How To Save Taxes And Maximise Your Income

We all want to pay less tax but no one wants to find themselves facing the stress of a tax investigation. While there are often ways to legitimately reduce your tax liability there are plenty of other means that are clearly illegal. There is a crucial distinction here between tax avoidance and tax evasion. The former is using the tax regime to your own advantage, but within the law; the latter is using illegal means to the same end. The recent strengthening of HMRC's powers ought to be a serious deterrent against acting doing anything remotely illegitimate.

Some people come to a tax advisor simply wanting to minimise their tax liability. I always tell them they may have the wrong goal in sight. In the end it's the amount of disposable income that you should aim to maximise. While tax mitigation is part of that, maximising income is important too, as is considering your overall view of life. Taking a step back and examining your overall goals is usually a good idea before focussing just on your tax liability.

For example, we have clients who could avoid paying any UK tax by living abroad for the majority of the year. Yet this would make regular access to their children from a former marriage much more difficult. In this kind of situation, saving the maximum amount of taxes is rarely the highest priority. Others may be able to reduce their tax liability by structuring their business in a different way, yet they would lose key clients or suppliers by doing so. In this case, the tax saving is going to be outweighed by the loss of profits.

So there are two activities involved here. The first is profit maximisation - ensuring you maximise your earnings. The second is minimising your tax bill. You have to both earn it and keep it. Profit improvement is not the subject of this article but it is often the most important part of the equation. Whatever you do, don't neglect this if you run a business.

There are simple things you can do to keep as much as you can, particularly if you run a business. Simply by recording all your expenses and understanding which expenses can be offset against income for tax purposes can save significant amounts in tax every year. It's not only complicated tax schemes that produce financial savings. Getting the basics right is always important and finding good advice is often the key to doing this. A trusted advisor who is interested in building a long-term relationship with you ought to save you money over time.

Different situations provide different opportunities for tax savings. If you are non-domiciled and not ordinarily resident, and work outside the UK for part of the year, then significant tax savings are likely to be possible. If you are married and rent property, then simply putting the property in joint names will produce a tax saving on the sale of the property. It is hard give specific advice without a full understanding of your circumstances but, at the very least, you ought to be reviewing your tax affairs every year as both your circumstances and the tax regime change. Don't delay in taking action!