Whether you’re a business owner or a top biller, smart tax planning can make a significant impact on your financial health. Below are our top 10 tax tips for individuals:
1. Keep an Eye on Your PAYE Tax Code
HMRC periodically adjusts your PAYE tax code based on information from your employer or personal tax return. However, it can’t distinguish between temporary and permanent changes, like a one-time bonus versus an annual raise.
Action Plan: Sign into your personal tax account on the UK Government website to verify your tax code. Make sure to correct any errors or outdated information. If you received a bonus last year that unrealistically inflates your estimated income for this year, you can rectify it online.
2. Maximise Unused Personal Allowances
If you’re married or in a civil partnership where one of you is a basic rate taxpayer and the other does not fully use up their personal allowance, the lower earner can transfer up to 10% of their personal allowance to their partner. This can lead to an overall tax saving.
Alternatively if you are a recruitment business owner consider transferring some shares to your spouse or civil partner. However, it’s crucial to consult a tax advisor before executing any share transfers.
3. State Pension Top-Ups
Review your National Insurance record to ensure you’re on track to receive a full state pension. If there are gaps, you can make voluntary contributions. For a limited time only there is an extended number of years in respect of which voluntary top up payments can be made.
4. Child Benefit Tax Charges
If you or your partner receive child benefit and either of you earn over £50,000, there’s an extra tax charge that gradually claws back the child benefit received.
Action Plan: You can choose to stop the child benefit payments but keep the claim alive to preserve state pension entitlements for the claimant.
5. Review Tax Payments On Account
If you’re anticipating a lower income, it might make sense to reduce your advance tax payments, which are typically due in January and July.
Be cautious about significantly lowering your payments on account as a means to postponing your tax dues. An over-reduction will result in interest charges.
6. Meet the Self-Assessment Deadlines
The deadline for online submission is 31 January and late filings attract a minimum £100 penalty.
If it’s your first time needing to file a personal tax return, you must register with HMRC by 5 October following the tax year in which you became eligible for registration.
7. Junior ISA Contributions
Investing in a Junior Individual Savings Account (ISA) is a way of contributing towards your child’s financial future. Anyone can contribute up to the child’s £9,000 allowance in the tax year 2023/24 to grow an income and capital gains tax-free fund. This money can then be accessed by your child when they turn 18. As long as the annual £9,000 limit isn’t breached this could be a beneficial way to receive monetary gifts from grandparents, for instance.
8. Tax-Free Savings and Dividends Allowances
For the 2023/24 tax year, the government allows a tax exemption on savings income up to £1,000 for basic rate taxpayers and £500 for higher-rate taxpayers. Additionally, there’s a £1,000 tax-free dividend allowance available to everyone. Make the most of these exemptions by distributing savings and investments strategically between you and your partner, so that both of you can fully utilise these tax-free allowances.
9. Investing Through SEIS
The Seed Enterprise Investment Scheme (SEIS) offers some generous tax benefits. By investing up to £200,000, you could generate a 50% income tax credit. Moreover, if you reinvest capital gains in SEIS shares, you can qualify for a maximum 50% Capital Gains Tax (CGT) reduction on gains up to £200,000. This tax advantage is significant, but remember that these investments carry a high risk and should be made under financial advice. You must also hold the SEIS shares for at least three years; otherwise, the income tax credit is clawed back.
10. Investing in VCT or EIS
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) offer a 30% income tax credit if you subscribe to their shares. For VCTs, you can invest up to £200,000 in the 2023/24 tax year. The shares must be held for at least five years to retain your income tax credit. For EIS, investments can be as large as £2 million, but anything over £1 million must be made in knowledge-intensive companies. EIS shares should be held for at least three years to keep the income tax credit. Both VCTs and EIS investments can be high-risk, so consult a financial advisor before diving in.
In summary, understanding and taking advantage of various tax allowances and investment schemes can greatly benefit your financial well-being, whether you’re planning for your child’s future or optimising your retirement income.
While these tips provide a solid starting point, tax laws can be intricate, and the most effective strategy depends on your specific financial situation. For tailored advice that’s aligned with your individual needs and objectives, don’t hesitate to reach out to us.
We’re here to help you navigate the complexities of the tax landscape and make informed decisions that could save you significant amounts of money.
Contact us today to schedule a consultation.