BUSINESS
ACTION PLANNING
FOR THE TAX YEAR END Stuart Noakes, Head of Tax at MHA Carpenter Box, offers some food for thought as the end of tax year quickly approaches New Year’s Day may seem eons ago, but now is as good a time as ever to stop, reflect and ensure you’re taking full advantage of the tax opportunities around you. It’s certainly a good time to start planning your tax affairs so you can make the most of your money before the end of the tax year on April 5th (or March 31st for companies). We’ve outlined below a few ideas and action points to get you started.
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TAX 1INCOME YOUR STARTING POINT
The starting point in tax planning is to understand where your income is likely to fall relative to the tax thresholds. For 2020/21, the tax-free personal allowance is £12,500 and the next £37,500 is taxed at the basic rate of 20% (7.5% for dividend income). Higher rate tax of 40% (32.5% for dividends) is charged on income above £50,000 and additional rate tax of 45% (38.1% for dividends) is charged on
income above £150,000. Note that dividends are treated as the top slice of income, so the basic and higher rates are first allocated against other income. The personal allowance is reduced by £1 for every £2 of income above £100,000. There is therefore no personal allowance at all where income exceeds £125,000. This also means that, over the income band £100,000 to £125,000 the effective rate of income tax is 60%. Action point: Personal pension contributions provide some of the highest rates of income tax relief, and with it being suggested that pensions tax relief could be restricted, this is an excellent time to make additional contributions if you are able to. For example, if your income is in the band £100,000 to £125,000 a gross pension contribution of £10,000 could cost as little as £4,000 after tax reliefs.
