How To Reduce Your Tax Liability

Posted 14/03/2022
How To Reduce Your Tax Liability

Can you believe we’re almost at the end of another tax year?! It certainly doesn’t feel like twelve months ago that we were preparing for the changes that came into effect for the 21/22 tax year.

As always, we think March is a really important month to sit down and make sure you’re maximising any of those tax allowances that might be relevant to your own individual tax position. Below are our top suggestions for ways to reduce your tax liability for the 21/22 tax year.

Pension Contributions

You may be aware that you receive an annual allowance of up to £40,000 per year for pension contributions if your Limited Company makes contributions for you. Making a contribution will not only utilise any available allowances but will also attract tax relief from a Corporation Tax perspective in your Limited Company.

If you make personal pension contributions before 5 April 2022, you will reduce your relevant earnings for income tax purposes. This is particularly pertinent for people earning between £100,000 and £125,140 as it could mean the reinstatement of some of your personal allowance.

We would always recommend that you have a conversation with your Financial Adviser over anything concerning pensions.

Capital Gains Tax

Each person is entitled to £12,300 of tax free Capital Gains every tax year. It’s therefore recommended if you are likely to incur a capital gain in the near future, that you realise that gain prior to 5 April 2022 as you will lose that year’s exemption after that date. It’s also worth considering that your spouse may also have unutilised allowances, which could double the impact of any tax saved by crystallising gains this tax year.

Planning for Remuneration

You may be aware that from 6 April 2022, there is to be an increase to national insurance and dividend tax rates of 1.25%. Whilst the impact is not huge (an additional £10,000 dividend after 6 April would incur £125 in extra personal tax when compared with 21/22), any additional income declared prior to 6 April would ultimately save at least some tax.

Dividend Allowance

Anyone who owns shares in a company is entitled to £2,000 of tax free dividends each year. If you’ve not already been voted a dividend in the tax year to date, it’s worth considering voting a dividend before 5 April 22. A £2,000 dividend would save £150 of tax.

Capital Allowances for Sole Traders

If you’re looking to reduce your sole trade profits in the tax year, you might want to consider replacing your van or some plant and machinery you hold in your business. The rate of the capital allowance depends upon the category of expenditure, however, in most instances you will see some amendments to your taxable profits by making a capital purchase. Our specialist business advice team will be able to help you plan for the future of your business.

We really hope that the above has given you something to think about ahead of the end of the tax year.

If you’re unsure of your next steps, please feel free to get in contact with our friendly, knowledgeable team. If you want to learn more about Kirkwood Wilson? Head to our about us page!

Posted 14/03/2022