How can I save tax if my profits push me into the higher rate tax bracket?

Firstly, congratulations on growing your business and increasing your profits. You will be pleased to hear that there are several things you could consider to make yourself more tax efficient before the tax year ends on 5th April 2023.

Chief among these is to consider making additional savings into a personal pension.

Tax relief for pension contributions is either given by ‘relief at source’ or under ‘net pay arrangements’. For personal pension schemes, relief at source applies and I would assume this sort of scheme would be applicable to your circumstances.

The relief at source rules mean payments to your pension scheme are made net of 20% tax. This means that 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, the other £20 is contributed by the government.

Where you pay tax at the higher rate, you can claim extra relief on your contributions by extending your basic rate limit. This means your original basic rate limit is extended by the gross amount of any personal pension contributions.

For a higher rate taxpayer, to save £100 could effectively cost you as little as £60, or £59 if you are a Scottish taxpayer.

While potentially extremely tax efficient, the amount that may be saved into a personal pension is limited by a number of factors, so you should seek advice to make sure you maximise your tax savings and avoid any tax pitfalls.

At TaxAssist Accountants, we love working with self-employed professionals to help ensure that you benefit from all the allowances and reliefs you are entitled to and would be happy run through our Tax Tips To Consider Before The 5th April Year End guide

Date published 6 Feb 2023

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.