Tax tips to consider before the 5th April Year End

To help you do this, we have identified some of the key points individual taxpayers, business owners and their families should be aware when it comes to year-end tax planning.

Income tax

For the tax year ending 5th April 2024, most taxpayers benefit from a personal allowance of £12,570. This allowance is taken from your income and the balance of your non-savings income is then subject to tax at the following rates in England, Wales and Northern Ireland:

Band Taxable income Tax rate
Basic rate £12,570 to £50,270 20%
Higher rate £50,271 to £150,000 40%
Additional rate Over £150,000 45%

In Scotland, the rates for non-savings income differ as follows:

Band Taxable income Tax rate
Starter rate £12,570 to £14,732 19%
Basic rate £14,733 to £25,688 20%
Intermediate rate £25,689 to £43,662 21%
Higher rate £43,663 to £150,000 41%
Top rate Over £150,000 46%

Different rates and allowances apply to non-savings income such as bank interest and dividend income.

It is sensible to try to ensure you maximise both your entitlement to the personal allowance and, wherever possible, reduce your exposure to income tax at the higher rates.

Maximise your personal allowance

You will see that where income exceeds £125,140, you pay the additional rate of income tax, which is 45% (47% in Scotland). Where your income is between £100,000 and £125,140, you are subject to an effective tax rate of around 60%. This is because of the tapering of your personal allowance.  

After your income exceeds £100,000, your personal allowance is reduced by £1 for every £2 you go over the £100,000 tax bracket. This means that for every £100 of income you earn between £100,000 and £125,140, you only get to take £40 home. This is because £40 is deducted in Income Tax and £20 is lost by the tapering of your personal allowance. 

The good news is there may still be an opportunity to reduce your tax exposure with some simple planning techniques. In some cases, taxable income can be effectively reduced by making personal pension contributions and charitable donations. This can mean you reduce your exposure to higher rate tax and maximise your allowances. 

For a basic rate taxpayer, you may also be able to transfer £1,260 of your unused personal allowance to your spouse or civil partner. You can only do this if neither of you is a higher-rate taxpayer. 

Pension contributions

From a tax point of view, saving into a personal pension can be very efficient. 

If you are a basic rate taxpayer and want to save £100 into your personal pension plan, the effective cost to you is only £80. For a higher rate taxpayer, to save £100 could effectively cost you as little as £60 (£58 in Scotland). The cost drops down further to only £55 (£53 in Scotland) for an additional rate taxpayer. 

While potentially extremely tax efficient, there are a number of pitfalls and tax traps which you should consider before taking action. 

The amount that may be saved into a personal pension is limited by a number of factors. One of the most important of these is the annual allowance limit. 

The annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. In 2023/24 the limit is capped at £60,000. The annual allowance applies across all of your pension schemes and includes contributions made by your employer. 

The annual allowance is reduced by £1 for every £2 adjusted income is more than £260,000 but cannot be reduced to below £4,000. Adjusted income is net income plus occupational pension contributions plus employer pension contributions. 

Currently, you may carry forward unused annual allowances for up to three years. This is generally subject to you having been a member of a UK-registered pension scheme in those previous tax years. 

The retirement fund which you can build up is also subject to a lifetime allowance limit. The lifetime allowance is £1,073,100 for 2023/24. 

The pension landscape is complicated and there are a variety of ways you may make provision for later years. You also need to be aware there are other factors which can limit the amount you may save, and you should seek professional help if you are not sure about the rules.

You may also need to take investment advice from a registered pension adviser. We work with TaxAssist Financial Services who can advise you on all aspects of your financial affairs, including independent advice on pensions and retirement planning.

Charitable donations

Tax relief can also be claimed for cash gifts made to registered charities in the UK and some other countries. The relief works in a similar way to making personal pension contributions.

If you are a basic rate taxpayer and want your chosen charity to receive £100, the effective cost to you is only £80. For a higher rate taxpayer, to provide the charity with £100 could effectively cost you as little as £60 (£58 in Scotland). Again, the effective cost drops down further to only £55 (£53 in Scotland) for an additional rate taxpayer. You must ensure you have paid sufficient tax for the charity to make the gift aid claim to avoid an unintended tax bill. 

Transferring assets to spouse or civil partner

It may make sense to gift some or all of any income producing assets you own to your spouse or civil partner to save tax. There are several legal and practical considerations which need to be taken into account before making any gift. You should also be aware that for this to work, a number of conditions need to be satisfied. Generally, your gift must be to your spouse or civil partner from whom you have not separated and be an unconditional gift. Professional advice should always be taken so your individual circumstances can be reviewed. 

Make use of an Individual Savings Accounts (ISAs)

You can save tax-free with an ISA. Therefore if you do have some investments, it may be worthwhile seeing if these can be held in an ISA. For the 2023/24 tax year, the maximum you can save in ISAs is £20,000 and if you don’t use it, you lose it. Furthermore, you will gain access to your 2024/25 allowance on 6th April 2024 enabling a couple to invest £80,000 by each making maximum ISA contributions just before and just after 5th April. 

Potentially an ISA can contain cash, shares, bonds and other permitted investments. A number of age and residency restrictions apply to ISAs. It is also worth noting upcoming changes to the capital gains tax annual allowance. It will reduce from £6,000 to £3,000 from 6th April 2024 for the 2024/2025 tax year. Given this substantial reduction, now is a good time to maximise tax efficient saving.

Where appropriate, you should consider the need to take investment advice from a registered financial adviser and we work closely with TaxAssist Financial Services who can offer independent investment advice and a full range of services for your financial planning needs.

Business taxes

At TaxAssist Accountants, we work with business owners to make sure their businesses are tax efficient and we have outlined below some of the key areas which may be relevant to you as we approach the end of the tax year.

Basis period reform

Changes to basis period rules from 6th April 2024 mean that unincorporated business and partners in trading partnerships will be taxable on business profits arising in the tax year regardless of their accounting year end. 2023/24 is a transitional year whereby businesses are taxed on their accounting period profits plus a transition period to 5th April 2024 which are spread over five years. 

If your accounting year end isn’t 31st March or 5th April and you haven’t spoken to your accountant, it’s important you do so to ensure you are ready for the basis period reform. 

Capital expenditure

It may be beneficial to bring forward qualifying capital expenditure. You may be able to claim tax relief for capital expenditure by claiming capital allowances which can reduce taxable profits. A business can claim the Annual Investment Allowance which provides 100% tax relief on the first qualifying capital expenditure incurred up to a set amount. 

Whether you are thinking about investing in a new vehicle, tools, or any other capital expense we can help you weigh up the best time to make your purchase and advise what relief is available. If you have a March accounting period year end, you should bear in mind that you will speed up relief if you make the purchase before rather than after your year-end. 

Bad debts

It has never been more important to check your debtors to ensure any bad debts are appropriately dealt with so you don’t pay tax on income you will never receive.

Stock

If your business carries a lot of stock, we can help determine if you should make a specific provision against any slow-moving or damaged stock.

Employing family members

For some businesses it may be appropriate to consider employing spouses and family members. Restrictions apply here and wages must be justifiable and at a commercial rate.

Trading structure

It may save tax if you incorporate a sole trade business and operate your trade through a limited company. We can look at your trading structure and help you determine the best way forward.

Company remuneration planning

If you do operate as a limited company, we can help determine the correct blend of salary and dividends to keep things tax efficient.

Research and development tax credits

If your company carries out qualifying Research and Development (R&D) activities, you may be able to claim some valuable relief from HMRC.

If you have developed new or improved products or processes, please contact us so we can advise if you may make a claim.

Start to plan ahead

If you are thinking of exiting your business, we can help you do this in the most tax efficient manner, but it pays to start planning this early.

Expenses

At TaxAssist Accountants, our job is to help ensure that you benefit from all the allowances and reliefs you are entitled to. You will pay tax on your taxable profits, so a crucial element of tax planning is to claim all deductible expenses, many of which will be included in your accounting records. We can help scrutinise your books to make sure all expenses are claimed.

Protection Services

If you are considering putting in place life insurance, a Relevant Life policy can be an extremely tax efficient option for company directors. We work with TaxAssist Financial Services who can advise you on the appropriate policy for your circumstances

Need more help preparing for the 5th April Year End?

We love working with self-employed professionals and independent business owners and if you are not receiving the service and support you deserve from your accountant then please talk to us on 01932 230 823 or use our online enquiry form. We offer free initial consultations, advice, and support over the phone or via video meeting if you have any concerns about face-to-face meetings.

Last updated: 25th July 2024