Tax Year End Planning: NOW is a great time to start

Now is a great time to start your tax year end planning. Don’t leave it until the last minute.

Review your income, particularly if you’ve taken a hit this year, but you expect it to return to normal next year. Bringing forward income could be a sensible approach if you have scope to do so.

  • Income less than £150,000 this year but is expected to exceed that figure next year? You could bring forward income into 2020/21 to avoid the additional or top rate next year.
  • Or, expecting your income will fall below £150,000 in 2021/22? You might be able to avoid the additional or top rate of income tax this year by delaying a bonus until after 6 April 2021.

Consider a similar strategy to keep your income below the level you would lose your personal allowance.  This option would mean sacrificing salary to bring your income below any of the thresholds. Possibly in exchange for a tax-free employer’s pension contribution?

Worked from home this year? You may be able to claim a tax-free amount of £312 for 2020/21 to cover the additional costs involved. It doesn’t matter how many weeks you actually work from home. Use HMRC’s online portal before 6 April 2021 so you receive the benefit via your PAYE code from the start of 2020/21.

Key considerations

  • This is a good time to review your company car situation, especially if you are now working from home and expect that to continue long term. If you are hardly using your company car, you can return it to your employer to remove the tax charge.
  • The changes introduced from 6 April 2020 mean that switching to a fully electric car or an ultra-low emission hybrid with a high electric motoring range will drastically lower your tax cost. Such a switch will also save tax and NIC for your company.
  • Is your business is affected by the personal service company rules (IR35)? If so, calculate how much salary to draw before 6 April 2021 to avoid being taxed on a ‘deemed payment’. You also need to plan for the off payroll working rules that will apply to IR35 engagements from 2021/22 onwards. They were postponed for a year due to the Covid-19 crisis.

Tax Year End Planning: Dividends

Consider paying a dividend before 6 April 2021 if you are the owner of a limited company, particularly if you have not already made full use of the £2,000 tax-free allowance.

Bringing forward a dividend payment if the income falls into the basic rate band this year. Or if you expect to pay tax at the additional or top rate next year but only at the higher rates this year.

You could give shares to your spouse or civil partner shortly before paying a dividend, provided you genuinely transfer ownership. It is advisable to leave as much time as possible between the gift and the subsequent dividend payment.

More Reading…

Company or Personal Pension Contributions?

Pension Contributions for Business Owners with Dividends

Gov.uk website for Income Tax Rates and Personal Allowances

 

Photo by Elena Mozhvilo

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Risk Warnings

This article and the information on this website is not personal advice. It’s only intended to give you a brief summary or highlight a particular issue for you to investigate further. It is based on our current understanding of legislation and HMRC guidance which can change and is correct as of the date of the post.

If you’re in any doubt whether a particular course of action is suitable for your circumstances, you should seek professional advice. Tax rules can change and any benefits depend on individual circumstances. And, if you are unsure any reliefs are applicable to you, you should consult your accountant or HMRC.

The value of investments and any income from them can fall as well as rise, so you could get back less that you put in. Past performance is not a guide to the future. It cannot provide a guarantee of the future returns of a fund.

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