22.3.2022 | Tax

Tax planning before the year end

Andrew Diver, Head of Taxation at Beatons, gives an overview of the changes and advice on how to stay one step ahead.

Many will be anticipating the Chancellor’s Spring Statement today, to hear in full about tax changes as the country and its businesses attempt to recover following the pandemic.

Now is a good time to take stock of any tax issues and analyse what actions can be taken ahead of the new tax year on 5th April which would make best use of any lower rates.

Andrew Diver, says:

“As we near the end of the 2021/22 tax year, there are several areas where you may want to consider taking advantage of the current tax rules and annual exemptions before they are lost after 5th April, 2022.

“The highlight change will be the introduction of the health and social care levy which increases National Insurance by 1.25% for employees and employers as well as the same increase in the dividends tax rates at all levels.

“Tax savings can be achieved in various areas before the new tax year and below, I have given an overview of these and the actions that might be taken now. However, the complexities of these may depend on individual circumstances and we would recommend you contact your accountant if you need more clarity.”

Health and Social Care Levy
There will be an increase to National Insurance for employees and employers at 1.25% from April 6, 2022. Class 4 National Insurance paid by the self-employed will also increase by 1.25% to 10.25%. The dividend rate is also set to increase at all levels. Owner managed companies may wish to pay dividends before April 5 to take advantage of lower rates.

Dividend Allowance
The dividend allowance for 2021/22 is £2,000. This means that the first £2,000 of dividends received by an individual are taxed at a special rate of 0%. Dividends paid up to the basic rate tax threshold (£37,700 in 2021/22) are only taxed at 7.5%. Owner managed family companies can make use of the dividend allowance by paying dividends to a spouse or adult children.

Interest on directors’ loan accounts
Where a director has a loan account in credit, it may be appropriate for the company to consider interest being paid to the director on the balance in order to benefit from any personal savings allowance. The company will also reduce its profits liable corporation tax.

Child benefit and personal allowance claw backs
It’s important to remember that child benefit gets effectively withdrawn by 1% for every £100 of income earned over £50,000. Additionally, the personal allowance is reduced by £1 for every £2 of income above £100,000. Because of the nature of the claw-back of these sums, the marginal tax rates at £50,000 to £60,000 and £100,000 to £125,140 are much higher than the additional rate of tax. Advice should be sought on legitimate ways to adjust your income in these bands.

Pension annual amount
An individual can currently contribute up to £40,000 a year into a pension. While there are provisions which enable the carry forward of any relief unused from the previous three tax years, if you do have any unused relief and you are considering making a substantial pension payment, some availability could fall out of time after 5 April 2022. Higher earners can be subject to restriction on the annual contribution limit. If you are considering making substantial contributions, please let Beatons or your own accountant know in advance.

Inheritance tax annual exemption
Each year, you are able to make gifts of up to £3,000 without any inheritance tax being potentially due. There are also other exemptions available and expert accountants can assist you with a strategy for ensuring that your estate is not substantially eroded by taxes upon death.

Capital gains tax annual exemption
Buying or selling shares is an investment decision and we are not authorised to advise on this matter. However, even if you were not considering selling your investments in their entirety you may wish to consider a part disposal and repurchase of the shares to make use of the £12,300 capital gains tax annual exempt amount and effectively spread any increase in value of the shares over the course of their ownership, thereby significantly reducing the capital gains tax payable. Anti-avoidance rules prevent repurchases within 30 days being effective.

You could consider repurchasing the shares through an ISA to put the shares outside the scope of future capital gains.

Stay up to date with changes that affect you
The Chancellor may introduce further changes on 23rd March in his much-anticipated Spring Statement, please sign up to our e-newsletter on our website to stay in touch with any changes as soon as they are announced. Sign up here to register.

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