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The Marriage Allowance:
check your eligibility
With recent research revealing that more
than 2.9 million couples in the UK have
yet to claim the Marriage Allowance, we
review the key features of the initiative,
and highlight how you could stand
to benefit.
Introduced in April 2015 by the former
Chancellor, George Osborne, the Marriage
Allowance permits eligible spouses to transfer
10% of their personal allowance to their partner.
However, figures from HMRC have revealed that
of the alleged 4.2 million couples eligible for the
tax break, only around 1.3 million have actually
claimed it.
The Marriage Allowance is only available to
couples where neither pays tax at the higher
or additional rate. Therefore, the couples most
likely to benefit are those where one of the
spouses has little or no income and the other
spouse is earning between £11,501 and £45,000
(£43,000 for those in Scotland).
What are the financial benefits?
For 2017/18, when the personal allowance is set
at £11,500, eligible taxpayers can transfer £1,150
to their spouse. This will reduce their tax liability
by up to £230 in the current tax year.
However, it is possible to backdate a claim for
the Marriage Allowance to include any tax year
since 6 April 2015 that the couple was eligible for
the tax break. The tax bill of a recipient of the
Marriage Allowance was reduced by up to £212
in 2015/16 and £220 in 2016/17. As a result,
eligible couples who have so far failed to claim
the relief may be owed a tax repayment of up to
£432!
How do I apply?
Couples are able to register for the Marriage
Allowance at
www.gov.uk/marriage-allowance.If the application is successful, any changes to
your personal allowances will be backdated to
the beginning of the tax year. HMRC will refund
those with successful applications by either
changing their tax code, or by altering their
Self Assessment Tax Return (if they are self-
employed).
In future years the allowance will transfer
automatically to the spouse until either of the
couple cancels the Marriage Allowance or there
is a change in circumstances – which means a
potential reduction in the annual tax bill of more
than £200.
For more information on the Marriage
Allowance, please contact us.
Tax planning for a prosperous future
Effective business and personal tax planning can help to ensure a secure
financial future for you and your business. Here we highlight some
strategies to consider when reviewing your financial plans.
Business strategies
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Is your business motoring as tax-efficient as it could be?
An employer-provided vehicle can be a useful business tool for both employees
and employers. However, with the taxable benefits on cars increasing year on year,
it may be time to review your business motoring policy completely. In some cases,
it could be more tax-efficient to pay employees for business mileage in their own
vehicles at the statutory mileage rates, especially if their business mileage is high. A
company van may also be worth considering in certain circumstances – please talk
to us about the potential tax benefits.
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Are you claiming all the relevant allowances, deductions and expenses?
Have you checked to make sure that your business is claiming all the allowances
that it is entitled to? Businesses looking to purchase capital equipment are able
to claim tax relief in the form of capital allowances. The majority of businesses are
able to claim a 100% Annual Investment Allowance (AIA) on the first £200,000
of expenditure on most types of plant and machinery (except cars). Meanwhile,
those who are self-employed may be able to claim for allowable expenses such as
office costs, travel costs, clothing expenditure and more. Please speak to us for
further details.
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Have you considered the tax benefits of taking dividends rather than
a salary/bonus?
If you are an owner-director, you may wish to take dividends instead of a salary/
bonus. Despite changes to the dividends regime in 2016, receiving dividends
rather than a salary/bonus may still result in a lower national insurance
contributions (NIC) liability. The Dividend Tax Allowance (DTA) is currently
£5,000 for 2017/18. The allowance does not change the amount of income that
is brought into the income tax computation, but it instead charges £5,000 of
dividend income at 0% tax – the dividend nil rate. Please note that proposals have
been announced to reduce the DTA to £2,000 from April 2018.
Personal strategies
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Have you sought to minimise your liability to income tax?
You may be able to minimise your income tax liability by making full use of your
personal allowance (PA), which is set at £11,500 for 2017/18. If a spouse or
partner has little or no income, consider transferring income (or income-producing
assets) to them to ensure that they are able to make full use of their PA. Certain
rules and restrictions apply so please speak to us before taking action.
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Are you investing in a pension?
Investing in a company or personal pension scheme may afford tax breaks on
your personal pension contributions, while helping to ensure that you plan for
a comfortable retirement. If you are a higher rate taxpayer, your investment
will, subject to limits, qualify for tax relief at 40%. Pension contributions can
be made at up to 100% of relevant earnings, subject to the annual allowance,
which is currently £40,000 for most people. However, those with adjusted income
over £150,000 may have their annual allowance tapered down to a minimum of
£10,000.
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Are you making use of tax-efficient investment opportunities?
A number of investment products offer tax-free income, including Individual
Savings Accounts (ISAs) and some National Savings products. You may also wish
to make investments under the Enterprise Investment Scheme (EIS), the Seed
Enterprise Investment Scheme (SEIS), via a Venture Capital Trust (VCT) or using
Social Investment Tax Relief (SITR). However, it is important to consider the
potential risks as well as the benefits, and we recommend that you speak to a
qualified adviser before taking action.
As your accountants, we can help you to implement effective tax planning
strategies. For more information, please do not hesitate to contact us.