Limited Company owners – reduce your income tax bill in 2021 with our seven top tips

Limited Company owners – reduce your income tax bill in 2021 with our seven top tips

By Published On: 21 August 2021Categories: Limited Company, Tax

We’re now well into the new tax year, so now is a good time to take stock of the tax reliefs that are available to you, and what you’ve still got to take advantage of.

In this blog we explore just that, and take a look at the top seven things you can do to reduce your tax bill as a limited company.

  1. Make pension contributions

Your pension contributions are made from taxed money. But whilst the taxpayer puts in the net amount (if you’re a basic rate tax payer you’ll put in 80%), HMRC will contribute the tax paid on the contribution, directly into your pension scheme. This means that the entire amount is invested tax-free, so for example £80 from the contractor and £20 from HMRC. Once the money is within your pension the investment will grow without income tax and Capital Gains tax. If you’re under 75 and a UK resident that’s not currently receiving your pension, then you’re generally still able to contribute £40,000 from your earnings and receive this tax relief.

  1. Make contributions to your partner’s pension

If you’re paying tax and your partner isn’t earning, you’re able to contribute towards their pension scheme in a tax-efficient manner. If your partner is a UK resident, not currently earning themselves and not already receiving a pension, you’re able to contribute a maximum of £3,600 per year into their pension. You personally input £2,880, and HMRC ‘top it up’ with the remaining £720 to the total £3,600.

  1. Make sure to use any unused pension annual allowance

Use it or lose it! Check your allowance and if there’s any left, be sure to use it. If you have funds and are a UK tax-payer that hasn’t yet reached the £40,000 annual limit, make the most of what you have left.

  1. Give a gift to a charity

If you give a financial gift to a charity, by signing a gift aid declaration it’s exempt from income tax. For example if you gifted £80 of taxed money to charity, HMRC will pay the additional 20%, so the charity will receive a total of £100. If you’re in the higher or additional rate tax bands the limits are extended, so the charity will gain greater relief at their highest rate.

  1. Transfer investments to your partner

Be sure to annually revise any investments you may have with your spouse, to ensure they’re in the best proportion for tax purposes. If your funds are generating interest and your spouse doesn’t have total earnings from employment, trading or property that exceeds £17,570 in 2021/22, the first £6,000 of the received interest is tax-free. If your spouse does have non-savings earnings above this amount, basic rate taxpayers should earn a minimum of £1,000 interest and £500 for higher rate taxpayers, to be able to take advantage of the personal savings allowance. If the income generates dividends each spouse should hold enough capital to generate dividends of £2,000 (which is the annual dividends allowance. Be aware that this allowance is not means tested).

  1. Transfer your personal allowance to your partner

If you’re married the marriage allowance permits a couple to transfer 10% from one of their personal allowances to the other, so long as they both pay the basic rate tax. By doing this a couple are able to save up to £252 per year, and it can be done online through HMRC.

  1. Make sure you’ve used all of your ISA allowances

ISAs allow you to increase your income tax-free. Regardless of whether you decide to invest in cash ISAs or stocks and shares, you’re able to invest a total of £20,000 for the tax year 2021/22, and £9,000 for a junior ISA.

How can Vantage Accounting help?

Our team of experts here at Vantage make sure your money works as hard as it possibly can to ensure you’re bringing the most possible home. We also ensure the taxman is getting what he’s owed and not a penny more, so you can run your business confidently, knowing that HMRC are happy and everything is taken care of. Get in touch today to find out more about our services and how we can help you.

Note: All the information and advice in this blog post was correct at the time of writing.

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