Six expert tips for a successful tax year end

There are several key dates in the tax year for those who have decided to operate their business as a limited company. From the self-assessment deadline to your company’s annual Corporation Tax payment and even quarterly VAT returns, a tax obligation is always around the corner if you work for yourself.

But one important event in the diary that doesn’t always get the attention it deserves is the personal tax year end. This falls on 5th April every year for every UK tax resident and is the date on which the UK personal tax year ends, with the new tax year kicking off the following day on 6th April.

The 5th April date matters because it’s when personal tax rates and allowances finish for that year end. The next day, 6th April, these are reset to zero. So, if you want to make the most of any allowances you haven’t used for the year, then now may be the perfect time to assess your tax position, as you have a couple of months before the end of the tax year.

Here are six tips to make it a success…

1. Consider your existing tax position

January is an excellent time to consider your tax position. For example, you might be close to exceeding a particular Income Tax rate. So, depending on your circumstances, you might want to wait until the start of the next tax year, 6th April, to withdraw money from your business. 

To do this, you’ll need complete visibility of all your personal income earned so far this year - whether salary, dividends or even profit made from the sale of an asset, which may qualify for Capital Gains Tax (CGT) and also what other earnings you expect to have until 5th April.

2. Plan ahead from a tax perspective

As the personal tax year ends, it makes sense to plan from a tax perspective.

Let’s say that you know that you are going to need more money next year as you plan to buy a house and you need to show that you have earned more income this year for mortgage purposes, or that the additional amount you need will take you over a certain Income Tax threshold. With this in mind, and assuming you have the profit available to do so and are comfortable with the tax that may be due from doing so, you may want to consider drawing additional dividends before this tax year end. This means you could potentially pay a lower tax rate this year and/or lower the tax burden for next year.

3. Maximise your ISA allowance

Everyone has an annual £20,000 tax free Individual Savings Account (ISA) allowance. This means the most you can save into a cash ISA, stocks and shares ISA (or both) is £20,000 before there are tax implications.

As the saying goes for this allowance, ‘use it, or lose it’. In other words, you can’t carry this allowance into the next tax year. So if you’re in a position to invest money before the tax year end, making the most of your ISA allowance is a tax efficient way to save for your future.

4. Make the most of your JISA allowance

Everyone also receives a JISA (Junior Individual Savings Account), which helps you save for your children and grandchildren until they turn 18. The maximum you can contribute annually and tax free is £9,000. And just like your personal ISA, this allowance doesn't roll over, which is why it may be beneficial to utilise.

5. Top up your pension pot (tax efficiently)

The Annual Allowance (£40,000) is the maximum you can save into your personal pension pot (including an employer’s pension scheme) in a single tax year before tax applies. Regarding pensions, there are two things to consider as the tax year end approaches:

• Like ISAs, making the most of your Annual Allowance is important. If you have a significant amount of this allowance left over towards the tax year end, you might want to make a lump sum contribution to your pension scheme.
• Unlike ISAs, you may be able to carry forward any unused Annual Allowance from the previous three years if you decide to contribute more than £40,000 to your pension pot in the tax year.

Before making any changes to your pension, it is always best to speak to a financial or pension adviser.

6. Assess your Capital Gains Tax (CGT) liability

Capital Gains Tax (CGT) is the tax you pay on the profit amount made from the sale of an asset, whether a property (other than your primary residence), your business, stocks and shares, jewellery or even a piece of art.

For example, let’s say you bought a sculpture for £20,000 and sold it for £40,000. The gain is £20,000, which you would likely need to pay CGT on.

The good news is that we each have an annual capital gains tax free allowance of £6,000. 

The Government proposes to reduce the annual tax-free exemption. From April 2024, this amount will be halved again to £3,000 per annum.

As with many other taxes, CGT ties into the tax year end because you might either want to sell - or not sell - an asset depending on how much of your annual CGT allowance you have used in the existing tax year.

Key takeaway

You’ve probably noticed the key to successfully navigating the personal tax year end lies in having a clear understanding of your existing tax liabilities. With this insight, you will be in a strong position to gain from this important date in the tax calendar.

If you would like to find out more, call Caroola’s Advice line on 01925 597 051, or message via their live chat function.

Please note that the above information does not constitute financial advice or recommendation and should not be considered as such. We highly recommend consulting your accountant or financial advisor.