Introducing James Cole

James is Talis IFA’s Managing Director and our featured adviser for March.  He explains why this is one of our busiest times of the year and why tax is so often on the agenda.

“Self assessment tax returns are due at the end of January so many of our clients are painfully aware of how much tax they’ve just paid.  After that our attention quickly turns to the end of the tax year on 5th April, making sure that annual allowances are used effectively.  March usually plays host to the chancellor’s Budget statement and, according to the Institute for Fiscal Studies, the UK tax take is currently at its highest for 70 years.  Finding ways to save tax tends to be top of mind around now!

“I often find myself having these conversations with people who run their own businesses as limited companies, or employees who fall into the higher or additional rates for income tax.

“Let’s say, for example, that you’re a controlling director of a limited company and, after paying yourself enough to live on, you’ve got say £50k profit still in the business.  It’s probably tempting to take that out as an extra dividend and go enjoy yourself.

“But that profit is subject to corporation tax at up to 25% and you’ll then pay personal income tax on the dividend.  The net result could reduce that £50k by almost half, depending on your other income.

“If, however, you put that £50k profit into a pension fund you will save all the corporation tax you’d have otherwise paid on it, and there is no personal tax to pay. In a pension, that money will grow tax-free, and if you’re over 55 you can take 25% of it as a tax-free lump sum.”

A further benefit of paying more of your profits into a pension is that pension funds are generally protected from creditors in case of bankruptcy. So even if your business gets into trouble later on, the money you’ve saved for a pension is likely to be safer than assets in the business.

With more and more people falling into the higher rate tax bracket – as salaries increase, but the threshold remains the same – it makes sense to look at ways to minimise your tax liability.

Paying into a pension is just one of the options you could look at.  There are other types of investments that provide upfront tax relief and you might consider charitable giving under the Gift Aid scheme.

Find out more about James or contact James to talk about reducing your tax liability.