Making your return less taxing

No one wants to be caught out when the tax year ends in April. As if it wasn’t stressful enough, ticking boxes, making sure accounts are settled, and otherwise balancing books. All on top of your day job. A single mistake can result in penalties and fines, as you navigate the often maze-like gauntlet of tax payment. Like with all labyrinths, it’s easier with a guide. Fortunately, Verallo are here to help.

Where to start?

The first thing to do is figure out which taxable incomes are relevant to you. Here’s a quick breakdown of some of the most common:

Income tax

As a UK resident and taxpayer, you’re entitled to a tax-free personal allowance (PA). When your income exceeds £100,000 your PA reduces down in stages, until you’re no longer eligible. For the 2023/24 tax year, your PA limit is £12,570. This reduces by £1 for every £2 of income over the exceeded threshold. As a result, if your income exceeds £125,570 you won’t receive any PA.

Dividends

If you’re the owner of a limited company, you can use dividends as part of a reward strategy for other members of the business. Currently, dividends can be taxed at a lower rate than other incomes and Directors or Shareholders can influence the amount they’re rewarded. However, from April 6th this year, the tax-free dividend amount is being reduced from £1,000 to £500.  

Pensions

Companies can make employer pension contributions on your behalf. No personal tax liability arises for you and the company should qualify for a corporation tax deduction. The maximum annual allowance for this is £60,000 a year. You can also save income tax by making personal pension contributions for the tax year, provided you have sufficient earned income.

Savings and investments

There are three main schemes for savings or investments. With ISA’s you’re allowed to put away up to £20,000 for this tax year. Be aware, if you only save £19,000 the additional £1000 can’t be carried over into the new tax year for a total limit of £21,000.

Seed enterprise investment schemes are aimed at those investing as shareholders of UK publicly unlisted companies. You can receive income tax relief of up to 50% of the investment. The total limit for this is £200,000 per tax year. What’s more, this relief can be claimed against either the current or previous tax year.

Lastly, enterprise investment schemes are capped at £1m in a single tax year. That’s unless the business is listed as a knowledge intensive company focused on research and development. In which case, the maximum amount is £2m. Either way, your tax is reduced by 30% of the sum invested. Like the seed enterprise investment scheme, this relief can be claimed against the current as well as the previous tax year.

Inheritance Tax

Inheritance tax is 40% of your net estate in excess of your nil rate band. This is charged to spouses and civil partners who can receive transfers in their lifetime that are exempt. Nevertheless, the daunting amount of inheritance tax can be potentially mitigated and even reduced to nothing through strategic planning. For example, lifetime gifts that include cash or assets provided by the deceased while alive are not affected, as are trusts which can protect beneficiaries.

What now?

If all of this has left your head spinning, don’t worry. You’re not alone. Verallo offer bespoke tax planning strategy advice, tailored to your specific situation. Avoid the many pitfalls, dead ends, and mistimed decisions by finding out what Verallo can do for you here.