How to prepare for the end of the Tax Year – 5th April 2021
If you were one of those people who filled their 19/20 tax return last month it may be worth relooking at how you do things and start preparing for your next tax return in advance. Although HMRC allows you 9 months to file and pay we always recommend clients to get it out of the way immediately after the tax year. This gives our clients time to plan for the tax payment and take advantage of all the allowance available to them. Read our guide to be ready for the end of the 20/21 tax year and prepare yourself for the new tax year 21/22 to avoid stressful situations in the future.
- Make sure you make any pension contributions.
Pension savings are a great and tax-efficient way to save for the future. The total amount that can be contributed per year and still be tax-free is £40,000. Up to that limit, the government provides tax relief at the basic rate of 20% and this is added to your contributions by your pension provider.
If you are a higher rate taxpayer, you can claim further tax relief through your annual Self-Assessment return. You can include the full £40,000 amount on your Self-Assessment and the government will provide further tax relief of 20% (if you pay tax at the higher rate of 40%). So, you claim back £8,000 from the government through your annual Self-Assessment.
- Make sure you take your company Dividends before 5th April 2021
The tax-free Dividend Allowance of £2,000 has not changed for several years, but the Personal Allowance and tax thresholds affect the amount of tax you will pay on any dividends you take. The 2021/22 and 2020/21 rates and thresholds are shown below. Further, you are only taxed at 7.5% on Dividend up to a total income of £ 50,000. If you think you will exceed this level in the coming years you can always declare some dividends, so you are using any unused lower rates.
- Maximise your annual ISA allowances
ISA is a great way to save long term and not pay taxes on interest and capital gains. You can hold cash or Stock ISA. They both have an Annual allowance of £ 20,000 each. It is particularly worthwhile if you are trading in stocks. While you are thinking of future investments, you may want to check if you could make any payments into an ISA or other tax-efficient savings which also have limits on what you can pay in each tax year.
- Marriage Allowance
Not many of you are aware of this but you can £1,250 of your Personal Allowance to your spouse or civil partner if they earn more than you and pay tax at the basic rate. This could yield a potential tax saving of £250. You need to make sure that you have income within your Personal Allowance of £12,500. An application to HMRC needs to be made for this allowance. It is also worth noting that you can backdate your claim to include any tax year since April 5th, 2015.
- The Tapered Annual Allowance
For higher-income earners, the tapered annual allowance will apply. For every £2 of adjusted income, including employer pension contributions, as well as income over £150,000, your annual allowance is reduced by £1. The Government has a comprehensive guide for working out whether your income will have the allowance applied. You may only be able to assess this accurately as you get closer to April 5th. If you can assess the figures accurately in time to make a pension contribution, then ensure you do so. If not, as soon as the most accurate figures become available, you can take steps to make up any shortfall by carrying it forward to the next year.
- Child Benefit Charge
Child benefit is reduced by the High-Income Child Benefit Charge when one parent’s income reaches £50,000. At £60,000, the tax charge cancels out the benefit entirely. Worth around £2,500 a year to a three-child family you can now look at making a pension contribution to reduce your charge and maintain the benefit you receive. You can choose not to take child benefit payments if your earnings are over £60,000, but you should still consider filling in the child benefit claim form. This helps you get National Insurance credits, which go towards your State Pension later in life.
- Payment on Account
If your tax liability is over £ 1000.00 HMRC now requires you to make on account payments in advance for the following tax years. You will feel a pinch in your wallet the first year you fall under this regime. You will need to keep aside your tax liability for the tax year you are preparing plus 50% of this amount payable by 31st Jan of the deadline year. The second instalment of the 50% is due by July. The second year will be much smoother as you are already ahead of the game and most of your taxes are paid.
- Year-End Responsibilities as a Director
If you have your own limited company and have not received any other payroll income you can speak to your accountant to ensure they run an annual payroll and submit all RTI’s to ensure you maximise your tax efficiencies.
- Make sure your records are up to date
This is a good time to start. Your memory is fresh, and you can ensure all expenses are claimed so that nothing is missed out
- Take note of the changes to the allowance/ tax rates
|Dividend tax-free allowances and thresholds||2020/21 tax year||2021/22 tax year|
|Dividend tax-free allowance||£2,000||£2,000|
|Dividend basic rate – The lowest rate of tax on dividends||7.5% on dividend income up to £37,500||7.5% on dividend income up to £37,700|
|Dividend higher rate – The middle tier of tax on dividends.||32.5% on dividend income above the basic rate up to £150,000||32.5% on dividend income above the basic rate up to £150,000|
|Dividend additional rate – The top rate of income tax for high earners.||38.1% on dividend income above £150,000||38.1% on dividend income above £150,000|
- Take note of the Major Changes
New Rules around IR35 in the private sector. Read our blog to find out more https://www.outsourcedacc.co.uk/blog/all-you-need-to-know-about-ir35/
VAT reverse charge was introduced in the Construction Industry Scheme. Read our blog to find out more
At outsourced ACC we take pride in proactively speaking to our clients to ensure year-end taxes are prepared immediately after each tax year and regular communication to ensure they take advantage of all available benefits from planning for your taxes. Our all-inclusive fee enables clients to call us anytime without needing to worry about time charges or additional fees during the year. Give us a ring today on 0208 249 6007 to see how we can help you.
To read more about Tax click here
Written by Quraish Adamally