If you’re a creative person, the chances are that number crunching & tax planning aren’t your priority. That’s ok though – simply follow these 6 easy steps to save tax:

1. Pay employer contributions

The new increased rate of National Insurance Contributions for both employers and employees make paying remuneration as employer pension contributions (as opposed to salary) even more attractive. This could be particularly attractive for employees who currently make pension contributions out of their net pay anyway. Switching these to employer contributions could significantly benefit both the employee and employing company.

2. Use your Capital Gains Tax (CGT) exemption

Everyone has an annual CGT allowance of £10,600 for 2011/12 and this is a use-it-or-lose-it exemption. Where you have a reasonable amount of gains in an investment portfolio, you should think about crystallising some of the gains each year to utilise this allowance over a number of years. There are other CGT strategies like “Bed & ISA”, inter-spouse transfers & carrying forward losses that should also be considered where you are concerned about paying CGT on any investment gains.

3. Invest in an ISA

You can now invest £10,680 into an ISA for the 2011/12 tax year. This means a married couple can invest £21,360 each year into this tax-free, flexible investment wrapper. If you cannot invest out of your income, you could also utilise existing investments to do this, taking them out of a taxed environment and putting them into the tax-free ISA wrapper. This really is a no-brainer, but we still see clients not making the most of this valuable tax benefit.

4. Don’t pay 60% tax!

If your total income is between £100,000 and £114,950, you are effectively paying income tax at 60% on the income within this band (due to your personal allowance being reduced). Therefore we would advise managing your income so that it does not fall within this band. Ideally you will manage your income to below £100,000 where possible to preserve your full personal allowance. Consider using pension contributions, gift aid donations and transferring income-producing assets to do this.

5. Get tax relief on your investments

Other than pensions, the other two main ways to get tax relief on your initial investment is to subscribe to a qualifying Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS). While these investments do have their differences, both allow you to obtain tax relief at 30% on the initial investment. This means that an investment of £10,000 will only cost you £7,000 – with the £3,000 going to reduce your tax bill. 

From April 2012, start-up investments that qualify for the EIS will receive 50% income tax relief regardless of the rate at which the individual pays income tax. In addition, these schemes will offer a capital gains tax exemption on gains realised in 2012–13 and then invested through EIS in the same year. These schemes can be risky, so only invest once you have taken advice and are fully aware of the risks involved.

6. Get Married!

Whilst it may not be everyone’s cup of tea, from a tax planning perspective a marriage or civil partnership can offer individuals much greater scope to reduce their tax liabilities. David Cameron has previously referred to rewarding marriage through tax benefits but there are already many opportunities for people in this position, such as:

• Spousal exemptions and transferable nil-rate bands for IHT
• Inter spouse transfers to avoid or reduce CGT
• Independent taxation for income tax purpose (Company Directors can often utilise 2 personal allowances if they have a spouse with no other income or employment)