Save Money This Year with Tax Breaks for Couples

It was Valentines Season, and as you celebrate with your significant other, I thought you could use a few pointers about how to make your status as a couple work for you – financially speaking. For this feature, couples will refer to married pairs (because marriage is recognized by the law).

Here are a few tips to help you put money aside for other household items.

How can I save money as a married spouse?

Under the current UK tax regulations, the following scenarios can result in tax breaks for married couples:

  1. Marriage Allowance

For couples in different tax brackets, marriage allowances present a great tax relief option. If you earn less than £11,500 and your partner falls within the £11,501-45,000 tax bracket, you can transfer 10% of your unused personal allowance to your partner. He/she will then be able to save up to £230 per annum.

  1. Sharing ownership of Buy to Let Property

Transferring ownership of a property between a married couple will incur no capital gains tax. This is what makes it a great tax relief strategy for couples. This strategy involves one spouse transferring shares of a property to the other. If your spouse earns lower income and pays tax at lower rate, this enables part of the property income being taxed at lower rate. However, the overall situations of both partners need to be assessed in order to determine whether or not this strategy is a good fit.

  1. Transfer of Business Ownership

If your partner makes a significant and legitimate strategic contribution and bringing him or her on board was part of your long-term business strategy, transferring shares of your business to them will help you save tax in the long term. Your business will enjoy the first £5,000 tax-free allowance, while the payment of dividends and salaries to you and your spouse will reduce the taxes owed by the business.

  1. Savings on Wedding Cost

This is a creative way for couples to save money through tax relief if they’re planning to get married. Donating valuable wedding decorations to your church, or a charity that is close to your heart, is considered as charitable donations and you can get tax relief from it. However, be aware of the limitations. For example, you will not get tax relief if the size of the donation is more than 4 times of the tax you’ve paid in previous year.

  1. Inheritance Tax

As a married couple, you and your spouse could double your nil rate band for inheritance tax purposes. What that means is that your inheritance value could go untaxed for up to £650,000 if your spouse did not utilize his/her inheritance tax.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Organise Your Finances the More Efficient Way

Dear Client,

I hope you had a great week.

Last time I was in your inbox, we went through how you can discover your ability to create wealth. This week, I picked out a topic that I hope will help you get through the tax season without any hitches.

Do you sometimes look through your books and wonder how to put all your finances in order before the tax man rolls in? Do you find it hard to sit down to spreadsheets to organize your finances? If you do not have a problem organizing your finances, then congratulations, I’ll just be helping you do it more efficiently. However, if you are like many entrepreneurs I know who think of bookkeeping as a chore, then you can thank me later for showing you that bookkeeping does not have to be expensive, exhaustive or time-consuming.

Below, I will take you three steps to help you organize your finances the more efficient way

Step 1: Embrace Technology

There are numerous applications and technologies available today that are dedicated to helping you manage your finances. For instance, you can switch from manual data entry to simply scanning receipts to track expenditure by using Receipt Bank? Or that cloud computing services such as Xero Accounting can feed your bank statements into your accounting system so that you do not have to? Those systems nowadays cost as little as £20 per month, and they are designed to make your life easier. All you have to do is take advantage of them.

Step 2: Seek Help In Cost-Effective Ways

As an entrepreneur, having others help you will save you time, money and energy as you organize your finances. An easy way to get help is to have your spouse or children to handle the admin and bookkeeping tasks, so that you focus on building the business. You can pay them a salary that do not trigger much tax burden, and help reduce tax for you business the same time.  However, if you are solo, you can also now outsource bookkeeping in affordable way by hiring an accountant in India (or somewhere else in the world). Make sure you do try those freelancers first before you commit, so that you have the reliable person work for you. Also do consider protecting your data by having proper system and Non-disclosure Agreement.

Step 3: How and when to hire the right accountant for your business

Sometimes you have to spend money to save money. Hiring an accountant is an efficient way to organize your finances because a) you won’t have to worry about doing it yourself b) accountants will leave you free to build your business and c) the right accountant will not only get your finances in order but also optimize your tax bill. Wondering who the right accountant is? Here are the criteria: It is important to hire someone who thinks more like a business owner, rather than an employee; the ones who understand your vision and values; the ones who understand your financial pressure and work towards helping you achieve your financial goals.

I hope that today, you have taken away a lesson that will help you organize your finances the more efficient way. Don’t forget to tune in for more financial tips next week!

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Three Simple Steps to Replace the Anxiety of Taxes with Peace of Mind

 

There are a lot of fear and stress around the topic of money and tax. I have been working with doctors since 2014 and have also been following the trends about public health. I have seen a lot of articles and stories in the media about doctors being stressed out, constantly overworked or even sadly committing suicide. I feel as though they are supposed to be the ones to look after other people’s health but how can doctors be expected to save more lives, if their own well-beings are not taken care of.

Also in order to stress less and feel good about finances, I do believe there are two parts of financial well-being that need to be looked at. The first part is the inner world, that is the self-worth and the relationship with money. The second part is outside practical guidance. This is the clarity of what’s going on with the own tax bills/finances. There are a variety of professional help out there to give enough practical guidance and look after your taxes. However, there is not enough professional advice on your mindset on money and how you feel about it. Fortunately, today I will be able to bring both of them together as three simple steps in which you can take to get rid of these fears related to your tax bill.

3 Simple Steps

  1. Own your own financial power

A lot of healthcare professionals say they are not good with money and do not like numbers. In fact, every human being is inherently valuable and you need to believe that you do have whatever it takes to be good with money. You need to have the mindset that you are the only person that can look after yourself. Of course, you will ask for help from an accountant or financial adviser, but eventually you will need these people to work for you and not let them own your power.

Throughout my years of experience, I have noticed that the clients that gain the best results are the ones who are more self-aware. They are aware of the basics of tax, their financial situation and they know who to speak to. This is really important as you are the person who needs to take responsibility of your own finances.

  1. Money you pay into the system is still YOURS

The tax you pay into the system is still yours because you are the one who added value and you have worked hard to earn this money. The taxman will take their share and you do need to pay your fair share as well. If we look at the bigger picture, the tax is eventually funding our public health and public facilities which are benefitting us.

When you receive a payslip, there are different kinds of deductions. One of them is tax and the other one is called national insurance. National insurance is a social security, these are the money used to fund the state benefits like your state pension. Another example of a state benefit is if you lose your job then you will receive unemployment benefits. If you are pregnant and have stopped working for a while but you are not entitled to any statutory maternity pay, you will get a maternity allowance. This goes to show, the money you pay into the system does benefit you indirectly or in the long-run even if you will not see it immediately.

  1. Understand the universal rule of tax

To explain this, I usually refer to the Cash Flow Quadrant by Rich Dad Poor Dad:

Picture1

  • Employee – If you are employed, the tax rate is 40% because most working-class people are paying 40% in tax.
  • Self-employed – If you are self-employed and run a very profitable self-employed business, you would need to pay approximately 50% of your profit as you pay two kinds of national insurance on top of it. Also, there are different rules such as having to pay half of next year’s tax in advance.
  • Business Owner – Currently, if you run a corporation, corporation tax is 19%. The percentage is much lower than people that work as employed or self-employed.
  • Investor – If you are an investor, when you have an investment you do have to pay different kinds of tax. This applies when you have dividends or when you sell assets as you will have capital gains tax. On the other hand, if you are a sophisticated investor, you will be aware of how to invest in a tax-efficient way. There are certain types of tax-efficient investments out there. Investing £10,000 in start-ups will enable you to gain £5,000 back from the government which is one of the very generous tax-breaks that investors can get. Perhaps you could put a portfolio in a tax-free environment, which means you will not need to pay any tax. If you save £500 per year, that is £5,000 for 10 years which is an example of how the tax savings amount will build up over time.

Business owners and Investors have more earning potential than employees and self-employed but they are riskier. As an entrepreneur, it is difficult and investments can go down which will lead to you losing money. Effectively, if you look at the whole economy, business owners start businesses because they want to solve people’s problems and they create jobs. This is adding huge value to the economy, as they are giving more people jobs, giving people stability and guarantee a decent life.

Investors are injecting capital into the businesses, if they become successful it will make their dreams come true. They are also adding massive value to the economy. In comparison to employee or self-employed, you are still adding value but you might serve one or two clients in one go, which means the adding value factor is not as repetitive as businesses and investors. Even though they pay less tax but are earning more money, eventually they are adding massive value to the economy which is why the government rewards them with more tax breaks.

 

P.S. – Do you want to replace your anxiety about taxes with clarity, reassurance and financial well-being? We created an online programme ‘How to prosper as a trainee doctor’ specially to help you get there.

 

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Choosing the right business structure for your Start-Up

Have you been wondering if it is better for you to run your business as a sole trader or limited company? What are the pros and cons? When is it worthwhile to form a company? We will give you guidance of the pros and cons, as well as other options, in order to decide the right business structure for you. Many people may find themselves in this position and there are a lot of questions around business start-ups because it is something new to them. It is important to make sure that you know the tax implications and your responsibility because you are about to become a business owner/company director.

 

Sole Trader vs Limited Company

 

For pure tax purposes, a limited company has a lot of advantage. In particular, if you are running a profitable business the tax advantage is quite big because the company tax is only 19%. If you are making profit as a sole trader then effectively it can be taxed as high as 40%-45%. This proves that running a limited company is better for tax purposes.

 

For some people being a sole trader is a better option especially if you are a bootstrapping entrepreneur. This means you are a start-up but in the meantime, you’re still keeping your day job due to your business not making enough sales. Due to it being too early so you do not have enough income to cover your living expense. For example, if you are starting a consulting business or if you are a life coach and you start your business on the side, at the beginning you may have a lot of business expenses. It is worthwhile to stay as a sole trader because at this point you are effectively making a loss in your business. If you are making a loss, you can use that loss to offset any employment income. This can help you get some tax back in order to aid some cash flow to give you some more money to invest in your business.

 

Even if you are not keeping your day job and just starting out your business small, the structure is not too complicated. If you are providing services, it is worthwhile to remain as a sole trader because your responsibility is less than a limited company. You only have to file a self-assessment once a year as a sole trader.

 

At the same time, if your business structure is not that big and you are company director you have to file your company accounts every year. This is due to a limited company being a separate entity from yourself. You have to take care of your company’s tax return as well as your tax return so it’s double the responsibility. Filing company accounts is more complicated than doing sole trader accounts. You cannot randomly draw money from the company because you might get a tax charge if you are not careful enough.

 

When is it Worthwhile for You to Set Up a Limited Company?

 

Whether you are a sole trader or a limited company, you are taxed on the profits not on the top-line revenue. If you are earning £50,000 and you spend the same amount it does not make any difference because you don’t pay tax. But if you are making £20,000 in profit then at this point you might think it’s better to set up a limited company. If you do run a limited company, you can take £10,000 as your own salary because it is under the personal tax-free threshold. This does not trigger much personal tax burden and if you are running your own salary through the payroll it is a tax-deductible expense which is a tax benefit. As a limited company, you do not have to worry about the Class 4 national insurance. As a sole trader, you are not paying your income tax and national insurance as well. You might have to pay second payment on account which means you have to pay next year’s tax in advance. Cash flow wise it might not be suitable for you. Effectively, you will save company tax and then the rest can be taken as a dividend.

 

At the moment, even though dividend tax has changed, it is still cheaper than a salary or your sole trader income. If you are earning within the basic rate bracket, which is currently £45,000, then the dividend tax is only 7.5% which is an advantage. If you have a profit of £45,000 then 20% of it will be taxed.

 

When Limited Company is the ONLY option?

 

If you are a start-up, for example a technology start-up and you request funding or looking for investments at this point you have to set up a limited company structure. This is because you might have to give up your equity to your investors as a sole trader you cannot attract investors. As a sole trader, the business is relying on you.

 

If you as a business owner resign, you are ill and cannot work, or the sole trader has died then the business will die because of that person. But if you run your limited company even if you resign, you can give your share to other people and set up other people as the director so that the business can continue.

 

If you are looking for investors, you have to have a limited company structure. You will be able to set up a share structure for the investors, you will have A share and the investors could have B share. They will have different rights and you will have decision voting rights.

 

Should You Get an Accountant to Set Up the Limited Company?

 

It is important to consider that a limited company is more complicated and most people start looking for an accountant to help. You have to keep your books in a more comprehensive way as well as there being a double-burden. This is mainly due to filing accounts, filing the company tax and personal tax. You would need to find a professional to do it to make sure it is compliant and to keep the peace of mind. Even if you are confident to do it yourself, the time is also the cost so all of these elements need to be considered.

 

If you are confident and have the knowledge yourself then you can do it yourself. However, the benefits of using an accountant are:

 

  • They will save you time.

 

  • They will give you extra reassurance.

 

  • They will be able to take care of what is essential to you. Especially for your start-up, the accountant will make sure you understand what you are doing and what are the critical deadlines.

 

Other Structures

 

There are other structures apart from a sole trader and limited company. For example, there is a partnership or even a limited liability partnership. If you are a small business, it is more effective for you to be a sole trader as things are simple but it will not stop you from being a limited company in the future.

 

Please note that this is not a replacement of tailored professional advice. For personalised and confidential review of your taxes and tax saving opportunities, please contact the author of this article.