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SAVING ON TAXATION

It is often said that two things in life are inevitable - death and taxes. This may well be true of the former but can we really keep the tax reaper away from our door? Maybe not but at least we can reduce his wrath. How?

Tax evasion is illegal, but a tax payer has a right, indeed some say an obligation to reduce their tax bill by whatever legal means is open to them. Knowing the way tax works and how and when you can claim allowances and expenses to reduce the bill is vital.

AGE and STATUS

Whilst not a lot of children are earning, the elderly and retired still retain a tax allowance which you can tax advantage of to offset against part time work.

You are taxed as an INDIVIDUAL but your tax status can change dependent if you are SINGLE or MARRIED, children have some tax allowances separate from their parents.

Parents can in some countries such as the UK claim a Child Benefit to help with the cost of bring up your children www.hmrc.gov.uk/childbenefit

TAX ALLOWANCES

Earned Income

This is money you earn by working covering;

• working in a job or profession for an employer, including perhaps being a company director (even if you own the registered company, which has a legal status of its own and becomes your employer.)
• being in business either self employed, or in partnership with others.

Unearned Income - from investments and savings carries a fixed rate with bandings based on your overall income level.

In some countries taxation for the rich can become punitive. Highest all-in-one income tax rates on wage income in OECD countries, in order from highest to lowest:
Belgium, Japan, Denmark, Finland, France, Turkey, Sweden, Spain, Germany, Canada, Switzerland, Italy, Ireland, Norway, Iceland, Australia, Czech Republic, Luxembourg, Portugal, United States, Korea, and Hungary.

WORKING FOR AN EMPLOYEE

Taxed at source you have little choice but to get your pay reduced by your employer.

Do check your salary or wage slip for errors which can occur in both rates of pay, tax coding and tax deductions.

If you work in a role that requires you to be supplied with special wearing apparel the cleaning of these can be offset against your tax, check with your employee and the tax authorities and claim if appropriate.

WORKING SELF EMPLOYED

The tax authorities want their tax on PROFITS of your trading, but you can offset some of your expenses against those profits to help minimise the blow.

• a vehicle
• tools and equipment needed for your work
• telephone and computer facilities
• rent for premises or PART use of your home as say an office or for storage. (Check planning regulations on what business you can run from home)

You may well be "assessed" for tax until you file proper accounts for the trading year, this may be punitively high so you are encouraged to file accounts on time and accurately.

The small business person is usually able to file their own accounts without using an accountant, but may be wise to use one dependent on the type of business, it's level of success and your personal circumstances.  In some cases an accountant can earn their fee in the tax advice they can give.

Frequently the small business is tight on money and cannot take advantage of many tax saving provisions which can benefit the business owner, as they cannot afford to buy the asset or afford the expense.

For more useful information on starting a small business see smallbusiness-support.net

RUNNING A BUSINESS

If you run a business that employs staff and trades from proper premises rather than from home you need an ACCOUNTANT to advise on taxation, and prepare and file proper accounts on time.

The bigger the business the more tax it will pay on profits, but again the owner can benefit from a wider range of extra benefits provided by the business as justifiable expenses, additional to those a self employed person enjoys;

• a car or auto
• pension savings plan
• health insurance
• hotel costs (for business trips)
• air travel (for business travel)
• meals (for business purposes)

Some business owners may be taxed on the PERSONAL benefit derived from the business expenses covered, this can be minimised by your accountant.

Highest Taxed Countries Discussions relating to International Trade - Highest Taxed Countries.

Taxes in the UK http://www.hmrc.gov.uk

Please feel free to Contact Us with questions or to give us information to add to our knowledge base.