Disclaimer: The information below is based on the policies and guides up to the 08/03/2023 and may be outdated. It is not financial advise. Please speak to a professional advisor for individual circumstances.
The tax year end for 2022-23 is fast approaching and with significant freezes or reductions for many tax bands, allowances and exemptions now is an important time for Self Employed and Directors to check they are making use of of all the reliefs available to them for the year 22-23.
ISAs
If you have savings, you currently have an available annual allowance of £20,000 to utilise in tax free interest "cash" or "stocks and shares" savings accounts. There are also LISAs available.
LISAs
Lifetime ISAs (LISAs) are available for those aged from 18 up to 40 years-old to apply for (with a maximum of £4000 in contribution allowed per year, which count towards the £20,000 ISA allowance). LISAs are backed by the government the government will add an extra 25% bonus up to a maximum of £1000 per year until you are 40 years old.
You can withdraw money from your ISA if you’re:
- buying your first home
- aged 60 or over
- terminally ill, with less than 12 months to live
You will have to pay a fee of 25% on the value of the withdrawal amount of your cash or assets for reasons other than the above (also known as making an unauthorised withdrawal). This recovers the government bonus you received on your original savings.
Pensions
You have an annual pension contribution allowance for tax relief of up to £40,000 or 100% of your gross yearly earnings, whichever is the lower. You may also be able to contribute more to your pension for the year, if you did not use up your annual allowance amount for any of the preceding three years.
If your pension contributions are taken after tax and you are on a higher rate tax band, you get the first 20% tax relief back automatically and then need to claim the rest back from HMRC through your Self Assessment tax return.
You’ll have a reduced (‘tapered’) annual allowance in the current tax year if both:
- your ‘threshold income’ is over £200,000
- your ‘adjusted income’ is over £240,000
For every £2 your adjusted income goes over £240,000, your annual pension allowance for the current tax year reduces by £1. The minimum reduced annual pension allowance you can have in the current tax year is £4,000.
If you do not pay any income tax and are on a low income, your first £2,880 that you pay as a pension contribution will automatically be given a 20% tax relief, if your pension provider claims "relief at source" for you.
Please remember any income in excess of £100,000 begins to gradually reduce your personal income allowance levels (£1 reduction in allowance for every £2 increase in salary), so you effectively incur a tax of 60% on that income.
As well as above, it was announced in November 2022 that the new starting level for additional rate tax (45%) at £125,140, effective 6 April 2023.
Utilising your pension contribution allowance can potentially reduce your adjusted net income and provide tax relief for the above scenarios.
Other Considerations
If you have assets that increased in value, you should consider disposing them in this current tax year as the £12,300 Capital Gains Tax annual exemption (£6,150 for Trusts) will reduce to £6,000 (£3,000 for Trusts) on 6th April 2023.
If you have capital losses, you should consider whether to delay disposal of them so they can help offset capital gains efficiently in the future.
The tax-free dividend allowance will also be reducing, while corporation tax is increasing, so directors and shareholders should review to see if the way they are currently extract income from the company is still tax efficient.
With the corporation tax rate increasing from 6th April 2023, questions on whether the company should pay an employee pension contribution or have it paid via Salary Sacrifice needs to be considered for the NIC savings which can be passed on.
