What Is Tax Planning and What Are Its Benefits?

All sorts of businesses – large and small – can benefit from tax planning. Of course, the same can be said of individuals and families, too, which means that seeking the assistance of a professional tax advisor will be advisable to anyone who wants to operate in a tax-efficient manner. Whether you run a business, work as a financial director or have a complex personal annual tax calculation to make, tax planning with a professional tax planning consultant offers a number of benefits. What are they?

What Is Tax Planning?

Before we examine the undoubted advantages of tax planning, it is worthwhile understanding what this term really means. Firstly, tax planning means reducing your tax bill by as much as possible. Emphatically, it does not mean evading tax or paying less than you really should. Instead, effective tax planning makes use of all of the tax rules to ensure you are only paying what you need to. All tax liabilities are subject to allowances and deductions. It is only by looking at these closely, along with any exclusions and exemptions that may be applicable in your case, that a true reflection of your tax issue can be worked out. This is what tax planning offers and why skilled tax planners are so sought after.

The Benefits of Tax Planning

• As mentioned, one of the main gains that tax planners provide is a reduced tax bill. Paying more tax than you are legally obliged to is something most people would like to avoid. However, it is only with expertise in the tax rules and the necessary know-how of how to apply them that you will be able to make such savings.
• Another key benefit of adequate tax planning is that it means being able to plan your future finances much more effectively. Many businesses suffer from arrested growth if their income goes up and down dramatically meaning they pay much more tax in one financial year in the next. By deferring your income and spreading your profit levels over more than one tax year, for example, you can even out your tax bills and benefit from a more even cash flow, helping you to plan for your future with greater assurance.
• People who run their own business or who work in partnerships have very different ways they are able to pay themselves compared with employees. You may still award yourself a salary, of course, but with proper tax planning, you could find out that it is much more tax-efficient to pay yourself a dividend instead. The rules on dividend payments are quite complex so it is worth knowing that this does not always work out for every self-employed person but it is something that is definitely worth exploring with your personal tax advisor.
• Finally, it should be noted that the tax rules outside of the UK are often different and need careful analysis to ensure your taxation is applied correctly. Anyone with assets overseas, who does cross-border trading or who lives overseas – for a proportion of the year, at least – will find that professional expertise in international tax planning can be invaluable in ensuring all taxes are paid properly. Not only will this help to lower your tax bill but it can mean avoiding potential investigations which can be stressful as well as expensive.

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