9 things to do before the end of the tax year

It's that time of year again when some planning in the last few weeks before the end of the tax year could provide a useful tax saving.

The tax year end for individuals is 5th April 2017. 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.

Here are some ideas:

1) Buy business assets and bring forward expenditure 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. Timing your investment could mean that you can claim your capital allowances sooner, saving on cashflow. Similarly if you are intending to carry out some repairs or maintenance work, doing this before the year end will reduce your next tax bill.

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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 £43,000, £100,000 or £150,000. An income level of £50,000 where child benefit is withdrawn from the highest earner in a household is another key threshold to monitor.

The £100,000 threshold is particularly painful from a tax perspective as the personal allowance is withdrawn.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 a very painful 60% at income levels between £100,000 and £122,000. So best avoided if you don't need the income and can defer this to another year.

3) Consider the effect of the new dividend tax

A new dividend tax was introduced from 6th April 2016. This affects people who receive a significant amount of dividend income each year. There is a £5,000 dividend allowance where dividends are free of tax. Above this level however new rates of dividend tax apply for varying levels of income. 

The dividend tax has a significant impact on business owners who may be used to drawing a relatively high proportion of their income as dividends. If possible the higher rate dividend rate of 32.5% is best avoided by capping gross income at the basic rate threshold of £43,000. Gifting shares to a spouse so that they can utilise the dividend allowance may be appropriate in some cases

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4) 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. Advice should be sought from a suitably qualified Independent Financial Advisor to ensure that your particular circumstances are considered.

5)  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. 

6) 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. 

You can save up to £15,240 for 2016/17 and the limit will be increased to £20,000 for 2017/18. You can choose how you split this between stocks & shares and cash ISAs. 

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7) 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 £11,100 2016/17 annual exemption effectively. For married couples and civil partners consideration should be given to each spouse/civil partner using their allowance.

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8) Review use of the VAT Flat Rate Scheme

For businesses using the VAT Flat Rate Scheme the government have introduced a new definition of a 'Limited Cost Trader' whose expenditure on goods is less than 2% of VAT inclusive turnover. If using the scheme you should consider if you are a LCT in which case it is likely to be advantageous to revert to Standard VAT Accounting from 1 April 2017.

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9) Set money aside for your tax bill

If you take some of the steps above you should be able to reduce your 2017 tax bill. 

If all or some of your income is not taxed at source however, it is likely that you will be faced with a tax bill for 2016/17.

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 panics in January trying to find the funds. Another tip is to get your tax return completed as soon after the end of the tax year as possible. This give you an early warning of any additional tax due so that you have sufficient time before the payment deadline in January.

Note - This draws on a Blog first published in February 2016 and is updated for new tax rates and allowances.

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