Tax year end advice

Tax year end advice is paramount at this time of year as 6 April is on its way.We have prepared a few ideas to consider prior to the end of the current tax year.

(This is subject to any further changes announced in the Spring Budget on 15 March 2023, which we will update you on).

Act before tax increases on 6 April

From 6 April 2023 there will be several new tax adjustments as follows:

• The Additional Rate 45% tax charge will apply to income above £125,140.
• All other tax bands remain frozen until at least 2028.
• Tax Free “Dividend Allowance” is reducing from £2,000 to £1,000.
• Capital Gains Tax (CGT) Annual Exemption is reducing from £12,300 to £6,000.
• Corporation Tax rates will increase up to 25% (The first £50,000 of profits will remain at 19%. Profits in the region of £50,000-£250,000 will be at a tapered rate. Profits above £250,000 will be at the full 25%).

These new tax increases, together with threshold increases, may mean it is desirable to increase your dividends and drawings that you have taken from your company before the 5 April 2023.

If you are a high earner, is there more you could do?

If you are a high earner (over £50k), consider making additional pension contributions or charitable gifts to extend your basic rate tax band. This will reduce the amount of tax due at the higher rate, whilst also helping to prevent the child benefit being lost if one parent in the household earns over £50K.

For those with income in excess of £100K, in addition to general tax savings, such contributions could also help to recover some of the tax free personal allowance which is otherwise lost when earnings exceed these levels.

Maximise your Individual Savings Account (ISA) allowance

You can pay up to £20,000 across your ISAs (if you are a couple, that is £20,000 each), including cash ISAs, stock and shares ISAs and lifetime ISAs. The gross of these ISAs should then remain tax free subject to certain conditions that need to be met.

Have you utilised your pension allowance?

The basic starting point is that the taxpayer can pay up to £40,000 into their pension each year. You can also carry forward any annual allowance you did not use up from any of the previous three years.

However, if you are a high earner or have flexibly accessed your pension, the annual allowance available to you could be reduced to as low as £4,000 due to the ‘Tapered Annual Allowance’. It may also be limited to your Net Relevant Earnings (NRE) if you are not a director receiving payments from your own Ltd company.

Careful consideration should be given to any payments made as tax relief may not be available should you exceed your available allowances or if your contributions exceed your NRE.

It is also important you consider making these pension contributions direct from your company as this will result in further savings, helping to reduce the corporation tax on your profits and saving tax on the amounts no longer needing to be drawn.

Take advantage of your Capital Gains Tax (CGT) allowance

CGT is charged on capital gains that are made when assets are sold or transferred. There is an annual tax-free CGT allowance which for the year 2022/23 is £12,300. This allowance is expected to reduce in 2023/24 to £6,000 and may reduce lower in subsequent years.

In order to take advantage of this threshold, it may be beneficial to gift or sell asserts prior to end of the tax year if you have your nil rate allowance available to you.

Consider gifts to bring down your Inheritance Tax bill

The basic allowance for inheritance tax is £325,000 per person with an additional £175,000 given against the main residences left to direct descendants.

Each tax year there are also a number of lifetime IHT allowances available to individuals. Using them can reduce your potential IHT liability.

Each tax year you can:

• Gift up to £3,000 using your ‘gift allowance’. If you don’t use your full gift allowance, you can carry the remaining forward one year.
• Gift up to £250 per person.
• Gift £5,000 to a child getting married, or £2,500 to a grandchild.

Other gifts exceeding the above values can be given free from IHT as long as the giver survives for at least 7 years from date of the gift. Gifts out of excess income are also allowable, however this needs further discussion with us in order to ensure that the regulations are adhered to.

Consider putting money into your child’s junior ISA

For each child, you can pay up to £9,000 into a Junior ISA for the 2022/23 and 2023/24 tax years.

End of tax year advice – ready to take action?

Ensuring that our clients make the most of the tax thresholds and lower rate taxes is what we are here for.

We therefore urge you to get in touch with us here if you feel that there are any areas included within this newsletter that we can assist you with. We look forward to supporting you on year end tax year advice.

Why choose Barnett Ravenscroft Chartered Accountants for end of year tax advice

At Barnett Ravenscroft we have built a team that consists of individuals who are all highly qualified in their respective fields.

Although our services are all partner led, we use experienced managers to ensure that the needs of all of our clients are promptly and efficiently dealt with.

Our accounts and audit managers are all experienced and knowledgeable and provide an excellent service to our clients. They are flexible and pro-active ensuring that clients receive added value from all of our services.

Our specialist personal tax department is under the direction of a very experienced manager who offers a complete service having a wealth of experience in handling client’s personal tax affairs. The team not only ensure that clients are aware of and meet the many filing deadlines that need to be adhered to, but also ensure that effective tax planning is carried out and that clients are provided with the most tax efficient solutions for their needs.

Our payroll and VAT managers ensure that all of our client’s payroll and VAT needs are met efficiently, effectively and on time. They have a wide range of experience in dealing with all of the issues that clients face in ensuring that deadlines are met and that liabilities are accurately calculated and paid.

All of our staff are friendly, efficient and excellent at meeting the increasingly growing needs of our clients.