Tax Saving things you can do before 5th April

Kirsty Young Personal Tax, Tax

The tax year end is fast approaching.

You are looking for some last-minute tips to save some tax.

But what can you do – and how will it potentially save you tax?

The team here at Heelans have put together some ideas to help save you 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.

 

Spend, spend, spend?

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. Here’s why.

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).

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.

 

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 ‘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 from £12,300 to £6,000, at the time of writing (23-24 tax year). However, this allowance is being aggressively slashed again next year to just £3,000 from April 2024. That’s a huge drop.

 

Pay into your personal pension

Pensions have been in the news a lot recently, with big stories on the pension gender gap, women caught out by the change in retirement age and more. So, you may be wondering whether it’s worth paying in more now, whilst you are still working.

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). This is 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, 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.
  • If you earn between £100-£125k, there can be some extra benefits to making personal contributions.

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 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) and 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 a 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 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.

Once again, allowances are being cut here too by the government. The dividend allowance has already been cut in half from £2,000 to £1,000, and is being cut again from 6th April 2024 to a mere £500.

 

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 £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, for this tax year, you can end up repaying all of your child benefit once you earn £60,000+, 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. You will have to fill in details of the money received in the tax year, so be sure to keep good records.

In the 2024 Budget, the threshold that the charges start at was raised to £60,000 from 6th April 2024. From this date, you lose all of your Child Benefit at £80,000, so the charge is only slightly less punishing.

Currently, it is possible for you and your partner to both be earning £49,999 and not pay the charge. However, a household with one person earning £65,000 and the other earning £0 will being paying the charge. This is a known imbalance in the system the government are looking to correct. The government are consulting on changing this but will not likely be fixed until 2026.

 

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.