If you start wishing people Happy New Year in April, you are bound to get some funny looks. Most people don’t realise that this is the start of a New Year for them too, even if they don’t know it. The tax “New Year” doesn’t come with all the glam and glory of the calendar New Year but does still have major implications for all UK residents.
Everything to do with taxes: paying them, dealing with accountants, being organised (or getting angry with yourself for failing to be organised) and almost everything to do with your tax bill, including the self-assessment tax returns, isn’t exactly what you would classify as “a good time”. However, it needs to be done and anything that needs doing is worth being done right!
Amal from tax accountants Accountingpreneur said “The good news is that there are many ways to start the new tax year which will make every assessment deadline less stressful and more lucrative.” How can you start your next tax year with ease?
Understand Your Financial Position
As this tax year runs from April 6th 2022 to April 5th, 2023, by taking a close look at your current financial position, you can make decisions to reduce your potential tax liability. What kind of decisions?
If you own a limited company and realise that you are close to reaching your next tax bracket, you can avoid paying yourself or withdrawing money from your business until the next tax year, which begins on April 6th, 2023.
As a UK resident, everyone has a £20,000 yearly deposit limit into an Individual Savings Account (ISA’s). These deposits can be made both through cash ISA’s or stocks and bonds ISA’s up to £20,000 before you are required to pay taxes on the money.
Junior ISA’s (JISA’s) are also available for you to save money for your children and grandchildren, up to £9,000 each. Whether it be done in a lump sum or regular payments over 12 months, these ISA’s and JISA’s are great, tax-efficient ways to save your money and get tax relief. These limits do not carry forward to the following year so they must be taken advantage of every year to get the benefits.
Personal pension contributions are limited to £40,000 per year but can be carried over for up to three years, allowing you to use the pension scheme to reduce your tax liability. If you are nearing the end of the tax year, you may want to use a lump sum deposit into your pension plan to maximise this allowance.
Capital Gains Liability
Capital gains tax is the tax you pay on the profit of the sale of an asset. Luckily, all UK residents have a £12,300 capital gains tax-free allowance, allowing them to make a profit on the sale of assets without taxing them before that threshold is met. This matters because you may want to sell anasset to maximise your tax-free allowance as a way to save money. If you have already met this threshold, then you may want to wait until the next tax year.
Unfortunately, these laws are changing and the threshold is being dropped to £6,000 in 2023 and £3,000 in 2024. Those who pay capital gains tax and want to take advantage of this allowance will have to take advantage of it quickly.
A New Tax Year Means Potential for Progress
If you are forward-thinking and make a few minor adjustments, you can transform the tax new year into an exciting day in your calendar, potentially as exciting as the calendar New Year. Make the best of this opportunity and make 2023 your best tax year on record.