The tax year runs from 06 April to 05 April each year. As we approach the tax year ending 05 April 2024, below are a few things to consider:
Review your income levels and marginal tax rates
Assess if your taxable income for 2023/24 falls into a band that suffers from disproportionately high effective tax rates. You will need to estimate and add together all your income from all sources – dividends, interest income, employment, property, investment income, pensions and all other income.
If your income is above £50,000, the High Income Child Benefit Charge is applicable. You will also start paying tax at 40%.
If your income is above £100,000, the personal allowance is restricted and completely withdrawn over and above £125,140 (Your personal allowance is reduced by £1 for every £2 over the £100,00 tax bracket).
If your income is above £150,000, you will pay tax at an additional rate of 45%.
High earners may consider taking a holiday, making additional pension contributions or gift aid contributions to reduce tax impact.
Dividends
If you will have dividend income, you may consider deferring or reducing some of this income (if you can) to reduce your expose to higher tax rates.
Dividends are taxed at 8.75% (basic rate), 33.75% (higher rate) and 39.35% (additional rate)
A £1,000 tax free dividend allowance applies from 6 April 2023.
Pension Contributions
Making contributions into a pension can be tax efficient.
For the 2023/24 tax year, the amount you can save into a pension is £60,000 across all of your pension schemes, including employer pension contributions.
If your adjusted income is above £260,000, the annual pension contributions allowance with be tapered (reduced) and you could potentially fall into a tax trap.
Charitable Donations
If your income is greater than £50,000, you may be eligible for additional tax relief for donations to UK registered charities.
Make use of an Individual Savings Accounts (ISAs)
An ISA may comprise of cash, shares, bonds and other allowable investments and you can save tax free with an ISA. The maximum ISA allowance for the 2023/24 tax year is £20,000.
If you have investments that are not ISAs, you may consider moving these into an ISA to save tax.
Consider your legal / trading structure
If trading as self-employed or partnership, you may be able to derive marginal tax saving by trading as a limited company.
Capital allowances
For sole traders or partnerships, the annual investment allowance limit will reset on 6 April. You may wish to consider bringing forward significant expenditure in order to maximise the use of your allowance.
Capital allowances let you deduct some or all of the value of an item from your profits before you pay tax. Capital allowance can be claimed on equipment, machinery, business vehicles and cars.
If you would like to discuss issues arising from this article or to find out more on the applicable tax strategies, please contact Tobi Lab via email at hello@thetacuk.com.