There are now only a few days left until the end of the tax year, so what can you do save tax?
The Dividend Allowance was introduced in April 2016 and it allows you to take £5,000 in dividends tax free.
As announced at Spring Budget 2017, the government will legislate in Finance Bill 2017 to reduce the tax-free allowance for dividend income from £5,000 to £2,000.
So in 2016/17 and 2017/18 you need to take the £5,000 because in 2018/19 its dropping to £2,000 and most people expect it to disappear in 2019/20.
Dividends above the allowance are taxed as follows:
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band
Marriage Allowance lets you transfer £1,100 of your Personal Allowance to your husband, wife or civil partner – if they earn more than you.
This reduces their tax by up to £220 in the tax year (6 April to 5 April the next year).
To benefit as a couple, you (as the lower earner) must have an income of £11,000 or less. You can calculate how much tax you’ll pay as a couple.
You can earn £8,060 without paying any Tax or National Insurance or £11,000 Tax Free.
If you own a company and haven’t taken these allowances why not?
Now you have filed your April 2015 Return (50% will have been filed in January 2016) you only have 2 months left to take action to save tax on your April 2016 tax return.
What should you be doing right now to save tax?
Contribute to your Pension
Transitional rules, for 2015/16 only, mean that there’s an annual allowance of £80,000, although only £40,000 of this can be used between 9 July 2015 and 5 April 2016. You may also have unused annual allowances from the three previous tax years.
These Transitional rules are to align PIP’s (Pension Input Periods) with the Tax Year.
Pensions have huge tax saving advantages
How a family pension scheme will save you tax
Optimise your 2015/16 Salary
You can’t carry forward any unused personal allowances so generally the optimum salary will be £10,600
What is the optimum tax efficient salary 2015-16?
Take Dividends now
When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year.
Dividend tax rates before April 2016
||Effective dividend tax rate
|Basic rate (20%) (and non-taxpayers)
|Higher rate (40%)
|Additional rate (45%)
This will change from April 2016, see the table below
Dividend tax rates after April 2016
||Effective dividend tax rate
|Tax Free £5,000
|Basic Rate Tax Payers (20%)
|Higher Rate Tax Payers (40%)
| Additional Rate Tax Payers (45%)
Capital Gains Tax Allowance
Each year individuals get a capital gains tax allowance, this year its £11,100. If you have capital gains it could worth phasing them to use up the capital gains tax allowance.
Here are some great blogs on how you could transfer a personally owned property or sell shares in a property company to take gains in stages
Basically if your company makes a loss you carry it forward.
The amount of trading loss available to be carried forward is the loss sustained less any loss relieved in the current year or surrendered as group relief.
Carry forward a corporation tax loss is automatic, therefore as no claim is required there is no time limit.
The legislative reference for a trading loss carried forward is: CTA 2010 s45) [old reference ICTA 1988 s393(1)].
You can also make a claim to carry a loss back 12 months.
The legislative reference for carry back loss relief is: CTA 2010 s37(s)(b)(6)(8) and s38 [old reference ICTA 1988 s393A(1)(b)(2)-(2C)].
But there is another option, to help improve your cash flow, lets say you have been making profits and you have just come to the end of your accounting period, the next few months are going to be tough and you will make a loss. If you change your year end by extending it or having a shorter period you could help your cash flow.
Corporation Tax is payable 9 months and 1 day after your year end, so you will have a return for 12 months and have tax to pay but if you had a 6 month return to follow it you could reduce the time before you claim relief for the loss.
If you extended your accounting period to 18 months the figures might even look better for credit rating.
You can shorten as much as you want but not beyond the start date of the accounting period being changed.
You can only extend once every 5 years.
See the Companies House Checklist for details