- The tax year end is approaching.
- You are looking for some last-minute tips to save some tax.
- But what to do?
Help is at hand! By the end of this blog, you will have an idea or two to help save those extra £££s.
As with all our content, we are primarily talking about small business owners here. However, many of the tips will apply to many UK taxpayers. So let’s dive in.
Want to buy some stuff?
Note – this tip applies only to business owners with a financial year that ends on either 31st March or 5th April
If you know you are going to be investing in new equipment in the next few months, consider bringing forward that expenditure into this current tax year.
The tax ‘line’ will be drawn at the end of the tax year, and your next tax bill will be calculated from figures up to and including that tax year end date (either 31st March or 5th April).
Your 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.
Selling ‘the big stuff’
Capital Gains Tax 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:
- Investment properties
If so, it is worth considering disposing of at least one before the end of the tax year. You have a (tax) yearly allowance that you can offset against your gains. So, splitting disposals (aka selling stuff) across tax years can be efficient.
It’s important to note that this Capital Gains allowance is £12,300 at the time of writing (22-23 tax year). However, this allowance is being aggressively slashed over the coming tax years, down to £6000 from April 2023 and £3000 from April 2024. That’s a huge drop.
Consider making personal pension payments
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 each tax year, so consider making use of all of it if you haven’t already.
- Higher rate tax payers might end up getting some tax back directly, depending on how your pension operates.
This one 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 might not want to make pension payments personally. You may want your company to contribute instead, 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.
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 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.
Consider your Dividends
Another one here for limited company owners to consider – your dividend allowance.
Each year you (currently) have access to some tax free dividends. Providing your company has the profits to pay dividends to you, it’s important to consider whether you’d like to declare some before 5th April to make use of this use-it-or-lose it allowance.
You also should consider whether receiving additional dividends is beneficial. You can see example of these points in our more detailed blog on the subject.
On another note, the dividend allowance is being drastically cut from 6th April, from £2000 > £1000 > £500 over the coming tax years.
Maximise your savings and investments
Most people get at least £500-£1000 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.
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 visa 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 https://www.gov.uk/marriage-allowance.
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 old and have 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”, and it won’t be counted as part of your estate for inheritance tax (IHT) purposes. The gift is tax-free for the recipient too.
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 £6000 to distribute.
There are also other allowances that might be of use.
You’ll find more details here: https://www.gov.uk/inheritance-tax/gifts
A quick note on Child Benefit
Child Benefit is not a taxable income as such, but there is a consequence for your tax return at certain earnings levels.
If you or your partner are likely to exceed £50,000 income and are in receipt of child benefit, you could be subject to the High Income Child Benefit Tax Charge.
This means that effectively you can end up repaying all of your child benefit, depending on your level of income. If so, you should 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.
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.