Monthly Archives: April 2016

Did You Know You Can Make Over £37k A Year Without Paying Tax

Did you know you can make over £37k a year without paying tax?

Up until 5th April when the Government abolished the 10% tax credit on dividends in favour of a new £5,000 allowance, it was easy to earn £37,000 a year without paying tax. However, you typically needed to own your own (profitable) company. The mechanism in this instance was to take a salary equivalent to you personal allowance and then gross dividends equal to the rest of your basic rate band and you could come away with £37-38k and only pay a small amount of National Insurance on the lot. Now however, dividends in excess of £5,000 are to be taxed at 7.5% for basic rate tax payers.

However, it is still possible to make around £37,000 a year without incurring any tax at all.

I should state that while it is possible, it may not be entirely practical. But I think it’s worth looking at the multitude of tax allowances that have become available in recent years as the Government have gradually restructured the tax system.

In short, the reliefs available to everyone are:

  • Personal Allowance – £11,000
  • CGT Annual Exemption – £11,100
  • Dividend Allowance – £5,000
  • Savings Allowance – £1,000
  • Rent-A-Room Relief – £7,500
  • Trading Micro-Enterprise – £1,000 (from April 2017)
  • Property Micro-Enterprise – £1,000 (from April 2017)

On top of these, you also have an exemption from any interest earned in ISA’s plus tax relief for pension contributions.

The Usual Suspects

The main allowance that people will be familiar with is the Personal Allowance. In the current tax year this allows you to earn £11,000 before you pay tax (around £917/month or £212/week).

On top of that, everyone has an annual exemption for Capital Gains Tax. This comes in to effect if you sell shares, land, property (except you main residence) or other valuable items such as paintings. At the minute this allowance is £11,100. So you can make £11,100 profit on the sale of these items without having to pay any tax.

The “Makeover” Reliefs

A number of existing tax reliefs have been spruced up in recent years. The main one of interest to any small business owners is the £5,000 dividend allowance. Whilst not as generous in tax terms as its predecessor – the 10% tax credit – it’s still a valuable allowance. If you and your spouse are the only shareholders in your small company, that’s an extra £10k in to the household every year with no further tax cost.

Another allowances that has been modernised is the Rent-a-Room relief. For years this relief stood at £4,250, meaning you could rent out a furnished bedroom of your house for up to £4,250 a year and pay no tax. Now however, this relief has been raised to £7,500. As soon as this was announced, my first thought went straight to Air BNB. This platform has really grown in popularity in recent years and some people were doing very well out of this. However, one of the fears that people had was how this income left them in terms of their tax compliance. This increase should mean that the vast majority of users will fall below the limit and, as such, not fall foul of the legislation.

The Newcomers

Aside from the above allowances, which have either always been around or have just had a face lift, 3 new allowances have come in to effect recently.

For basic rate tax payers, there is now a £1,000 savings allowance – so the first £1,000 of bank interest (excluding interest on ISA’s which is still exempt) will be tax free. Those paying tax at the higher 40% rate still get a £500 allowance.

The two most progressive allowances to come from the recent budget make me very happy as they really aim to take a lot of burden off those earning small amounts from “side-projects”. There are two £1,000 allowances for micro enterprises – one for trading income and one for property income. These two allowances are due to come in to effect in April 2017 so are still subject to change.

Those likely to benefit from this will be those selling small amounts of products/services online or renting out sheds, storage units or driveways. But in reality, any trade with receipts of less than £1k qualify for the relief so musicians, market traders and artists could all benefit. If your total income is less that £1,000 you have nothing to declare. Above this limit and you can either deduct your expenses before calculating the tax or just deduct £1,000.

It should be noted that the Rent-A-Room relief and the £1,000 micro enterprise allowance can’t be added together for the same purpose. But they can be used separately. So if you are getting the use of the Rent-A-Room relief, you will need to rent out your driveway or storage unit to use the £1,000 micro enterprise property relief.

Conclusion

As previously stated, whilst it is possible to use all these reliefs together, it may not be particularly practical. To do so you would need to have quite a lot wealth to begin with. For example to earn £1,000 of interest in a single year would require around £40-50k in savings. But be aware of all of the above – particularly the micro-enterprise reliefs – and cherry pick those that apply to your circumstances. Tax alone on £37,000 of income would normally be over £5,000 so some real savings are available by using the above.

As always, speak to your accountant about how best to maximise your tax savings as the advice given will greatly depend on your own circumstances.

What I want out of #NewryHour

In the past couple of years, the local business communities in Ireland have ramped up their engagement with other businesses on Twitter. There are numerous hashtags for numerous locations around the country where, for one hour a week, businesses get together online and throw around stories, publicise their business and offer support, and indeed entertainment, to other businesses in their area.

I have dabbled in these groups in the past to some extent without really committing. More recently however I decided to get more involved in my own local group – #NewryHour. Every Tuesday from 9-10pm, I get on Twitter and listen, ask questions and (hopefully) offer some value and help to the community.

Twitter comes in to its own in these groups I think. It has always been the biggest open cocktail party on the internet; you can literally go on and talk to anyone that’s using it. But these groups really help to narrow the focus for people.

As a business, you can gain a lot from being “at the party”. Whether it’s insights, leads, opportunities to connect and collaborate with other business or members of the community – it’s all possible in these forums.

So, with all this opportunity available to us, what do I hope to gain from using these groups?

Simple. Nothing.

I’m not there to gain. I’m there to give.

I like to think I know myself pretty well. I know where I can offer value to people and where I can’t. If you need help putting up a shelf or baking bread, I’m not your man. I’m really, really shit at that stuff. If I got involved in either of those activities, death or injury are both likely outcomes.

Now, if you need advise on ways to finance your business, to save tax, to increase your margins, to sell or buy a business, to manage your VAT and payroll – that’s right up my street. Some people get in to business because they’re great sales people, great at making things, great artists. The finance is something people pick up to some degree as they go along. But they seldom become experts in it to the extent that they are when it comes to building an app or building a house. And that’s fine; it’s not practical to do that. That’s the very reason accountants exist. We are the support team.

So, I go on to #NewryHour to offer support. To offer an opinion (or a second opinion). To offer help, in whatever form that may take – an introduction, a chat, a coffee, a recommendation, whatever. Just to help. Business is tough. Anyone that tells you any different is a liar. So if I can help in 140 characters on Twitter or in 30 minutes on the phone afterwards, I’m happy to do so.

I’m increasingly coming to the conclusion that we all have to give more than we receive. So I’m giving now because in 6 months or 6 days I might need help. Call it karma, call it not being an asshole, I think it’s just part of life and living in a community.

What I’ve found surprising though, is just how much community you can find in a simple hashtag.

 

#NewryHour happens every Tuesday between 9-10pm. Everyone is welcome. It’s not just about businesses, it’s about the whole community – schools, charities, groups – everyone can get involved. So please do. 

Boaty McBoatface is too good an opportunity to pass on

It’s official. Boaty McBoatface has topped the polls in a public vote to name the new £200m artic explorer. However, after receiving almost 125,000 votes, it appears as if the Natural Environment Research Agency (NERC) and the government will pass on the publics choice for the name.

Listening to the Jo Johnson, Minister for Science & Technology, on Radio 4 yesterday, it seemed pretty much a foregone conclusion that they won’t be going with Boaty (not least because, in order to officially name a ship, they must request a warrant from the Queen). He all but said that there’s no chance that the future of research in the Artic will happen on the RRS Boaty McBoatface.

NERC had outlined from the beginning that the poll wouldn’t definitively decide what the ship would be called. Their motives behind the poll were primarily to get public engagement and raise awareness of the work they do. Without question, those goals have certainly been achieved.

However, the biggest opportunity still lies ahead of the in the form of… Boaty McBoatface.

The poll was a great idea. Thousands of people engaged with a branch of the government that many otherwise wouldn’t have known existed. But why have that be the end of it? If NERC go with Boaty McBoatface, they can retain some of that attention.

If Boaty McBoatface were on Twitter, I would follow it! Its Instagram account would be beautiful – Northern Lights from the Artic. And who wouldn’t want to follow Boaty’s Snapchat story?

Whether they like it or not, NERC have created a character here. Boaty already has a fan base, a personality and a lot of adoration. NERC need to ride that wave.

If they don’t go with Boaty, that’s it. The story ends. The general public will never again care about what comes from this £200m ship. Keep the character though and you keep the attention, and the interest.

Also, this ship will be around for 40-50 years. Our kids will grow up hearing about Boaty. And they will listen too. Because it sounds like a cartoon. In fact, I wouldn’t be surprised if some keen animator is already working on a cartoon.

It might not sound very professional and we all know it’s a bit silly and immature. And not very “becoming” of a £200m ship. But it has captured the imagination and attention of thousands. And that, that attention – in a sector such as science which is so important and so commonly overlooked by the popular media outlets – is priceless.