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Year End Tax Planning for Individuals

March is racing by however there is still time to consider some tax planning for individuals, as long as action is taken before the 2023-24 tax year closes on 5/4/2024.

The key to reducing your personal tax is to reduce taxable income. I shall note my top 10 key opportunities for doing this below.

(1) Move investments into non-taxable investments
If you have savings in an ordinary bank savings account this will attract taxable interest. Transfer this money into an ISA and the whole amount will be tax free. There is a £20k annual allowance for ISA's therefore this is a great way to keep tax free savings.

(2) Contribute to a pension
Pension contributions by an employer are tax efficient as there is no tax to pay, provided the annual allowance is not exceeded. This can be particularly tax efficient where the company is owned by the individual. In other cases it can be beneficial for all parties for employees to sacrifice some salary in exchange for pension contributions made by the employer.

(3) Make a lump sum payment into your pension
If you make payments into a personal pension (not via an employer) then you will receive tax relief at source. This means your pension company will claim 20% tax relief direct from the Government. However if you're a higher rate tax payer then the additional 20% tax can be claimed through self-assessment, and this will effectively reduce your taxable income.

(4) Donations using Gift Aid to Charity
Donations to charities will attract an additional 20% payment from the Government under gift aid, this is done at source therefore for every donation you make the charity will benefit by an extra 20%.

If you are a higher rate tax-payer you can claim tax relief on the additional 20% tax back through your self-assessment. This works by increasing your lower rate tax bands.

(5) Make use of Company Dividends
If you are a company owner taking advantage of preferential dividend tax rates is a great way of reducing tax payable. For instance dividends are taxed at 8.75% at the lower tax rate, and 33.75% at the higher tax rate. This is opposed to 20% lower tax rate for salary taken, and 40% at the higher rate.

If you are looking to extract money from the Company before the tax year finishes dividends could certainly be a tax efficient way to do this. Additionally for 2023-24 the first £1,000 of dividends taken are tax free.

(6) Sole Trader losses
If you run a sole trader business ensure that any losses brought forward or incurred in the year are utilised in an effective way.

Losses occurred in the year can be offset against other income in the year which if this has already been taxed (such as employment income) you could actually be due a tax refund! Similarly losses could also be carried back to profits of the previous year resulting in a tax refund.

Losses brought forward can be offset against the same trading income and could reduce your taxable income, resulting in a lower tax liability.

(7) Company Losses
As with sole trader losses utilising current or previous years losses in an appropriate way could result in significant tax savings or even a tax refund. Trading losses in a Company may be carried back against trading income of the previous year or carried forward against future trading profits.

(8) Company Car Choice
If you have a company car it is likely you will be receiving a tax charge under a p11D for receiving a company benefit. The tax charges for many cars are now very high and can be quite costly to the Employee. If you are thinking of ways to reduce the tax you pay you could consider an electric car as the taxable benefit on these is just 2% on list price, rather than much higher amounts for non-electric cars.

(9) Claim additional Employment Costs
If you are an employee there may be additional employment costs that you are entitled to claim. Since COVID many individuals are working from home. There is a working from home allowance of £6 per week that can be claimed to reduce tax payable. Are you required to wear a uniform? It's possible you could claim uniform costs. HMRC offers flat rates for employees to claim for uniform costs. Do you incur travel costs for work? The Government provides a tax free mileage allowance of 45p per mile, therefore if your employer only gives you 25p a mile you will be entitled to claim the difference back up to 10,000 miles.

(10) Letting a Room in your house
Thinking of getting a lodger in your house? Under the Rent a Room Scheme there is a threshold of £7,500 per year from letting out furnished accommodation in your own home. This income could be halved with your partner if you both own the property. A great way of earning some extra tax free income!

If you would like to discuss any more of my tax saving tips, or need a good accountant for support and advice, please do not hesitate to contact me on jo@jandjaccountants.com or 07793 824995.

Jo Malpass FCA, BSc
Director J&J Accountants
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