- The tax year end is fast approaching.
- You want some last-minute tips to save some tax.
- But what can you do yourself – and how will it potentially save you tax?
Quite a lot, actually! So the team here at Heelan Associates have put together some ideas to help save you those extra £££s.
Do bear in mind, as with all our articles, we are primarily talking about small business owners here. However, most of the tips will also apply to many other UK taxpayers.
Here’s our checklist with ‘how to’ notes below!
✅ Make use of your personal tax-free allowance
✅ Make any gift aid donations
✅ Consider if marriage allowance is appropriate and usable
✅ Consider using your Capital Gains annual allowance
✅ Consider bringing forward any investment in new equipment or other items you may need in the coming months
✅ If you are a sole trader using the ‘cash basis’ tax calculation, consider bringing forward expenditure you were already going to be doing in the coming months
✅ Consider if you need to make any pension contributions
✅ For limited company owners, review if you’ve used your trivial benefits ‘allowance’
✅ For limited company owners, review your director’s payroll
✅ For limited company owners, ensure you’ve used your £500 dividend allowance
✅ Consider ISA allowances and other tax-relieving investments
✅ Consider gifting excess money…
✅ Think about Child Benefit claims
✅ Gather and update your records!
To spend or not to spend? (That is the question)
Please note – this tip applies mainly to business owners with a financial year that ends on either 31st March or 5th April.
If you are already thinking of investing in new equipment in the next few months, consider bringing forward that expenditure into this current tax year.
This is because the tax ‘line’ will be drawn at the end of your business tax year. Your next tax bill will be calculated from figures up to and including that tax year end date (either 31st March or 5th April).
Since your annual tax bill is based on your profits for the year, bringing forward expenditure on items such as equipment will have a direct impact on these profits, and therefore reduce your next tax bill!
Having said that, don’t spend money JUST to save tax. Read our blog on how tax deductions work to understand what we mean by this.
Sole trader/self employed only tip: If you prepare your tax return under the ‘cash basis’ (where you record your expenses based on what your spent in the year), then bringing forward other expenditure may also help reduce your profits, and therefore your tax bill.
Review and record your expenses
We often get asked what the best way to save tax is, and the answer starts always with ‘Keep good records’. Losing tax deductions through poor records keeping is the most common issue we see.
Make sure you’ve captured and recorded all of your expenses. The end of the tax year is always a good point to sit and review this. If you put it off until later in the year, you may not remember everything, or be able remember where you put the receipts for expenses so you wouldn’t forget about them!
There are various phone apps available where you just take a photo of a receipt, and the software categorises and records them in the cloud. Getting into the habit of “spend and snap” could save you hours of sorting through paper receipts for your accounts each year.
Selling the ‘Big Stuff’
Capital Gains Tax, aka CGT, generally kicks in when you are selling the Big Stuff. You need to consider this if you are disposing of any ‘capital’ items such as:
- Crypto
- Investment properties
- Shares
If so, consider disposing of at least one before the end of the tax year. You have a yearly tax allowance that you can offset against your CGT ‘gains’. So, splitting your disposals across tax years (aka selling stuff either side of the tax year date) could be efficient.
BUT here’s why it might be better to act sooner than later. The current Capital Gains allowance has been slashed already to just £3000, and cannot be carried forward (‘use it or lose it’).
Pay into your personal pension
Whether this is a good idea and whether it will actually save you any tax depends entirely on your individual situation. However, in general, it’s worth looking into (or talking to your financial advisor about) because:
- If you make personal pension contributions, you generally get some ‘tax relief’ that is added to your pension pot.
- There is an annual maximum you can contribute into your pension each tax year without triggering income tax. At the time of writing, this is £60,000 for 2024/25. Do consider making use of all of it if you haven’t already, although you can carry some of this forward.
- Higher rate tax payers might end up getting some tax back directly, depending on how your pension operates.
- If you earn between £100-£125k, there can be some extra benefits to making personal contributions.
This tip really is dependent on your circumstances, so get some advice from someone you trust such as your accountant or your IFA/financial advisor.
If you are a limited company owner, you may want your company to contribute to your pension rather than personally, as it might be more tax efficient. However, this is again highly dependent on your own circumstances, and you should seek professional financial advice pronto.
Consider the use of investments to reduce tax
There are certain types of investments that attractive great tax relief, such as:
- The Seed Enterprise Investment Scheme (SEIS)
- Enterprise Investment Scheme (EIS)
- Venture Capital Trusts (VCTs)
The tax relief for investing in companies qualifying for these schemes can provide 30-50% tax breaks, and potential further reliefs from tax when you sell the investments.
The downside is they are viewed by many as high-risk investments. So this is definitely one to speak to your financial advisor about, as generally they are only suitable for experienced investors.
Limited Company owners: review your Director’s salary
If you are a limited company owner/director, you should review your PAYE (Payroll) salary to make sure you have it set at the most efficient level.
As a minimum, you need to consider:
- Are you earning enough to get a qualifying year for your state pension?
- Have you used all of your personal tax-free allowances in the most efficient way?
- Are you declaring any salary at all? (If you’re unsure, have a read of our blog on the subject of directors payroll)
At the risk of sounding like a repeating parrot, this tip is again dependent on your circumstances. So, seek financial advice if you want the best result.
Decisions about your dividends
Limited company owners – you might want to take a look at your dividend allowance. Each year, limited company owners (currently) have access to some tax-free dividends providing your company has the profits to pay dividends to you.
It’s important to consider:
- If you’d like to declare some before 5th April to make use of this ‘use-it-or-lose it’ allowance.
- Whether receiving additional dividends is beneficial. You can see example of these points in our more detailed blog on the subject.
The dividend allowance has been cut by a lot over the past few years and is currently £500. Every little helps they say…
Maximise your savings and investments
Most people can earn at least £500-£1,000 of interest a year, tax-free. If you are likely to exceed this amount in interest, consider putting your savings into an ISA, if tax saving is a goal for you.
The annual contribution limit for a cash and/or stocks and shares ISA is £20,000 total per tax year at the time of writing. There is also a stocks and shares ISA which can be popular with investors. You can hold as many ISAs as you wish BUT you can (currently) only pay into one of each type per year, up to a total of £20,000 across ALL your ISAs.
You can also only open one new account per year, so if you’re looking for the best interest rate, choose carefully!
Married? It might be tax efficient….
If you are married or in a civil partnership, you can ‘transfer’ some of your tax-free personal allowance to your other half, or vice versa. This can save around £250+ a year in tax when used in the right situation.
You can apply for the Marriage Allowance online at Government website.
However, there is a catch. (Isn’t there always?) The Marriage Allowance cannot apply if one of you is paying higher rate tax. The benefit of this allowance can vary wildly, depending on what you each earn, so do the maths or seek advice before applying for this.
Getting older with some cash to burn?
Consider gifting cash to your loved ones. You can do this for up to £3,000 per year (at the time of writing) by using your “annual exception”. Your gift won’t be counted as part of your estate for inheritance tax (IHT) purposes, and the gift is tax-free for the recipient too. You can give it all to one person, or split it amongst several, so long as the total does not exceed your annual allowance.
If you haven’t done this before, you can also bring forward last year’s unused annual exemption (but only for one year). This gives you a potential £6,000 to distribute. There are also other allowances that might be of use – more details here.
Tax consequences of Child Benefit
Child Benefit is not a taxable income as such, but it does have consequences for your tax return at certain earnings levels.
Currently, if you or your partner are likely to exceed a total of £60,000 income and are in receipt of child benefit, you could be subject to the High Income Child Benefit Tax Charge.
This means that effectively, for this tax year, you can end up repaying all of your child benefit once you earn £80,000+, depending on your level of income. If so, you should seriously consider whether it is worth claiming at all in the coming year.
If you have to pay the charge this tax year, this will normally be dealt with in your tax return. You will have to fill in details of the money received in the tax year, so be sure to keep good records.
Currently, it is possible for you and your partner to both be earning £49,999 and not pay the charge. However, as an example, a household with one person earning £85,000 and the other earning £0 will being paying the charge. This is a known imbalance in the system that the government are not currently looking to correct.
There may be reasons why you still would want to claim child benefit despite the charge (like National Insurance Credits), or ensuring your child automatically gets an NI number! With this in mind there is a way to make a claim but receive no payments.
It’s good to talk
Ask your accountant or talk to your financial advisor on how to make the most of any tax year end benefits that might apply to you.
If you don’t have an accountant, or feel you aren’t making the most of your tax allowances with your current accountant, we’d love a chat about how we can help.