As we are getting towards the tax year end of 5th April 2022, it is worth looking at whether there is anything you can do before this date to maximise your tax reliefs and to possibly save money.
For Limited Companies it is always good practice to consider certain things to see whether or not you can help to reduce any Corporation Tax payable or to save yourself tax or National Insurance Contributions when extracting profits.
This is one of the many reasons as to why it is useful to know what profit/loss you have made on a weekly/monthly basis so that better, more informed, decisions can be made. I advise using bookkeeping software and keeping on top of entering the transactions so you have a more accurate picture.
Capital Gains Tax
The first thing you can do as an individual when it comes to planning your tax year end is to take advantage of your Capital Gains tax allowance of £12,300. This is if you are making a disposal and likely to have another within the next 12 months, and you should consider doing it before 5 April to use this year’s allowance as any unused amount cannot be carried forward.
A % of child benefit has to be repaid if your income is above £50k (and repaid completely if above £60k). If your earnings are around this amount, making charitable donations or pension contributions can reduce your income and therefore save you having to repay the Child Benefit.
If you are married or in a civil partnership, look to see whether you or your partner can claim the marriage allowance. This is where the lower earner's income must be below the personal allowance (currently £12,570) and the higher earner is a basic rate taxpayer. The lower earner can transfer £1,260 of their personal allowance to the higher earner which will save £252 a year in tax. The claim can be backdated up to 4 years.
Tax relief is available on charitable donations made by an individual who has paid income tax equivalent or more than the tax on the donation.
If you are an employee and pay for professional subscriptions personally then you can claim tax relief for these amounts subject to them appearing on “HMRC’s list 3” which is available to look at online.
Plant and equipment investments
Capital allowances are available to claim at 100% for most plant and equipment so if your accounting year end is 31 March/5 April consider making any large investments in equipment before then to be eligible for the relief.
If you have had to work from home even for just one day you can claim working from home tax allowance which is £312 per year (worth £62 a year for a basic rate taxpayer and £125 for a higher rate taxpayer). This applies to 2020/21 and 2021/22.
There is a ‘super-deduction’ available for Limited Companies of 130% tax relief for the purchase of any new plant or equipment from 1 April 2021 to 31 March 2023. It does not apply to equipment bought second hand though.
If your Company has sufficient profits, taking a dividend out of the business could be the most tax efficient way as the rate is only 7.5% if within your basic rate band and 32.5% if this takes you into a higher rate. It is normally also worth taking a minimal salary to obtain a NIC qualifying year credit too. The first £2000 of dividends are completely tax free.
Pension contributions have to be physically paid before the year end to be included in the accounts and to obtain a relief against Corporation Tax.