Your six-point guide to end-of-year tax planning
The tax year is rapidly drawing to a close. Now is a great time to make sure all your ducks are in a row to make the most of the new 2020/21 year. Here are six tips to get you started. But don’t just depend on this list. Pick up the phone to your accountant and make sure they go through with you a comprehensive checklist of all the measures you need to be taking.
- Dividend allowance – This has been slashed in recent years and now stands at just £2,000. That’s the amount you can take as a dividend without paying any tax. So – make sure you take it.
- Transferable tax allowance for married couples and civil partners – This is called the Marriage Allowance and is specifically designed for couples where one partner pays standard rate income tax and the other is a non-taxpayer. You can claim it provided you are
- married or in a civil partnership.
- one partner in the couple has earned less than £12,500 in 2019-20 and the other partner’s income is between £12,501 and £50,000.
You can transfer up to £1,250 of personal allowance (10% of the £12,500 personal allowance for 2019/20) to your partner for 2019/20. You can also backdate your claim for up to four years and a receive a tax rebate of over £1,000.
- Avoid the Child Benefit Charge. This financial year, have you earned a net income of over £50,000? Are you claiming Child Benefit? If so, you’ll be paying a High Income Child Benefit Charge. In other words, you’ll be losing some or all of your child benefit. But – there may be a perfectly legitimate way of transferring some of your income to your spouse. For example, do they work in your business? Could you transfer some of your income to theirs, hereby taking your income below the £50,000 threshold?
- Pension contributions. These are an excellent way to reduce your tax liability. If you can afford it, there are few better ways of reducing the amount of tax you have to pay. You can set aside up to £40,000 for your pension each financial year. What’s more, you can carry forward amounts from three previous years.
- Reduce your taxable income. Take a look at the relevant tax thresholds. Are there any steps you can take to reduce your taxable income, so that it falls below the threshold? The amount you save in tax may well exceed your cut in pay.
- Offsetting losses. Having made a profit in previous years, do you think you might make a loss this year? If so, enjoy the silver lining? You can offset those losses and receive a proportionate tax refund. Well worth looking into.
Here to help
These are just six measures you should be looking at as the tax year draws to a close. But, there are many other ways to help you plan for a tax-efficient 2020-21. Of course, the best option is to talk to your friendly accountant – that’s us!
We specialise in supporting trades about all matters relating to accounts and tax, and we’d love to help.
Here’s to a tax-efficient and highly successful 2020-21 financial year!
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