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Did you get a big tax bill and now want some back? Lets do some income tax planning…

Income tax planning

Many of you will have just paid your 2016/17 tax bill before the 31 January 2018 deadline, and some of you will also have paid 50% of next year’s tax on account.

Here are a couple of tax planning ideas that can help you obtain a tax refund.


Invest in EIS or Seed EIS qualifying companies

Before 6 April 2018, individuals may invest in companies that qualify under the Enterprise Investment Scheme (EIS) and treat that investment as having been made in 2016/17. The tax relief is 30% of the amount invested.  So a £20,000 investment can reduce the 2016/17 tax liability by £6,000.

Investing in a Seed EIS qualifying company is even better as there is a 50% tax relief.  Such companies tend to be riskier than EIS qualifying companies. You should therefore obtain specialist advice from an IFA if you are considering such investments.

Investing in an EIS qualifying company can also enable you to defer capital gains tax. In order to do so you must reinvest the amount of the gain within the 3 years following the date of the disposal giving rise to the gain. (The investment could also be within 12 months prior to the disposal).

Increase your Pension Savings before 6 April 2018 to reduce payments on account

Unfortunately investing more in your pension now will not reduce your 2016/17 tax liability, however if you invest before 6 April 2018 that payment can be taken into consideration in computing your 2017/18 liability and hence you might be able to claim to reduce your payments on account, if you make them.

The maximum pension contribution is generally £40,000 each tax year, although this depends on your earnings. It is also possible to add to this any unused relief brought forward from the previous three tax years.

Again here, you should seek specialist advice from you financial adviser.

Unused tax allowances

Like pension savings, unfortunately this will not reduce your 2016/17 tax liability; however at the very least you should aim to make sure that neither spouse wastes their £11,500 tax-free allowance in 2017-18, if this completed before 6 April 2018 then this reduction in income can be taken into consideration in computing your 2017/18 liability and hence you might be able to claim to reduce your payments on account, if you make them.

Early professional advice is essential to find legitimate ways of transferring income between spouses.

Married Couples Allowance

This idea is slightly different to the rest as it requires you to go back and amend your tax return, it has been around for a few years now but is regularly forgotten which is why you may need to amend your previous year’s tax return.

Marriage Allowance lets you transfer £1,150 of the lower earners personal allowance to their husband, wife or civil partner. To benefit as a couple, the lower earner must have an income of £11,500 or less.

This reduces the higher earners tax by up to £230 per tax year.

You can backdate your claim to include any tax year since 5 April 2015 that you were eligible for Marriage Allowance.

We are happy to talk through your specific circumstances, just give us a call or drop us an email on happytohelp@bluerocketaccounting.com

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