Many people pay too much tax and most of it can easily be avoided. Take this example of a family man with a van.

Let’s assume his van is a little tired looking and he thinks it’s time to get a new one for his image. If he’s making £30k profit a year and the van costs £15k then planning to buy this now can save him £6k. Here’s how: -

There are different ways to buy the van such as leasing, outright purchase from cash reserves, hire purchase or contract hire. If he buys it (and he can do this on finance) then that £15k will qualify for a new allowance and he’ll get 100% tax claim. This will reduce his taxable profit to £15k and trigger a Tax Credit claim of £3k.

Next year with all things being equal he probably won’t buy another van so his taxable profit will go up to £30k. But, with Tax Credits you get an award every year based on your last year's claim. This will give him another £3k but amazingly there’s something called the income disregard. The means that provided your income doesn’t go up by more than £25k you don’t need to repay any awards you’ve had!

Nice, but you need to make sure you claim on time because claims can not be backdated. It makes sense with these types of opportunities to have a protective claim in place. Have you done this?

This works for any reduction in taxable profit. So, if you decided to go abroad for a long holiday you’d get £6k from the taxman. Maybe some businesses will be hit with a £15k bad debt in the Credit Crunch. It would be nice to get £6k of this back.

If you would like more details about this please contact me taxsorted(at)googlemail.com

Thanks to Lesley Ward for writing this article