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The end of the tax year is a time for some judicious tax planning, says Calvin Roll, of Lovewell Blake, in Bury St Edmunds

Some tax years draw to a close with the prospect of little change in rates and allowances in the following year, with the result that year-end planning comes down to little more than making sure you have taken advantage of any allowances which will disappear on 5th April.

This year is not like that – there are several big changes in taxation about to be introduced, and being aware of them could save people hundreds if not thousands of pounds in unnecessary tax payments. Although, of course, checking that you have used up those allowances remains as important as ever.

The biggest change in the taxation system in April is the introduction of the Health & Social Care Levy, which effectively increases both employer’s and employee’s national insurance payments by 1.25%. And there is no escaping this for those who pay themselves by dividends (on which NI is not payable): a parallel 1.25% dividend tax has been imposed as well.

Calvin Roll, Lovewell Blake
Calvin Roll, Lovewell Blake

For business owners who take their income in dividends, there is a clear advantage in bringing forward payments into the current tax year, provided that doing so does not propel you into a higher tax bracket, and that your business’s cashflow will allow it.

Dividend planning is so important. Aside from making sure you take advantage of the extra dividend tax allowance (now much reduced, but still potentially worth as a much as £762 in tax savings), the timing of when you take dividends can have a huge effect on net income.

This is particularly true where someone’s income is close to the higher rate tax band threshold, especially if they have children. As well as incurring tax at a higher rate on income over £50,000, child benefit tapering starts to come into effect, with the result that someone can effectively lose as much as two-thirds of their income between £50,000 and £60,000 in higher rate tax, national insurance and lost child benefit payments.

Lovewell Blake
Lovewell Blake

If you can adjust the timing of when you receive income (for those running their own businesses), there can be a clear benefit in doing so. For employees who cannot determine when they get paid, salary sacrifice schemes, whereby you swap income for certain benefits such as extra pension contributions, can work just as well. Don’t leave it until the last week of March to raise this with your employer!

There are all sorts of other allowances which the savvy tax planner will ensure are taken advantage of before the tax year rolls over.

One of the most effective of these is the allowance which allows you to gift up to £3,000 in any one tax year, in addition to small gifts of up to £250 to individuals such as children and grandchildren, thus potentially reducing a future inheritance tax liability. The £3,000 can be carried forward one year.

The annual pension contribution limit of £40,000 can also be carried forward, this time up to three years. But to do so, the individual must already be in a registered scheme – so if you are considering a big contribution in the future, it is essential to enrol in a scheme now if you are not already in one. And if one spouse is not working, they can transfer a portion of their 0% tax allowance to the other spouse, potentially reducing their tax bill by around £250.

As the late Paddy Ashdown once said, tax is the ‘subscription charge we pay to live in a civilised society’. None of these measures are about avoiding paying tax which is due; they are about using the allowances and systems set up by HMRC itself to ensure you don’t pay too much tax, which is something else entirely.

-- Calvin Roll is a tax specialist based at Lovewell Blake’s Bury St Edmunds office