As the financial year-end approaches, now is the perfect time to review your tax position and take proactive steps to minimise your liabilities. Here are some areas to consider:
Know thyself
...or at least know your taxable income this tax year . It's futile to plan without a good estimate awareness of your gross taxable income from employment, interest, and other investments. Check your February payslip and bank statements.
Know your limits
The key thresholds to try to duck below are mostly unchanged from the prior tax year.
Tax is generally payable on income above £12,570
Tax at the higher rate (40%) starts at £50,270 of income for most taxpayers. The personal savings allowance is reduced from £1,000 to £500 for higher rare tax payers.
Above £100,000 parent lose tax free childcare and 30 hours free childcare, The personal allowance is progressively withdrawn, meaning that the effective tax rate between £100,000 and £125,140 is 60%.
The advanced rate of tax (45%) applies to income above £150,000. Advanced rate tax payers loose their tax free savings allowance entirely.
Contribute to Pensions and charity this tax year
Pension Contributions – Contributions can reduce your adjust taxable income and attract tax relief. For example,
an individual with £110,000 of income can contribute £8,000 to a SIPP (self invested personal pension).
HMRC will pay a further £2,000 basic rate (20%) tax relief into the scheme for grossed up contributions of £10,000.
This will reduce the tax payable by £10,000 x (60% -20%) = £4,000, with £10,000 left in the pension pot for retirement.
Be mindful of the annual allowance (£60,000 for most individuals) and the pension savings charge if you exceed it.
If unused allowances from previous three years are available, they may be utilised.
Charity contributions under the gift aid scheme work in exactly the same way as contributions to a SIPP for tax purposes.
Use Available Allowances & Reliefs
Ensure you make the most of your tax-free allowances, including:
Dividend Allowance – Business owners should consider using the £500 dividends allowance before the new tax year - unless this will push you over the £100,000
Capital Gains Tax Allowance – If you have investments, review whether to realise up to £3,000 of gains before the exemption resets.
Maximise ISA Contributions
ISA Allowance – Take advantage of the annual £20,000 ISA limit before the reset on 6 April to shield your interest income from tax. It's also a good idea to plan on researching the best ISA provider and transferring over your existing ISA and this year's contributions as soon as possible in the new year.
Junior ISA Allowance – Up to £9,000 can be saved tax-free per child each year.
Consider Director’s Salary & Dividends
If you operate through a limited company, review your salary and dividend structure as employers national insurance is changing. I covered this in a previous post.
Bring Expenditure forward
For sole traders and partnerships, consider bringing forward expenses, such as van or computer purchases to manage taxable profits.
Also for the self employed: if you have a big order or contract which you can equally fulfil now or after the tax year, I would chose the latter.
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Take Advantage of Trivial Benefits & Employee Entertainment Allowance
Trivial Benefits – Up to £50 per non contractual benefit, with a maximum of £300 per director, can be provided tax-free.
Employee Entertainment Allowance – Annual staff entertainment of up to £150 per person is tax-free if certain conditions are met.
Electric car Vehicle Excise Duty (“road tax”)
Many electric vehicles will need to pay duty at £195 from 1 April 2025. It could be advantageous to tax now before rates increase
Taking action before the year-end can help optimise your tax position and ensure compliance. If you need tailored advice, feel free to set up a meeting https://calendly.com/sg--63/15min