With the close of the income tax year rapidly approaching on 5 April 2022, and also some personal tax changes that are happening with effect from the new financial year, you should start to consider a few matters in order to plan for the close of the financial year.
One thing to consider is if you are entitled to dividends, particularly in a private limited company (this does depend on your marginal income tax rate), you may wish to consider taking more dividends than usual after carefully considering the profitability of the company and also its cash-flow position.
Another option that may need to be considered is if you are thinking of selling an asset which may lead to a capital gain, you should check whether you have used your capital gains tax annual allowance in this year because, if you have not, then it might be worth considering selling the asset between now and 5 April 2022 to ensure that the annual allowance is used. Otherwise, if you don’t use it you lose it! It may be that if you have used your capital gains tax annual exemption allowance, you should consider pushing forward the gain into the new financial year. This may be particularly pertinent for property transactions as the important dates with these transactions is the date of exchange rather than completion and you could exchange on a property on or before 5 April 2022 but the completion could take place any time after 6 April 2022 and yet the transaction would be assumed to have taken place in the current financial year to 5 April 2022 for capital gains tax purposes.
You may also want to consider such transactions as making any contributions into a personal pension plan, again with a view (depending on your circumstances) to reduce your tax payments or it may even entitle you to a tax refund.
You should also consider making contributions into cash ISAs or stocks and shares ISAs, again before 5 April 2022 to ensure that all of your allowances are used before the close of the current financial year.
In the new financial year, National Insurance contributions are increasing for employees by 1.25% and this means that the main rate for employees is due to rise from 12% to 13.25% and in order to align people’s remuneration, whereby they are paid in the form of dividends as opposed to a salary, rates of dividend tax are also due to increase by 1.25% from 6 April 2022. Again, with reference to the above, this is where the tax planning needs to be considered carefully between now and the close of the financial year to 5 April 2022. Basic rate dividend tax will be charged at 8.75% instead of 7.5%. Higher rate taxpayers will be charged 33.75% instead of 32.5% and additional rate dividend will pay 39.35% instead of 38.1%.
If you have any queries relating to your tax planning please contact us on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.