8 tips to save tax this year

Record high temperatures and a change in the air.

Spring is approaching and we are also not far away from the end of the tax year on 5 April.

A little planning and action now could save you tax when this becomes due in January next year.

Here are some ideas:

1) Buy business assets and bring forward business 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.

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 £46,350, £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 An income level of £50,000 where child benefit is withdrawn from the highest earner in a household is another key threshold to monitor.

The £100,000 threshold is particularly unattractive from a tax perspective as the personal allowance is gradually withdrawn at a rate of £1 for every £2 of income. This gives an effective rate of tax at a very painful 60% at income levels between £100,000 and £123,700.

So best avoided if you don't need the income and can defer this to another year.

3) Consider the effect of the dividend Tax

A dividend tax was introduced from 6th April 2016. This affects people who receive a significant amount of dividend income each year – mainly business owners with their own limited companies.

The 'tax free'  dividend allowance has reduced to only £2,000 per annum from 2018/19 onwards. It makes sense to use this allowance if you have scope to pay a dividend. Above this level different 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 and additional dividend rates of 32.5% and 38.1% respectively are best avoided by capping gross income at the basic rate threshold of £46,350 if this is feasible.

Gifting shares to a spouse so that they can utilise the dividend allowance may be appropriate in some cases.

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. The tax savings are particularly attractive for higher and additional rate taxpayers. 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 £20,000 for 2018/19.

You can choose how you split this between stocks & shares and cash ISAs. There are also ISAs such as the Lifetime ISA and ͚Help to Buy͛ ISA which are aimed at first time home buyers and offer additional incentives.

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 £11,700 annual exemption for 2018/19 effectively.

For married couples and civil partners consideration should be given to each spouse/civil partner using their allowance.

8) Set money aside for your tax bill

If you take some of the steps above you should be able to reduce your 2019 tax bill. It is unfortunate that however much we plan, many of us will still be faced with a tax bill for 2018/19 payable in the following January.

Setting aside a percentage of your income to cover your tax bill and placing it in a deposit account is a sensible measure and will help avoid any last minute panics 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 gives you an early warning of any additional tax due so that you have sufficient time before the payment deadline in January.

If you would like Base52’s advice and assistance with any aspect of your tax planning, please contact us.

www.base52.co.uk