Tax Planning Edinburgh
Allsquare Accountants’ tax planning service will assist you to establish an over-all financial plan in the most tax-efficient way possible
The UK tax system is famous for its complexity, so any summary will necessarily present a simplified view. But it can help to know the basics when you go to talk to your accountant.
This appears self-explanatory – a tax you pay on your income, such as:
- The money you make at work if you are employed
- The profits of your business if you are self-employed
- Nearly all pensions, including your state pension and any personal or company pensions
- Some, but not all, benefits paid by the state
- So far, so straightforward.
However, there are other kinds of payment to you, that count as income, and are taxed as such. These include:
- Rents, unless you live in the place you’re renting (see below for the rent-a-room scheme)
- Benefits from your job – these can include meal vouchers, travel assistance and so on
- Income from a trust set up to benefit you
Exempt from income tax
There are some kinds of income that don’t attract tax. The first chunk of your earnings is tax-free (“the personal allowance”). At the moment, this is £10,600 but it usually goes up every year.
As mentioned above, while rents usually count as income, if you rent out your spare room under the rent-a-room scheme, you’re allowed to earn up to £7,500 in rent, tax-free. This is because the government wants to make more housing available, so it is encouraging people to use their empty bedrooms.
Here are some more exemptions:
- Interest on savings that are below the allowance for savings
- If you own shares, the first £5,000 of dividends is tax-free
- Income from things like Individual Savings Accounts (ISAs)
- Interest or payments from National Savings Certificates
- Some state benefits
- Wins from premium bonds or on the national lottery
- There are also some tax allowances for charitable donations and maintenance payments.
Running a business
If you get all, or part of your income from running a business, you’ll know that you usually have to spend a bit to get up and running, or to buy supplies for the business. These costs can be deducted from the money your business makes, to give a final profit. It’s only the profit you pay yourself that is taxed as income.
There are lots of different types of business, and the tax allowances and payments can be different for each type. One of the most common types of self-employed business is the sole trader. Many tradespeople, such as plumbers and electricians, or business advisors, such as consultants, are sole traders. They run their own business, and all the profits from the business go to them as income. These days many sole traders are people offering goods or services online, working from home.
Remember, that you can be both employed and self-employed – for example, some people have paid employment during the day, and run an online business as a sole trader in their spare time.
Now the tax outlook starts to become slightly more complex, and at this stage, many people turn to an accountant, not just to work out the tax, but also to give them plenty of warning of when they need to get their tax return done, and when they need to have the money ready to pay.