End of tax year planning – have you utilised all your allowances? Act now

End of year tax planning is an important element of both an individual’s and a business’s tax strategy to ensure that all tax reliefs and allowances available have been utilised in the current tax year. It is also an ideal opportunity to take a wider review of your circumstances and plan for the year ahead.

With the new tax year starting on 6 April 2024, it is important to act now to allow adequate time before the end of the tax year to implement any changes following a review.

With inflation still relatively high and the Bank of England base rate at 5.25%, this is still placing additional pressure on both businesses and individuals. This makes it more important than ever to undertake a detailed review to identify any tax savings in the current year and plan for the year ahead.

The Chancellor has confirmed that the Budget is taking place on 6 March 2024. This may bring in some further changes for the tax year ahead. We will provide an update on this once the announcements have been made.

There are several significant tax changes already scheduled to be implemented in April 2024, which may significantly affect you. These are discussed below, but in summary, these include:

• Capital Gains Tax: The Annual Exemption Allowance for Capital Gains Tax is currently £6,000; this is currently scheduled to reduce again to £3,000 from 6 April 2023
• Dividends Tax: The annual dividend allowance is scheduled to be half again, from £1,000 to £500, from 6 April 2024
• Research and Development Tax Credits: There have been many changes to R&D Tax Credits in the past 12 months, with more still due through parliament.
• National Insurance: Class 2 NICs are being abolished for the self employed, whilst Class 4 NICs are being reduced. From 6 January 2024, the rate of employee Class 1 NICs was also cut.
• Pensions Annual Allowance: This increased significantly for the 2023/24 tax year, from £40,000 to £60,000.

If you require advice or guidance on end of year tax planning as we reach the end of the tax year or indeed for the year ahead, please do not hesitate to contact our specialist tax team. We can provide a comprehensive review, tailored to individual needs and circumstances.

The summary below outlines some of the tax issues that you should now be considering, to ensure you utilise the maximum tax savings as possible and all reliefs and allowances available are being fully utilised:

End of year tax planning – personal tax

Income Tax and National Insurance

The personal allowance for income tax this year is £12,570, which cannot be carried forward, so it is important to try and use this. It remains at this amount for the following tax year as well.

There may be a benefit to ensuring a salary is paid at least the lower earnings limit of the National Insurance threshold of £6,396, to ensure that credit is obtained for the years contributions towards the state retirement pension. Furthermore, drawing a salary of up to £12,576 can maximise the use of personal allowances and reduce corporation tax, without paying class 1 National Insurance contributions. This has increased significantly in the last year.

Dividends – A straight-forward point to consider is whether you have made full use of the current tax-free dividend allowance of £1,000. This is available to everyone and not restricted by earnings, so if you are an owner-manager with profits available to distribute, taking a £1,000 dividend is a no brainer. If you have not yet taken advantage of this in the current tax year, consideration should be given as to whether it is advantageous to pay this before 6 April 2024.

This tax free allowance is scheduled to reduce from April 2024, halving again to £500.

Therefore, if you intend to pay a dividend greater than £500 in 2024/25 tax year and haven’t used the full £1,000 tax-free allowance in the current (2023/24) tax year, consideration should be made to making part of this payment early.

It may also be advantageous to pay a larger dividend, rather than a salary above £12,575, as this may raise National Insurance contributions.

Salaries – if you are considering paying a salary in the 2024/25 tax year above the thresholds mentioned above and haven’t yet, it may be prudent to consider further payments before 6 April 2024 as an alternative.

Spouses and civil partners – An individual may be able to transfer 10% of their personal allowance to their spouse or civil partner, providing they both meet certain criteria. This could reduce their tax bill by up to £250 in the tax year. An election to do this can be made up to four years after the end of the year in which it relates.

Pensions – Pensions are generally very tax-efficient, with £60,000 being able to be paid in from the 2023/24 tax year (an increase from the previous rate of £40,000). This is if your income is less than £260,000 (and increase of £20,000 from the previous tax year). If your income exceeds £260,000, the amount you can put into your pension and receive relief is restricted. Any unused amounts can be carried forward and used in the following three years.

The lifetime allowance remains at £1,073,100.

Additional tax threshold remains at £125,140 – The level at which individuals pay the additional rate of income tax (45p) was reduced in 2023 and this rate is scheduled to remain the same. Where this takes you into this additional tax threshold, it will be worth considering what options are available to become more tax efficient.

Inheritance Tax 

Gifts of up to £3,000 a year can be made without any implications for inheritance tax, and this can be carried forward for one year.

Tax-efficient investments and end of year tax planning

ISAs are a tax-efficient way to save for higher rate taxpayers. The maximum allowance is £20,000.

Tax relief is available when investing in Enterprise Investment Schemes and Seed EIS Shares. Tax relief is available when you subscribe to shares that meet the qualifying criteria for each scheme. Under the EIS scheme, tax liability for the year may be reduced by up to 30% of the amount invested. It also has the benefit that capital gains from disposals can be reinvested into the scheme, allowing a deferral of the gain.

Capital Gains Tax

The 2023/24 annual allowance is £6.000, which cannot be carried forward and is being significantly reduced again in the 2024/25 tax year. It is always worth checking if this has been utilised correctly if you have disposed of any assets, including businesses and property. If you are in the process of selling a business or property, professional tax advice should be sought, as to the most tax-efficient way of structuring a deal.

If gains are made in the year, these can be set against any losses occurred in the same year. It is therefore worth considering disposing of any assets that are standing at a loss to balance these gains.

Importantly, the annual allowance for capital gains tax is being drastically cut by 50% for the 2024/25 tax year. From April 2024, this will be halved to £3,000

Private Residence Relief and Lettings Relief

Private Residential Relief and Lettings Relief were considerably reduced in April 2020. Notwithstanding this, it is important to make sure, where eligible, that you take full advantage of these reliefs.

Private Residence Relief (PRR) currently allows an additional grace period of the last nine months of ownership. Lettings Relief is now limited and is available if you share your home with a tenant or have moved into care. If your property has increased in value since purchase, this can still have a significant impact on your capital gains tax bill.

With the confirmed changes to Capital Gains Tax, and the potential for further changes, it is important to seek advice if you have disposed of property in the current tax year or are expected to do so in the future.

Stamp Duty Land Tax

Since 6 April 2019, non-residents have been liable for capital gains tax on gains made on property and land in the UK.

From 1 April 2021 non-UK residents incur a 2% Stamp Duty Land Tax surcharge on purchases of residential property

Stamp Duty rates have regularly changed over the past few years, including part of the 2021/22 tax year when a Stamp Duty Land Tax holiday applied to residential property (with the nil rate increased to £500k). A tapering rate, reducing the nil rate to £300,000 also applied until 30 September 2021.

Because SDLT rates often vary, it would be prudent to check that the correct rate has been applied to any transactions. (Currently, and for the 24/25 tax year, for first time buyers, no SDLT is payable on the first £425,000 of any residential transaction).

GET IN TOUCH WITH A TAX ADVISOR FOR MORE INFORMATION ON END OF YEAR TAX PLANNING

Additional end of year tax planning considerations for businesses

Group structures

Consideration should be given to reviewing group structures before the ned of a tax year. this will ensure that companies are as tax efficient as possible, whilst the businesses commercial goals are met. Please contact Alexander & Co if you would like more information on the benefits of this.

Annual Investment Allowances

The Annual Investment Allowance was increased in Budget 2018 from £200,000 to £1m from January 2019. This level was made permanent in 2023. Currently up to £1m of qualifying expenditure is available for 100% relief in the year it was incurred.

Capital Allowances

It is always important to review expenditure, which may qualify for Capital Allowances Relief. Alongside plant and machinery, this includes research and development (see below), patents, specific intellectual property and buildings and renovating business premises in specific areas, amongst other items.

There are strict deadlines for claiming capital allowances. Capital Allowances can offer very generous tax allowances of up to 100%, which can result in significant tax savings and these should be considered carefully.

Research and Development Tax Relief changes that may affect end of year planning

Many businesses miss out on this generous type of relief as they incorrectly believe that they are not eligible to receive it.  It is always worth taking advice to review your specific circumstances, to ascertain if you are eligible to claim.

A common misconception is that R&D tax relief only applies to science and technology companies, or those with specialist research and development departments. In fact, all industries can reap the benefits from R&D Tax Relief, providing the project either seek to advance their knowledge, improve a service or product or solve uncertainties in a process.

It is important to review this before the tax year-end as deadlines will apply, dependent upon when the work was completed.

Changes from April 2023 increased the rate of tax credit available for companies undertaking qualifying R&D and claim RDEC. Largely aimed at larger companies, RDEC can also be claimed by SMEs in certain circumstances.

RDEC is a separate credit, brought into account as a taxable receipt when calculating trading profits. Changes introduced in April 2023 increased this rate from to 20%, which is obviously a significant increase and will benefit all companies claiming this relief. Further information is available here.

Where applicable, our R&D tax team will be able to advice you and agree a strategy to help you claim R&D tax credit.  More information on how we can help you with R&D tax credit can be found here.

Full expensing tax relief

Super deduction was replaced in 2023 by full expensing. From April 2023 until 31 March 2026, companies can claim 100% capital allowances on plant and machinery investments which qualify.

Full expensing provides a mechanism for companies to write off the cost of investment in one go. Through full expensing, every pound a company invests, reduces their tax by up to 25 pence.

Given that this generous tax relief, it would be prudent to take advice now on how to maximise this relief on any expenditure undertaken or planned up to 2026. This includes exploring the tax benefits of bringing any planned expenditure beyond this period forward, in order to utilise this relief. Please contact us for further advice.

IR35 roll out to the private sector

On 6 April 2021, changes came into effect regarding off-payroll working for intermediaries and contractors. These were originally due be implemented in 2020 but were delayed due to Covid-19.

Kwasi Kwarteng, the then Chancellor proposed to reverse much of the changes to IR35 in the mini budget of 2022, however these were overturned by his successor, Jeremy Hunt and these now stand.

In a nutshell, many private companies that employ contractors are now liable to pay their tax and national insurance contributions if IR35 applies to their circumstances.

IR35 rules are complex and if organisations get them wrong, they risk taking on their contractors’ tax liability, which can be significant, in addition to fines.

As of 6 April 2021, all medium or large-sized private sector clients (as well as all public sector clients) are responsible for deciding their worker’s employment status. This includes some charities and third sector organisations.

If IR35 off-payroll working rules apply, your worker’s fees will be subject to tax and National Insurance contributions. If these are not paid, it will be yourself who remains liable for these charges, not the contractor.

It is important that anyone using contractors or intermediaries is familiar with these rules and has carried out an assessment to determine their worker status. Further information on this can be found here. For assistance on this matter, please contact us.

End of year tax planning for Property Investment Businesses

For residential buy-to-let investors, since April 2020, mortgage interest is only eligible for income tax relief at the basic rate of 20%, regardless of tax bracket.

This may have resulted in increased taxable income, increasing certain thresholds, which could reduce eligibility for child benefit, personal allowance or pension savings annual allowance, and push some taxpayers into a higher tax band.

For these reasons, it may be beneficial to consider the merits of setting up a limited company for buy-to-let properties that you hold personally. More information on this can be found here.

Corporation Tax

Corporation Tax increased in 2023 to 25%. It is important to check that this was included in cash-flow calculations and is also imputed for the year ahead, considering the continued impact this will have on your business.

End of year tax planning – Other items to consider

The tax year-end also provides an opportunity to review your business activities, and to look at ways to be more tax efficient. Other items to consider include:

Accounting dates – is your own year-end date at the most useful point in the year for your company? Would it be advantageous to align this with a key date in your business calendar?

Incorporation – If you trade as a sole trader, a partnership or an LLP, it is a good point in the year to review your circumstances to ascertain if it would be more tax-efficient to incorporate as a limited company.

Contact Alexander & Co for further advice regarding end of year tax planning

For further advice and guidance, contact our expert tax team on 0161 832 4841 email info@alexander.co.uk or fill out the form below and we will contact you.