27 Feb Three top tips for tax year end
I love dealing with my taxes..said no one. Ever.
Even for those of us who are financial geeks, it’s very hard to get excited about the approach of a new tax year end.
But as an optimist, I try to find a silver lining in every dark cloud. It’s a great time to remind ourselves of some simple ideas that should hopefully make our tax affairs …err… less taxing!
Records, record records
The key to making your tax affairs as painless as possible, is to keep good records. This might appear to be stating the obvious, but the lack of adequate records is one of the most common causes of tax headaches. Many people end up paying more tax than they need to, or worse, they get into trouble with the tax man because they’ve lost vital paperwork.
Time your withdrawals carefully
One of the benefits of being self-employed or an owner-director is the flexibility around when you draw income from your business.
Because income is taxed in the year it’s received, you could potentially reduce or defer your tax liability by timing your withdrawals from the business. If you’re self-employed or do freelance work, you can consider delaying billing for work carried out towards the end of the tax year to ensure that the payment is received in the next tax year. Company directors may want to consider deferring their withdrawals from the business to the beginning of the next tax year, rather than at the end of the current one. Employees don’t often have the same flexibility to postpone wage and salary income, but you may be able to defer a year-end bonus into next year – as long as it’s standard practice in your company to pay year-end bonuses the following year.
However, there are always exceptions. Sometimes, it may make more sense to get paid or draw dividends in the current tax year to avoid being pushed into a higher marginal rate in the next tax year. We suggest you speak to an accountant about your own unique situation.
Use your allowances and exemptions!
Many annual tax allowances operate on a use-it-or-lose-it basis. This means that if you haven’t used the allowance by the 5th of April of this tax year, you can’t carry it forward to the next tax year.
- CGT Exemption: capital gains of up to £11,300 per person on investments are exempt from tax in the tax year 2017/18. You can’t carry forward any unused allowance into a new tax year.
- ISA Allowance: adults can put up to £20,000 in ISA for the tax year 2017/18. For children, you can put up to £4,128 per year into a Junior ISA (£4,260 in the 2018/19 tax year).
- Annual Allowance: you can get tax relief at your usual rate of tax on pension contributions of up to £40,000, subject to your earnings. But a lower limit may apply if you’ve already started drawing a pension, or you have an income of over £150,000. So please speak to us about the details if this applies to you.
- Inheritance Tax: you can give £3,000 worth of gifts each tax year without them being added to the value of your estate for Inheritance Tax purposes. You can also give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.