LET’S TALK TAX REDUCTION – DENTAL TECHNOLOGY STUDENT (PART 3 OF 10). BY RICHARD T LISHMAN, MANAGING DIRECTOR OF THE 4DENTISTS GROUP OF COMPANIES Leave a comment
Richard Lishman, award-winning Founder of The IFA’s – a specialist firm of Independent Financial Advisers that provides guidance and advice for some of the wealthiest individuals in the UK and around the globe, heads this series of editorials for lab technicians.
In the last editorial of the series, our character, Bridget Crown, decided to specialise. Now, as she enters into the next phase of her career, it’s time to look at how Bridget can take advantage of ways to mitigate her tax bill and maximise her take home earnings.
Employment status makes all the difference
The available tax-reduction strategies open to Bridget are dependent on her employment status. For the sake of this piece, let’s pretend that, although Bridget is progressing in her career, she is still employed by a laboratory, and therefore is considered employed instead of self-employed.
There are multiple ways that someone who is employed can cut down on their tax bill, some of which are fundamental things that any employee should check to ensure that they are being taxed correctly:
Is your tax code correct?
As Bridget has speedily risen through the ranks at the dental laboratory she works at and seen a good salary increase, it’s likely that her tax code may have changed. This is significant as your tax code tells employers exactly how much tax to deduct from your salary and dictates your personal allowance for the year. If Bridget’s tax code is too low, she may be paying too much tax and not receiving the correct personal allowance tax-free. To check this, Bridget should can update her employment details on the gov.uk website – this will automatically tell her the correct tax code for her salary and circumstances and give her the option to adjust it if necessary.
Pension relief
For the tax year 2021/2022, the pension Annual Allowance before tax is applied is £40,000. As such, Bridget can make the most of the money she is earning and avoid tax implications by investing a proportion of her earnings into her pension pot.
Although unlikely to impact Bridget anytime soon, anyone whose threshold income is above £200,000 and whose adjusted income exceeds £240,000 is subject to the Tapered Annual Allowance. Individuals on this salary will have less of an annual allowance at their disposal, so this pathway would become less beneficial if Bridget were to ever enter this salary level.
Use an ISA to save more
Another option is to make full use of your ISA annual allowance, which is £20,000 for 2021/2022. With the added benefit of no Income Tax on the interest or dividends and all profits from ISA investments are exempt from Capital Gains Tax, this is a great way to legally generate some tax-free income. Bridget could even split this £20,000 yearly allowance across multiple ISA accounts if beneficial.
Embrace any work perks from your company
In this day and age, it’s becoming more and more common for workplaces, including dental laboratories, to offer their staff certain perks. However, these may come with Benefit in Kind taxes attached. For example, if there’s a company car on offer, Bridget may have to pay extra tax to make use of this benefit. However, there are ways to ensure this figure is lower- if the vehicle is electric, for instance, this is taxed significantly less.
If Bridget should ever have any time working from home, she may be able to take advantage of tax relief on certain household costs and equipment – there are plenty of ways that Bridget could slightly lower her tax bill depending on the unique circumstance and the perks on offer.
Seek professional advice
Tax is a complex and multi-layered part of our lives, and therefore it can be difficult to know what tax breaks and other methods to lower your tax are applicable to you. Bridget could only be able to take advantage of a couple of these measures, depending on her circumstances. On the other hand, she may be in the fortunate position to follow all of the potential avenues in this article – it really depends on the circumstances surrounding her workplace.
One way to ensure that you receive the best advice is to seek guidance from Independent Financial Advisers. This way, regardless of your individual circumstances, you can receive guidance that is directly tailored to you and be able to know what ways to mitigate your tax bill are open to you.
For more information, please call 0845 345 5060 or 0754 336 8478 or visit www.theifas.com
