Dodging tax at source on your investments
Speedier tax
The government doesn’t hide the fact that it needs money fast. As far as it’s concerned the sooner it collects tax the less it will owe and have to pay interest on. That might be good news for the country, but it’s individuals and businesses like yours that will have to fund the earlier tax payments.
It’s a matter of timing
One of the measures announced in the Budget was aimed at collecting tax on deposit interest more quickly. Currently, bank etc. deposits greater than £50,000 can count as Qualifying Time Deposits (QTDs) (see The next step). Interest on these can be paid without basic rate tax (20%) being deducted by the bank. Ultimately, of course, where you receive gross interest you will have to pay tax on it through self-assessment, but this can be as long as 20 months later. This tax break will come to an end for QTDs made after April 5 2012. But there are steps you can still take to delay tax on savings and deposit interest.
Deferring tax - company option
If you’re a company owner, you can withdraw your savings and lend it to your business at a similar rate of interest; it can then reinvest this with the bank. The tax rules are different for companies so it will receive the interest gross. Corporation Tax (CT), 20% for most companies, will be payable on the interest but not until nine months after the end of the accounting period in which it’s received.
Example. The CT bill on deposit interest paid in April 2012 to a company with an accounting year of March 31 won’t be payable until January 1 2014.
Tip. Where you’ll have to pay personal higher rate tax on the interest, you can defer this. The company can accumulate the interest, say, for three years, and then pay it to you all at once. The higher rate tax you will have to pay on the interest will be deferred until your self-assessment bill for the year in which you receive it.
Deferring tax - individual option
As an individual you can’t manipulate the timing of tax payable on your bank etc. deposit interest: it will be taken at source. But there are other types of interest which can be paid gross.
Tip. Peer-to-peer (P2P) lending companies use your money to lend to individuals who will pay you gross interest. But the downside is that this type of investment has a greater risk than a bank deposit. You can find P2P companies, such as Zopa and Funding Circle, by searching the Internet.
The get it while you can option
If you’re not interested in higher risk investments, and don’t have a company to invest through, you can still make use of gross interest from QTDs for a while longer.
Tip. The QTD tax break applies to interest on deposits made before April 6 2012,meaningyou can maximise tax deferral by ending existing deposits and starting new ones just before that date. The new QTD can run for up to five years and will pay you gross interest during that time.
For details of QTD conditions, visit http://tax.indicator.co.uk (TX 11.14.04).
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