General approach to
tax planning

98 Make sure you keep complete and accurate business records. They can reduce the risk of paying extra tax and penalties if you are subject to an enquiry. The Tax Inspector’s favourite question is, ‘Where did this money come from?’. By making a note of the source of any payments into your business or private bank accounts, you will later be able to prove where the money originated and prevent HMRC taxing these receipts as if they were undeclared business profits.

99 Use all the tax reliefs and tax-free benefits available to you as far as practicable. Some, such as the annual personal allowance and age allowances, are given automatically, but others need to be claimed, for example child tax credits and child benefit.

100 Be aware that tax reliefs and rules can be changed with little or no notice. For example, the provision of tax-free computer equipment to employees was stopped with only two weeks’ notice. So be as flexible as possible with your tax planning, and have a back-up plan to put into action if a scheme or tax relief is withdrawn.

101 If a tax planning scheme sounds too good to be true, it probably is. In particular, do not take up a tax scheme that relies on non-declaration of income or capital gains, as that would be illegal.