End of year Tax Planning

Why will be it be necessary to do some tax planning moving forward. You may have seen in the press last week, there is not going be a “U” turn with the introduction of the new health social care levy.

The UK government borrowed another £16.8 billion in December 2021 and the Covid 19 pandemic has had a substantial impact on the economy as well as public sector borrowing and debt.

In the last budget in October 2021, Rishi Sunak said he wanted to cut UK government borrowing from 7.9% of Gross Domestic Product (GDP) in the current tax year to 3.3% next year.

What’s more inflation is expected to add to the country’s debt.

The Office for Budget Responsibility has indicated that the Treasury will need to find £45bn in interest, before even thinking about paying off the debt itself.

Against this background, it is reasonable to assume that taxes are going to go one way for a while or at least just before the next general election in 2024.

From April, although the Chancellor is not directly increasing the rates of income tax we pay, he is freezing the thresholds at which basic and higher rates of income tax are paid from April 2022 to April 2026.  effectively increasing the amount we actually pay as inflation pushes up earnings.

There will also be an additional 1.25% contribution added to both employee and employer National Insurance from April 2022 and a similar additional charge on dividends.

This Health and Social Care Levy will be extended to employees above the state pension age from April 2023.

The changes will not end there. The Treasury has issued a raft of consultations which could all mean extra tax.

There will be greater scrutiny if you are self-employed, or if you become a new landlord, with the onus on you to report your new venture even before it turns a taxable profit.

There could also be increasing pressure for timely payment’ or in other words, collecting tax sooner. This is still just a consultation at this stage, but the government is understandably keen to raise funds quickly.

These changes mean that it will be more important than ever to ensure that you are not paying too much tax – and there are two key areas to look at for effective tax planning:

Are you claiming all your allowances?

Tax is complicated, and sometimes you tend to simply rely on HMRC to tell you what you owe them. The fact is that they are only human and HMRC does make mistakes. In particular, they may have forgotten an allowance or two, particularly if your income has fluctuated over the past few months.

Allowances and reliefs are also difficult to claim if you do not fully understand them.

It can be well worth looking at your tax return. If you do find errors, there is a relatively simple way to query them.  HMRC has a well-developed and surprisingly efficient appeals system which you can find here: https://www.gov.uk/tax-appeals/decision

You may not know what reliefs or allowances you are entitled to in which case just call us and tell us about your tax circumstances.

How can you reduce your tax liabilities?

If you find that your current assessment is right, it might be time to take a more proactive approach to reducing your tax.

It could be time to:

  • Maximise your pension contributions to make full use of tax relief

  • Get a detailed pension forecast – to see the effect these changes will have

  • Make full use of your ISA entitlements

  • Look at your investment portfolio and (if practicable) ensure you take advantage of the full £12,300 CGT allowance before 5 April 2022

  • For shareholder/directors, consider the timing of bonuses and dividends to mitigate the planned 1.25% rate increase that is coming in next April

  • Look at salary sacrifice arrangements which can be particularly effective in mitigating income tax and national insurance contributions

  • Think about buying any capital items if your company year end is 31st March

  • Are you using your tax free allowance for making gifts under the Inheritance Tax Rules ?

  • Do you need to plan for the High Income Child Benefit Charge

  • Are you claiming expenses for working from home.

These steps are all entirely legitimate, but the rules and regulations can be complicated.

Getting expert help may be vital. Please contact us about planning for the April tax changes. We can provide a full tax review which will help identify the marginal tax traps waiting for you – and help you to avoid them.

If you are working with us speak to your normal manager in the first instance.  If you are not already working with us please email Priya @ priyar@myersclark.co.uk to see how we can help.