How to earn more at the basic rate of tax

Donations made to charity over the course of a tax year can add up and taxpayers should ensure that they keep a proper record of all donations and note them on their tax return. The Gift Aid scheme is available to all UK taxpayers. The recipient charity can claim an extra 25p worth of tax relief on every pound donated provided all the qualifying conditions of the scheme are met.

If you pay Income Tax at the basic rate, then no additional relief is due on your gifts. However, higher rate and additional rate taxpayers are eligible to claim relief on the difference between the basic rate and their highest rate of tax. This relief is given by increasing your basic rate and higher rate band by the grossed-up amount of your gifts.

For example, if a taxpayer donates £500 to charity, the total value of the donation to the charity is £625. The taxpayer can claim additional tax back of:

£125 if they pay tax at 40% (£625 × 20%)
£156.25 if they pay tax at 45% (£625 × 20%) plus (£625 × 5%)

There is no upper or lower monetary limit on the amount of a gift that can qualify for Gift Aid, provided that the taxpayer has paid enough tax to cover the amount that is payable to the charity or CASC.

Planning note

A higher rate or additional rate taxpayer who wanted to reduce their tax bill for the previous tax year, could decide to make a gift to charity in the current tax year (2018-19), and then elect to carry back the contribution to 2017-18. A request to carry back the donation, must be made before or at the same time as the 2017-18 self-assessment return is completed. The online filing deadline of 31 January 2019 means that there is still plenty of time left to consider the optimum method for making charitable donations.

It is also possible to make gifts of certain assets to charities and claim Income Tax relief on the value of these gifts. This may be more tax efficient for certain larger charitable donations.

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Case Studies

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The Tax Man
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Business Valuation in Distress
Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard
Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.