Year end tax saving tips

Tax year end – what do you need to think about?  

• The tax year end is approaching.
• You are looking for some last-minute tips to save some tax.
• Here are some ideas!

In this blog, we are primarily talking about small business owners here. However, many of the tips will apply to many UK taxpayers, regardless of the size and type of business they run, if they run one at all. I will deal with tips for everyone first, then move on to business owners. 

Tips for everyone

Capital Gains Tax

Capital Gains Tax generally kicks in when you are selling ‘big stuff’.   You need to consider this if you are disposing of any ‘capital’ items such as:

• Shares
• Investment properties i.e. properties which aren’t your own home
• Crypto

If so, it is worth considering disposing of at least one before the end of the tax year. You have a 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 the Capital Gains allowance is £6,000 at the time of writing (23-24 tax year). It drops to £3000 from April 2024. 

Pensions – invest for the future

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’, which at a basic rate level is added automatically when you make the contribution.
• There is an annual maximum amount you can contribute each tax year, so consider making use of all of it if you haven’t already (currently £60k, for most people, exceptions apply)
• Higher rate tax payers might end up getting some tax back directly, depending on how your pension operates, so if you are not sure then ask your pension provider.

This one really is dependent on your circumstances, so make sure you get advice on this. 

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’s usually more tax efficient. The company gets a corporation tax deduction on the pension contribution, and you don’t have to draw the money out via salary or dividends to make the contribution.  

Maximise your savings and investments

Depending on your tax band, you could get up to £1,000 a year tax free in interest in 23/24. 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 interest and dividends paid out to you from ISAs in the future is tax free. 

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. 

Married? Make it 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. The Marriage Allowance cannot apply if one of you is paying higher rate tax. 

Getting on in years and have some cash burning a hole in your pocket? (I hope my dad is reading this!) 

If you have spare cash, 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 exemption”, 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.  However, if you die within 7 years, the gift will form part of your estate for IHT purposes. Sorry to be so morbid.

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.  So who is on your nice list? 

There are also other allowances that might be of use.

You’ll find more details here: https://www.gov.uk/inheritance-tax/gifts

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.

This applies to everyone, not just business owners.  It may apply to you even if it’s not your children in the household, and it’s not you receiving the Child Benefit money. 

The Spring Budget 2024 announced changes to child benefit from the 24/25 tax year where the threshold will rise from £50,000 to £60,000. 

Tips for business owners

Do you need any new equipment?  (Note – need, not just want!)

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!

Remember – never spend JUST to save tax.  

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?

This tip is again dependent on your circumstances. So, seek financial advice if you want the best result, and your accountant should be advising you on this at the start of each tax year. 

Limited company owners: Have you used up your dividend tax free allowance?

Another one here for limited company owners to consider – your dividend allowance.

Each year you (currently) have access to some tax free dividends (£1k for 23/24). Providing your company has profits available after tax to pay dividends, 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.

Even if your company isn’t cash rich, but has the profits available, you don’t have to physically pay the dividend.  It could be set against your director’s loan account, to be drawn down in the future. 

I hope this blog this has been helpful, and gives you some ideas of how to save a bit of extra tax before the year end of 5th April.   Contact us if you have any questions on anything in this blog, or if you would like some support from us.