, then you don’t need to inform HMRC.

The second aspect concerns income from rented properties. Up to £1,000 of income from these properties is tax-free. However, if the property is jointly owned, then both owners get £1,000 of tax-free income on their individual shares, rather than the income of the house as a whole.

Tax relief

Tax relief occurs when you are repaid tax (or charged less tax overall) for money spent on specific things. It applies primarily to pension contributions, charity donations and maintenance payments, although, you may also use it if you are self-employed or use your own money for travel and necessary equipment for your job. You can also claim tax relief if you have income from working on a ship outside of the UK. Full details about the requirements are on the government income tax relief information page.

Marriage allowance

Marriage Allowance lets you transfer £1,190 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. There are several restrictions on this, and you can only benefit from it if:

  • You are married or in a civil partnership
  • You do not pay income tax (or your income is lower than your personal allowance)
  • Your partner pays income tax at the basic rate, which usually means their income is between £11,851 and £46,350

Overall this can reduce their tax by up to £238 in the tax year. Note that you should call the HMRC if you either receive other income such as dividends or savings or if you are a Scottish taxpayer.

Making sense of tax allowances with Tax Agility

Many of the tax allowances overlap or are conditional on each other, making it a challenge to understand. At Tax Agility, our tax allowance specialists can translate the financial jargon and assist you in applying for tax allowances to get maximum savings.

To find out if you’re missing out on beneficial tax allowances that can help you to save even more money, give our chartered accountants a call on 020 8108 0090. Alternatively, you can use our Online Form.

Before you go, check out:


Homeworking Tax Relief for Your Employees

The rules surrounding small or medium-sized business (SME) tax relief given for homeworking vary depending on whether you’re a sole trader, a partner (within a partnership), or an employee of the SME; even if you are also the owner.

In this article we’re going to be looking at the tax relief available to employees. If you’re an owner-employee, or you employee others who occasionally work from home, it’s important to know that any costs paid for, or reimbursed to, an employee of your company by yourself, the owner, is liable to have tax paid on it. It is the employee’s responsibility to claim the personal tax relief for themselves.

Wholly, Exclusively, and Necessarily

In order for HM Revenue and Customs (HMRC) to award tax relief for employees working from home, it’s up to the employee in question to prove that the costs in question were incurred “wholly, exclusively, and necessarily” while undertaking duties necessary to carrying out their job.

Because HMRC is stricter when it comes to the necessity of employee expenses compared to the self-employed, if you provide something to your employee to aide them in working from home (a work computer, for instance), they are more likely to deem this item necessary to the employee’s work than if the employee themselves had bought a new work computer and wanted to claim tax relief on it.

Place Homeworking Arrangements in Writing

Though not wholly necessary, we would advise you to place all homeworking arrangements with your employees in writing ahead of them taking affect, as your employees won’t be able to claim  tax relief on costs associated with carrying out their job from home if they have only been doing so informally.

If you do place this arrangement in writing it will allow you, as the employer, to make payments (or reimbursements) for any additional household expenses your employee requires in order to undertake their job, tax free.

What Your Employees Can Claim Tax Relief On

For the most part this will relate to the additional and proportional costs of lighting and heating the area in which the work is taking place (such as your employee’s home office), as well as the additional and proportional costs associated with increased:

  • metered water usage
  • internet charges
  • business telephone calls
  • home contents insurance

To help cover the above costs, you’re allowed to prove your employee with £4.00 per week without having to undergo much formality. Unlike when a self-employed individual works from home, it’s not possible for an employee of your company, even if you yourself are an owner-employee, to claim tax relief on a portion of their rent/mortgage, council tax, or un-metered water rates.

As the employer you will be able to claim capital allowances for the costs of equipment needed by your employees to work from home. This equipment, such as the aforementioned work computer, won’t become a taxable liability for your employee so long as their private (non-work) use of them is insignificant.

For more information on tax relief oppurtunities for your business, click here.

Experienced SME Accountants

To speak with a professional accountant to discuss homeworking tax relief for your employees, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting. In the meantime, if you're looking for more information on the different services we have available, check out our services page.


Claiming R&D Relief is Now Faster and Easier

34124729_s

The new Research and Development (R&D) plan, which came into effect last month, has been designed to simplify the process of R&D relief claims for small and medium-sized businesses, while making an effort to increase awareness of the relief among small business owners who are already investing in this area.

With the new Research and Development (R&D) plan the government have handed a boon to small business owners who have previously been put off by the high cost of entry into spaces and sectors that require a substantial amount of research and (ultimately) product development before they can even think about turning a profit.

Financial secretary to the Treasury, David Gauke, said of the new plan:

“R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses. That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.”

Claiming is Now Faster, Easier

Here at Tax Agility we believe you should claim all the tax relief your small business is owed in order to maximise your take-home pay. The new Research and Development (R&D) tax relief is no exception.

According to government figures, the 15,000 plus small and medium-sized businesses who claimed R&D tax relief in the 2013-14 tax year received £1.75 billion in tax relief during this period, a saving that is as beneficial to British innovation than it is to the companies themselves.

For this reason alone, the government are striving to make the application process faster and easier for small business owners so they can begin investing in R&D as soon as possible, safe in the knowledge that they’re receiving the tax relief they’re entitled to. Producing an infographic entitled Making R&D Tax Relief Easier, the government outlined the four areas in which they’re working to improve access to R&D tax relief (awareness, design, understanding, and administration), alongside the ways in which they’ve achieved this this year, and the ways in which they plan to continue achieving this in the next two years.

Requirements

In order for your small business to receive the R&D tax relief you must have an annual turnover under £2 million, and you must have fewer than 50 employees.

If you meet these specifications and you wish to receive the relief for any planned (or continuing) R&D in your company’s field, you can receive advance assurance on the R&D tax relief from the government, providing you with some much needed certainty surrounding the tax you’ll be paying, and the reliefs you’ll be able to claim against it, going forward.

Experienced Tax Accountants

To speak with a professional accountant to discuss the tax implications of the new Research and Development (R&D) plan, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

 

For information on further government incentives in the form of tax relief, click here.


Take Advantage of Your Capital Gains Tax (CGT) Allowance

Calculator_TaxAgility Accountants LondonYour Capital Gains Tax (CGT) Allowance, also known as your Exemption Limit or Annual Exempt Amount, is the amount of profit you can make on the sale of property or an investment in a given year before you pay Capital Gains Tax on the amount above this figure.

You can find out your personal capital gains amount in a given year by deducting any losses and reliefs from the gains you made, thus uncovering your capital gains profit.

For the current, 2015-16, tax year the tax-free allowance is set at £11,100 for individuals (and trustees of disabled individuals; defined as somebody who has mental health problems or receives middle or higher rate of Attendance Allowance or Disability Living Allowance), and £5,550 for other trustees.

Making Use of Your Capital Gains Tax (CGT) Allowance

As everybody who is liable to pay Capital Gains Tax can receive this allowance, it’s possible for you and your spouse or partner to make effective, legal use of your combined allowances to ensure you pay as little tax on your capital gains as possible by transferring assets between you, or placing them in joint names before an impending sale.

This method is deemed wholly legal by HM Revenue and Customs (HMRC) as couples are often looked upon as a joint unit, despite the fact that each partner receives an individual Capital Gains Tax Allowance.

Another way you can make best use of your allowance, should you be expecting to make a particularly large gain, is to spread the monetary release of this gain over a number of tax years so to make full use of your tax exemption limit, assuming this is an acceptable option for you.

Capital Gains Tax (CGT) Rates

Any capital gains profit you make in a given year that’s over your Capital Gains Tax Allowance will be taxed at the Capital Gains Tax rates for that year.

The rates for the current, 2015-16, tax year haven’t changed since 2013, with the rate you have to use depending on the total amount of taxable income you make in the year in question (including profit from your small business, dividends, and salary payments). These rates are currently:

  • 18% or 28% for individuals
  • 28% for trustees or representatives of someone who has died
  • 10% for capital gains that qualify for Entrepreneurs’ Relief

Experienced Capital Gains Tax (CGT) Accountants

Whether you’re a small to medium-sized business (SME) owner, or you’re looking to sell some property or investments in the near future, consider using our free Capital Gains Tax Calculator to estimate your capital gains liability, once your tax-free allowance has been deducted.

To speak with a professional tax accountant to discuss how to make the most of your (and your spouse/partner’s) Capital Gains Tax Allowance, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.


Ten Ways to Pay Less Tax

Tax Agility Accountants London_SavingLooking for smart ways to pay less tax should be seen as a critical part of your tax planning, both on behalf of your personal finances and the finances of your business.

Though some may feel that doing all you legally can to keep your tax bill as low as possible isn't something they would wish to be associated with, the truth is you're already paying for these reliefs and allowances to be used by others.

Regardless of how you feel about them, these reliefs, allowances, and exemptions are here to stay.

The only question is – are you going to use them, or be used by them?

Read more


Tax Relief on Pension Contributions

Tax Cut_TaxAgility Accountants LondonIn an effort to encourage you to put something aside for your retirement, the Government provide varying levels of tax relief on private pension contributions, whether you’re placing money into a personal or workplace pension (or both).

This tax relief on private pension contributions can be used to reduce the amount of tax you pay, or increase the size of your pension fund, with you being able to claim relief worth up to 100 percent of your annual take-home earnings (including your salary, dividends, and all investment income).

Keep in mind, in order to be able to claim tax relief your personal (or workplace; whether your own, or your employer’s) pension provider must be registered with HM Revenue and Customs (HMRC).

Personal Pensions

Because you’ve already paid tax on any income you pay into a personal pension you’ll automatically get tax relief on these contributions, with your pension provider claiming back your income tax at the basic 20 percent rate to place into your pension pot (known as the ‘relief at source’ method).

If you pay tax at the higher, 40 percent rate, the Government allow you to claim back the extra 20 percent tax you paid on your pension contributions via your Self Assessment tax return to ensure you’re not missing out. If you don’t currently complete a Self Assessment tax return you may contact HMRC directly to reclaim the extra tax payments.

Workplace Pensions

If you’re self-employed with a number of employees of your own, there’s a good chance that you already have a workplace pension set up for them, and yourself.

If you’re employed by someone else, however, you may find that your employer has been making contributions into your workplace pension all along; with them deriving these contributions from your pay directly before they deducted your income tax. Known as a net pay arrangement, you won’t pay tax on these workplace pension contributions but you will be liable to pay National Insurance Contributions (NICs) on them.

Limits to Tax Relief on Pension Contributions

There is, of course, a limit to the amount of tax relief you can receive on your private pension contributions in a given year; though this limit is, arguably, very reasonable.

You can receive tax relief on contributions up to 100 percent of your annual take-home earnings (up to the age of seventy-five), with you being able to place these contributions into a number of different pension schemes, not just one. The Government, on their website, make it clear that it’s your (or your accountant’s) responsibility to ensure you don’t receive tax relief worth more than 100 percent of your earnings in a given year.

The actual amount you can save into private pension schemes each year has a top quota, with this being £40,000 for the 2015-16 tax year.

Experienced Tax Accountants

To speak with a professional tax accountant to discuss receiving tax relief on pension contributions, whether in your personal or workplace pension, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.