Financial Matters

With David Frederick FCCA | Marcus Bishop Associates | marcus-bishop.com

Tax Efficient Closure Of 2021-22

As we near the end of 2021-22, what would be the summary end of year school report? Maybe, another year bullied by COVID-19; with millions of employees being subjected to furlough; others experienced shorter working hours or the loss of jobs; the self-employed continued to be supported by government grants; and the slow puncture of our hospitality and travel sector. Does the outlook for 2022-23 look brighter? May be not, as households punctuate their language with the word ‘up’ in almost every sentence. If there was any doubt, here are six examples; fuel prices-up; domestic utility billsup; Council Tax-up; interest rates-up; inflation-up; and national insurance-up. However, there’s no mention of salaries or wages following that path. In a few cases some households may experience salary or wages going-up, however it is unlikely that salary or wages will be going-up at the same rate or greater than any of our six items. Just to add to the household challenges, there are rumours of interest rates goingup a maximum of five times during the year. Households may be thinking, ‘never before has so many, suffered for so much in such a short period of time.’ Whether a backward reflection of 202122 or a look forward to 2022-23, households may want to start restructuring their financial affairs tax efficiently. Two self-reflective questions that should always be addressed are: have you maximised all of your tax-free allowances? Have you claimed all reliefs available?

Personal Allowances

An easy win in some households is the utilisation of the marriage allowance. Civil partners and married couples may be able to transfer £1,260 of unutilised personal allowance between spouse or civil partner, if certain conditions are met. This is known as the marriage allowance and could save households up to £252 in income tax. Lest we not forget, ‘saving a small amount soon builds up to a large amount’. Some households may be able to utilise rent-aroom relief in 2022-23. This can provide a single householder with £7,500 or £3,750 for co-owners.

Pension Contributions

Higher income earners may choose to use the annual pension allowance. Personal tax relief applies to pension contributions but this is restricted by the annual allowance or net-relevant earnings. The annual allowance is usually £40,000 for those with an adjusted annual income from all sources, including pension contributions under £240,000 and threshold income of £200,000 or less.

For every £2 of adjusted income over £240,000, an individual’s annual allowance reduces by £1, down to a minimum of £4,000, although this usually applies to those with an annual income of £312,000 or more. Provided you had a pension fund during a previous tax year (up to a maximum of three years), it is possible to carry forward any unused allowances for those years. Beware, if your total pension savings exceed the lifetime allowance of £1,073,100 in 2021-22, you might be liable to tax when you draw benefits.

Employers

Employees who continue to work from home ‘due to COVID-19’ may be able to claim tax relief of £26 a month from HMRC. Alternatively, employers can pay this allowance to their employees taxfree via payroll. As household bills rise this will make a minor dent! Employees who are provided a company electric car or some hybrids in 2021-22 will pay 1% on this benefit-in-kind. In 2022-23 this will increase to 2%. The qualifying conditions are: hybrid company cars should to be registered from 6 April 2020; have CO² emissions of less than 50g/km, and travel at least 130 miles on a single electric charge. Other low benefit-in-kind rates apply depending on the CO² emissions and the electric miles it can travel on a single charge. Despite the 6-ups ahead, households can still uncover tax efficient savings this year. Happy 2022-23!