Saturday, 7 February 2015

Seven things to do before the end of the tax year

The tax year end for individuals is 5th April. Many self employed people also have their accounting year end as 5th April or 31st March to coincide with the tax year. For private limited companies, 31st March is also a common date for the year end.

So what's the big deal? Another tax year ends, on to the next one. Well the deal is, that now is the ideal time for tax planning. There are decisions you could take now which could result in significant savings in the tax year or accounting period. Here are some ideas:

1) Buy business assets before the year end

If you are thinking of investing in business assets - new plant & machinery, vehicles, office furniture, computer equipment it is sensible to make your purchase before the end of current financial year, rather than the start of the next one. This provides a significant cashflow benefit so is worth planning for.

2) Manage your income

If you are in the fortunate position of being able to manage your income, plan now to optimise your income for tax purposes. For example, as a company director and shareholder, you may be able to reduce salary or dividends to keep your income below the key tax thresholds of £41,865, £100,000 or £150,000.

The £100,000 threshold is particularly painful from a tax perspective as the personal allowance is withdrawn. This gives an effective rate of tax at an eye watering 60%! So best avoided if you don't need the income and can defer this to another year.

3) Contribute to a pension

Pension contributions before the year end are a tax efficient way of saving for the future and reducing your tax bill.

4) Use gift aid for donations

Using gift aid for charitable donations has the effect of raising the basic rate tax band and saving 20% tax for higher rate tax payers. So for every 80 pence you donate, your chosen charity receives £1.00. 

5) Use your tax free savings allowance

If you are lucky enough to have surplus cash, make sure that you use your annual ISA allowance. Within an ISA, all income and gains are tax free. 

From 1 July 2014, the rules were relaxed. You can now save up to £15,000 in 2014/15 and £15,240 from April 2015. You now get to choose how you split this between stocks & shares and cash ISAs. 

6) Use your annual capital gains exemption

If you have personal assets (shares, property etc) and are intending to sell them soon, consider the capital gains tax implications in advance. You may be able to time the sales of shares for example to spread over 2 or more tax years and utilise your £11,000 annual exemption effectively.

7) Set money aside for your tax bill

If you take some of the steps above you should be able to reduce your 2015 tax bill. 

If you are a high earner however and your income is not taxed at source, no amount of planning will eliminate your tax bill. Setting a percentage of your income to one side to cover your tax bill and placing it in a deposit account is a sensible measure and will help avoid any last minute scraping around in January to find the funds.