How to Make full use of your Family's Tax Allowances
Many families pay more tax than they have to because one person works whilst their spouse stays at home, wasting a personal tax allowance. When you're running a family business it's especially important to make sure that you don't lose out on money through this kind of thing.
Careful money management can considerably reduce your tax bills, making you better off as a family and leaving you with more money to invest in your business. The more money you're dealing with, the more practical it will become to consult an accountant, but there's a lot you can do by yourself, starting with making full use of your personal tax allowance.
The Personal Tax AllowanceYour personal tax allowance is the amount which you're allowed to earn before you have to start paying tax. The basic rate of this has now been raised to £6,035, rising to £9,030 if you're aged over sixty five £9,180, you're aged over seventy five, provided that you're earning under £21,800. There's a higher allowance available to blind people and if you're disabled you may be able to claim credits against tax.
If you give money to charity through tax registered schemes, you can claim money off your personal tax allowance, and you can also get tax relief if you are making regular maintenance payments to a former spouse or civil partner.
If you set up a pension scheme through your company you can pay contributions into it before tax, so that you can save money by putting it into a fund for your retirement, and other business members will be able to do the same.
How Couples Can Pay Less TaxIf you have a spouse or civil partner, you can claim a separate tax allowance called Married Couple's Allowance, designed to help people supporting partners who don't earn as much as them. Married Couple's Allowance is automatically given to the partner with the highest earnings, but if you don't use it up than you can transfer the remainder of the allowance to your partner. This can give you a useful degree of flexibility if you're running a family business together.
If your partner, or another family member, does not normally work, you can save tax by employing them up to the value of their personal tax allowance. They won't be taxed on what they earn and you won't be taxed on what you've paid to them because it will count as a business expense. They will then be free to reinvest that money in the business. However you will need to be able to demonstrate that they are genuinely doing some kind of work for you if you are audited. Administrative, secretarial and advisory or consulting work are the most common options used in this situation. This can be a good, low-pressure way to introduce your children to working for the family business.
Tax And ChildrenIf you are looking after children under sixteen at home, you can receive tax credits for them, cutting your overall tax bill. This can apply even if the children are not your own. When children are in full time education you will remain eligible for tax credits until they are nineteen, so you can save money on tax by encouraging older children interested in being part of the family business to take business training then - that money will no longer be available if they choose to do it later.
When you are transferring business assets to children or other family members, it's best to do it in stages in order to minimise the tax for which they will become liable as a result. This means that, rather than transferring business ownership all at once, it's usually best to transfer shares over a number of years.
You can transfer up to £3,000 worth of shares to one person in any one year before you have to worry about tax - after that, it's advisable to see an accountant. However, if your children inherit your shares in the family business because of your death, they will have a much larger tax free allowance before they have to worry about paying inheritance tax.
When it comes to tax, there are so many rules and regulations that many people feel overwhelmed and decide they can't manage it at all. Don't be intimidated. Once you get a bit of practice you'll find it easy, and handling it carefully can potentially save you thousands of pounds.