2024 Tax Year End Planning

With the tax year ending 5 April 2024 fast approaching, please do check what tax planning action you might take:

1. Frozen Allowances

With continued frozen tax allowances, more people are getting caught by a 40%, 60% or 45% tax rate and many will have to repay child benefit when they didn’t before.

As a business owner, you have more options than a regular employee, but it’s worth everyone checking in with what is available and affordable. Some sole traders work less to keep their income under the 40% higher rate band of £50k or an employee may decide to go part time.

Shareholder-directors should review their mix of dividends and salary to ensure they are optimised. For example, if your company suffers the 26.5% marginal tax rate and some or all of the £5k national insurance employer annual allowance is available to you, you’re likely to find that a salary higher than £12,570 is more tax efficient for you.

A sole trader could add another person such as a spouse and set up a general partnership to even out the use of their income tax bands, or an employee might make more payments into a pension scheme, as described next.

2. Pensions

With higher corporation tax of 25%/26.5% for many company owners, you may wish to re-visit your company pension contributions to ensure you optimise your corporation tax relief.

With a March year end if your profits might be higher in the year to 31 March 2024 than in the year to 31 March 2025, you may find you’re likely to save more tax from making pension contributions in this earlier year, subject to the £60k annual allowance.

High earners should always check they’re keeping taxable earnings under £100k wherever possible which might be achieved by paying more into your pension scheme before the end of the relevant tax year.

If your income is over £100k, you’ll save an extra 40% from gross pension contributions made to get income down in the range between £100k and £125k. Under £100k, you save an extra 20%, whereas for income over £125k, you save an extra 25%. Your pension pot also receives 20% direct from the government, boosting its value in the background.

3. State Pension Top Up

The original deadline to top up your state pension, if needed, has been extended to 6 April 2025, but as time flies, it’s worth a reminder!

Currently many people can make catch up Class 3 NI payments all the way back to 6 April 2006 to fill any gaps in state pension qualifying years. From 6 April 2025 this is being reduced to 6 years, which is still valuable and will be sufficient for many people.

You should check your Personal Tax Account, which despite its name also shows your state pension years. You can identify any missing years, any errors and check whether it’s worth making the payments.

State pension credit years can arise from a variety of sources, but if you need to make the most expensive Class 3 national insurance payment, it costs £824 to add on a missing year, which although expensive is often still worth it - but do check!

4. Spouse Dividends

Dividend tax is at its highest level and as dividends also form part of your gross income trapped within the frozen allowances mentioned above, you may ask your spouse to take on some shareholder responsibilities and receive some dividends to use their basic rate tax bands or to keep your income under £100k.

From 6 April 2024, the £1k 0% dividend tax is again halved to £500 so the advantage of paying tax free dividends to a spouse is less than it used to be and spreading family tax costs across lower tax bands has become more advantageous.

5. Annual Investment Allowance and Electric Car First Year Allowance - 100%

For all businesses, sole traders and limited companies. the Annual Investment Allowance is now permanently at £1m meaning that you can spend up to £1m on plant and equipment or on eligible commercial property refurbishment costs and receive 100% tax relief. Similarly, new electric cars purchased before 6 April 2025 benefit from 100% tax relief with no limit.

If you plan to incur these costs near to your year end, such as 31 March 2024, ensure you meet the conditions for a claim in the earlier year, so you don’t have to wait a year to get the cashflow tax saving.

For example, investing £100k might save £25k of corporation tax (25%), or £45k of income tax (45%) which is better in your pocket one year earlier than with HMRC.

Remember hire purchase contracts work, so you don’t need to have bought the assets outright to get full tax relief, assuming the hire purchase contract is good value overall.

6. Research & Development

The new merged R&D scheme – for SMEs and large companies - takes effect for accounting periods beginning on or after 1 April 2024, but with the existing SME intensive scheme remaining for now.

As you’d expect the new merged scheme isn’t as generous and R&D expenditure and claims should be made in earlier accounting periods wherever possible.

If a major part of your claim is overseas contractors, from 1 April 2024 these will no longer be eligible and you may also wish to bring some of those forward.

7. Director Small Wins

Remember to maximise your director treats for the tax year ended 5 April 2024; trivial benefits totalling £300 each, annual parties expenditure up to £300 each with guest or having a private health care check.

8. Capital Gains Tax

If you’re about to exchange on an asset, you may want to ensure this definitely happens before 5 April 2024, after which your tax free annual exemption of £6,000 is reduced by a further half to £3,000. For a couple selling a buy-to-let property this might cost tax of up to £1,680 for the sake of a few days.

Each taxpayer is different and you should only act after being advised about all the financial impacts of your actions. Also, the Budget on 6 March 2024, may affect your optimum position.