Tax is a really boring subject, yet it’s one of the most important factors that govern our financial lives, from workers, to managers to bosses and business owners; individuals, sole-traders, micro-companies, SME’s and Large Multinationals: Tax affects us all.
Head line rates of tax are just that, ‘headlines’ – attention grabbing and instantly opinion-forming. We all sort of know that, and try to convince ourselves that the devil is in the detail. And, yes, it is. The detail covers all the things you can (and should) be doing to minimize your tax, legally, and fairly. The detail also takes us into the world of tax loopholes, take avoidance and tax evasion. On-shore, off-shore, non-dom, etc. etc.
However, let’s just return to the ‘headline rates of tax’. There are two main taxes I want to cover. Income tax and Corporation tax.
Income tax – we have seen the basic rate of income tax fall over the years to it’s lowest level in generations.
Corporation tax – we have seen it cut for even the largest companies to the lowest rate ever – 20% – it used to be over 30% for these companies. We have also seen the scheme of ACT – Advanced corporation tax, which was levied whenever a company declared and paid a dividend – scrapped many years ago. (This has allowed organisations to sweep more profits away out of the reach of our beloved Inland Revenue).
The net result is a country that can ill-afford to pay for itself.
Add to the problem, recent changes in taxation rules and regulations and laws and we see the large multinationals avoiding UK tax by moving their UK generated profits overseas to countries that tax at a much lower rate (Read Holland (yes a fellow EU member!), Switzerland, British Overseas Territories (Caymans, etc) and The usual suspects of Jersey, IOM and Guernsey. Then of course our other EU mates – Ireland). The recent changes have made it now even easier for people and companies to repatriate these profits back to the UK. If you can achieve “non-Dom” status, then you are effectively your own walking tax-haven.
Anyhow, back to my point. We have all been blinkered into thinking that lower rates of tax is a good thing. It is usually, but in the case of the UK in 2016, it no longer is. We need tax raises. Tax the wealthiest companies more as they are the ones who can most afford it – but to do that effectively, we need to kill the ‘profit transfer’ scams these organisations are routinely carrying out.
On a personal and individual note, each of us owes it to ourselves and our families, to minimize the amount of tax we pay each year. What can one do?
If you have savings which are earning interest, then protect as much of that interest from the tax man by putting the money into an ISA – the interest is then tax free. Most people in the UK cannot afford to fund the £15,000+ per year you can invest into an ISA, so this one step is good enough for the majority. My personal criticism of cash ISA’s has been the very poor rate of interest being paid (Currently less than 1%). So for me a stocks and shares ISA has been ideal. This stark choice has left most people stuck with the cash-ISA.
However, all that is about to change. the new IF-ISA’s – IF for Innovative Finance will open the doors for us all to be able to benefit from decent rates of return – e.g. 5%) – Many of these will be via Peer to Peer lending (P2P) which whilst relatively new, is maturing nicely as an industry and offers good solid returns with risk that, IMHO, is no greater that stock-picking.
I for one will be using the new IF-ISA from 6th April 2016!
This guest blog was provided by Alan Jones, Managing Director at Cascade HR Ltd
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