Whenever someone asks me what I do for a living and I respond “I’m a tax advisor” they often ask me “How can I pay less tax?” Unfortunately H M Revenue and Customs (HMRC) have got things wrapped up pretty tight these days and there is little that the ordinary man in the street can do. However, there remain some steps that many of us can take to mitigate the tax we pay.

If you’re in business either as a self employed trader, a member of a partnership or even if you trade through a limited company, then you will have an accountant. Everyone thinks that a good accountant will save them money. Nothing could be farther from the truth. Accountants have a standard set of centralised accounting practices that they have to stick to by law. A set of accountants prepared by one will be no different from a set prepared by another – unless incompetence reins. What you need to find is an accountant with a strong tax team behind them. A highly trained tax team will be able to evaluate your accounts and offer you good advice that will save you money. And I would recommend that you look outside main financial sectors for that Tax Team. Tax isn’t the most exciting subject in the world and recruitment for tax roles is generally along the lines of finding “a work-life balance”. To get that balance, many senior tax professionals have opted to get out of the larger financial sectors to find more affable climes. What that means to you is that you can get top tax advice without paying London prices. A firm such as Francis Clark, whose tax team have won awards in their field, will ensure that you get the best tax advice for the right price.

So now I’ve whetted your appetite for getting some good tax advice, I’ll give you some freebies to set you on the way.
Capital Gains Tax

Everyone in the UK gets a tax-free allowance for Capital Gains Tax of £9,600 for the year ending 5 April 2009. As a simple starting point, consider transferring an asset into both your and your spouse’s names shortly before you dispose of the asset to make use of their unused Capital Gains Tax exemption. The paperwork involved is uncomplicated and you will have an immediate tax saving of £1,728.

If you are acquiring a second property then take immediate tax advice. A simple tax election made within two years of the acquisition of your second property will mean that the new property is treated as your main residence for Capital Gains Tax purposes. This will automatically ensure that the increase in value over the last three years of ownership is outside the charge to Capital Gains Tax. If you already own your second property and are past the two year deadline then all is not lost. There is always small print in tax legislation depending on your circumstances. For example, a short stint living in the property ensures that the increase in value over the last three years of ownership are outside the charge to Capital Gains Tax. There is also a specific exemption extending the two year period if the property is a flat or apartment. In summary, with the proper tax planning the first property will remain unaffected for Capital Gains Tax purposes and a large part of the increase in value in the new property could also escape the charge to Capital Gains Tax. Careful planning and good advice can ensure that you pay the minimum of tax.
Pensions and salary sacrifice

Interested in contributing a bit more to your pension? Ask your employer if he’ll pay you a couple of grand less and put it into your pension scheme. He’ll be happy because he won’t have to pay National Insurance of 12.8 percent on your behalf. The Government will also add 20 percent to your contribution. Compare this to your employer paying you £2,000 gross, less tax of £400, less NIC of £220. That’s £1,380 in your pocket instead of £2,200 in your pension scheme. Turning 50 soon? Take 25 percent of it out of your pension policy tax free with the balance being drawn down over the term of the pension.

Inheritance tax
Are your and your partner’s assets worth more than £600,000? If so, then the loved ones you leave behind could face an Inheritance Tax at a rate of 40 percent on the excess, potentially forcing them to sell the assets to pay the tax. Consider transferring some of your assets out of your estate seven years before you die and they will escape the Inheritance Tax charge with a proportional reduction in the charge to tax for each full year passed if you die before the end of the seven years. Want to retain some measure of control or enjoyment of the assets? Then ask your Tax Advisor to help you set up a Discretionary Trust or help you with some clever IOU’s. If you are in someone’s debt then the value of the debt will be netted off against your estate before Inheritance Tax is calculated. That debt could be to anyone in your family proving plenty of scope to cunningly mitigate the Inheritance Tax payable.

Enterprise Investment Scheme

The Enterprise Investment Scheme is one of the more positive steps that this Government has taken when introducing tax legislation. Up to a limit of £400,000, your investment in certain UK companies will be offset by a reduction of 20 percent of the value of the investment from your tax liability in a year. Any dividends from the company will be tax free, as is the increase in value of the shares when you sell them. If you have made any unrelated Capital Gains within three years of your investment then you can also claim Enterprise Investment Scheme deferral relief. The gains will be deferred until such a time as you dispose of the Enterprise Investment Scheme shares. Interestingly, if you die before the shares are sold then the gain is never brought within the charge of Capital Gains Tax.

The deferral relief is particularly useful in that the relief is still available if you invest the gains in your personal qualifying limited company.

Extracting profits from a Limited Company
Most small owner-managed businesses will know that incorporating your business and having a strong remuneration planning strategy can save significant tax. A salary paid to a director of £5,345 ensures that he or she has a qualifying year of National Insurance Contribution for state pension purposes. It is also equal to the personal tax allowance and as such is tax free, as are dividends of up to £32,400. This equates to total tax free income of £37,745 in a year. Compare this to the income tax payable of £17,386 and Employees/Employers National Insurance Contributions of £10,728 on a gross salary of £66,000 to achieve a similar amount of income in your hand. Corporation Tax relief of £12,540 on the salary must be taken into account but the overall savings in this instance will still equate to £15,575 per annum – A significant increase in cash flow.

Company cars
Employees or directors who have a company car as perk have been punished in recent budgets as the chancellor of the exchequer has done his bit for the planet. Anyone who is provided with a car and petrol for private use these days is badly advised unless they are driving serious miles in their free time. The current tax charge for a mid range saloon is approximately £4,400 for a higher rate taxpayer. Alternatively you can claim 40p per mile for the first 10,000 miles and 25p per mile thereafter for business use if you use your own vehicle for work purposes. That’s £6,500 a year tax free to cover the cost of running your own car not to mention the suggestion that an employer could pay an increased salary to cover the loss of your benefit in kind and the savings that he will make in Class 1A National Insurance Contributions.

The above is only a snapshot of the kind of advice that you should be getting. There are many other ways to mitigate your tax liability and if you want to save money in the long term, then I would advise you to consult a tax professional.