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We appreciate 2021 has been another challenging year as we have been putting one foot in front of the other, so putting money aside or looking to reduce your tax probably couldn’t have been further from your mind. However, as the 5th April 2022 approaches, we don’t want you to miss out on the relevant allowances and reliefs to reduce your tax as part of your financial planning.
We therefore include below our top ten tips for you to consider to reduce the amount of tax you will end up paying in the 2021/22 tax year, if you are able to.
1. Use your ISA Allowance for 2021/22
The tax-free ISA allowance is £20,000. Invest before the tax year has ended as the allowance does not rollover into the next tax year.
2. Increase your children’s savings
Junior ISAs for children provide a tax-free ISA allowance of £9,000 and can be a mix of cash and shares.
3. Top up your pension
Using your pension allowance can reduce the amount of earnings you get taxed on. You can put a maximum of £40,000 per tax year into your pension (as long as this does not exceed your relevant earnings). If you have not used your allowance this can be carried forward for up to 3 years. SEIS/EIS/VCT investments should also be considered to potentially reduce your income tax, as well as other taxes.
4. Use your Capital Allowance
If you need to buy a capital asset you can use your capital allowance as a tax efficient means of doing so. Annual Investment Allowances (AIAs) are an example of a capital allowance and if an asset qualifies under the AIAs, you can deduct the full value of the item from your profits in the year in which you invest.
5. Make Charitable Donations
Tax relief on donations can be received through Gift Aid or Payroll Giving, which comes direct from your wages.
6. Take Company Dividends
To maximise your personal tax allowance, your company can issue dividends to a maximum of £2,000 free of income tax. Your company will need to pay these before the 5th April 2022 to ensure they are included in your self-assessment tax return for 2021/22. Dividends above this are taxable at 7.5% (basic rate taxpayers), 32.5% (higher rate taxpayers) and 38.1% (additional rate taxpayers). Don’t forget, for 2022/23 these will be increasing, so you might want to take more in the current tax year as a result.
We have assumed that you already have a PAYE scheme in place, where you don’t already use up your personal allowance with other earnings. However, where you don’t this might be something that is worth considering as part of your planning.
For tailored advice on optimising your personal tax allowance through company dividends and ensuring proper inclusion in your self-assessment tax returns, consulting with a self-assessment accountant is advisable.
7. Capital Gains Tax (CGT)
You can make £12,300 in capital gains this tax year before you pay tax, known as the ‘annual exemption’. If you have assets to sell or shares to dispose of , think about the timing of this. Maybe you need to consider spreading this over two tax years? You may also want to look at reinvesting the gains in order to delay any tax due. Remember, now you need to report and pay the tax on the sale of a residential property within 60 days of disposal. Also cryptocurrency gains largely fall under CGT so you might want to consider a disposal of these too within the annual exemption.
8. Research & Development (R&D) tax relief
If your business is involved in the advancement of science and technology, or has project(s) or activit(ies) that help resolve scientific or technological uncertainties, you may be able to claim R&D tax credits. This comes as an additional 130% deduction (in addition to the original claimed cost), or claim cash back at 14.5%, where losses are being made. This can help accelerate the growth of your business, give you much needed cashflow, or simply reduce/wipe out any corporation tax due. This is applied for by a report for inclusion in the company tax return, which you can do for the current and the previous years, if you haven’t already. Later this year we are expecting to see a review of this regime, with it potentially being increased to include advancements in mathematics too, so watch this space.
9. Limit Inheritance Tax (IHT)
You can give up to £3,000 per annum worth of gifts each tax year, which will not be included in the value of your estate, known as the ‘annual exemption’, like Capital Gains Tax. Each tax year, you can also give away:
a. wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child);
b. normal gifts out of your income, for example Christmas or birthday presents – as long as you can maintain your standard of living after making the gift;
c. payments to help with another person’s living costs, such as an elderly relative or a child under 18; and/or
d. gifts to charities and political parties.
10. File your tax return quickly
Complete your tax return soon after the 5th April 2022 and know what tax you need to pay and any possible refund (especially for those who pay CIS). To help you do this, keep records up to date as much as you can.
Expert tax advice in simple Black and White
Whilst we appreciate this topic is the furthest from the minds of most people as we live day-to-day in the current world, we don’t want you to forget about the allowances and reliefs available to you, resulting in you paying more tax than you need to.
If you want to talk about any of these more, we’d love to speak with you further, so please contact Black and White Accounting today, populate the “Got a Question” form on the right, or call us on 0800 140 4644. We look forward to hearing from you!
