Reduce saved tax by spending

meno_2

I'm currently self employed with my income fluctuating each year, this year i have paid my tax and tax on account but have earned much more this year.

i currently have approx £15k saved for my tax bill Jan 2009, i would like ideas you may have on reducing my tax bill, I'm in 40% rate

I have this money in wife's savings account as she doesn't earn enough to pay tax, how can i reduce my taxable profit?

can i start another little business selling stuff and use the money to pay for stock, if i spent £10k on stock this would reduce my tax bill by £4k wouldn't it?

Thanks

CIS

Unsold stock does not reduce taxable profits - you can only deduct the costs of goods actually sold .

meno_2

CIS wrote: »

Unsold stock does not reduce taxable profits - you can only deduct the costs of goods actually sold .

Thanks, thats that idea out the window.
hmm, what if i buy a car for £10k and sell it to the wife for £1k

fengirl_2

Could your wife help you in the business and be paid a wage....or taken into partnership - but beware of artificial arrangements as HMRC will be on your tail!
Are you making your maximum pension payments?

morgani

You could think about incorporating a ltd company

This is getting slightly more complex and I do stress it is very dependant on your circumstances including:-
your future expected turnover (sales) and profits
how much money you have to have for personal use monthly (i.e could not do without.)
How far currently you are into the 40% tax bracket.

You could potentially lower your tax liablility.

Corporation tax is currently 20% (but is due to rise to 21%) on profits up to £300,000
You can pay yourself less in salary and more in dividends which is at lower rates and doesnlt attract NI conts.

However as I stressed above it is not for everyone and before you do properly consider taking this route you would be worth seeking professional advice on your personal situation.

dunstonh

pension contributions gives you 40% relief. If you put your money in there and then take 25% out on maturity, that means your pension income has only cost you 35% in real terms.

If you are potentially in receipt of working/childrens tax credits (if you had a lower income) then the pension contributions could see you getting those paid which in effect increases the tax relief and in best case scenario can give you upto 72% effective relief. (which if you take 25% tax free cash on maturity, it means your pension provision has only cost you 3% of your money).

meno_2

Thanks for replies:

My income was low last year and ive had a bit of a good spell this year, not paying any pension as i couldnt afford it previously, will look into it.

Wife gets CA so if i pay her for admin up to her personal allowance she would lose the CA so we would be no better off

Dont fancy the Ltd route if at all possible

The higher income probably wont be long term, ideally id like to reduce this coming tax return, use the tax ive got put aside to make a few more pounds but totally risk free.

We was being paid Tax Credits, told them my income had increased but they kept paying it, now told overpayed £5k and they will take it out of any future awards or pay it all back, decided to keep it in a savings account, if the time comes that we need TC we can pay ourselves out of the account.

Thanks