If you’re still recovering from submitting your tax return for the previous financial year and are dreading the prospect of starting the process again for 2017/18, you are not alone. It may therefore be even further down your priority list to start planning for the current tax year, 2018/19. To make the most of all your tax benefits though, it really is essential to start now.
Good tax planning is a great way to save money and reduce your tax bill. Trying to make the most of savings and tax breaks last-minute can be stressful and more time consuming than managing this over the course of the year. It might also mean you miss out on maximising benefits from certain tax saving opportunities.
So, our advice is to start your tax planning for the 2018/19 financial year now. Not only can you reduce the stress of trying to reduce your tax bill against inevitable deadlines. Doing it properly now means that your tax benefits can also accumulate throughout the year.
Early tax planning can mean better benefits
Changing accounting dates. There may be some instances where you would benefit from changing your statutory accounting dates. For example, to take into account big costs, to benefit from overlap relief to manage tax on your profits, or when incorporating.
Consider becoming a limited company. If it is looking like your business as a sole trader is taking off and income or profits are reaching the higher tax brackets, you may want to consider incorporating. The business structure might be more tax efficient as you can balance income from salary and dividends. Planning when to make this change early means you can the most of the benefits.
Co-ordinate your capital allowances. If you think you will have some big purchases to make to help grow your business, you can gain tax relief on these. If it looks like your income and profit will be high for this year, you should consider making these purchases before the year end to gain the biggest benefit, particularly if you will be pushed into a higher tax bracket.
Invest in your pension. You do not have to pay tax on your pension contributions. Making payments throughout the year ensures you make the most of your allowance and enables you to reap the benefits sooner, and build up your pension pot quicker. It also helps you to remain in the basic rate tax bracket for longer, every pound you invest in your pension, extends the threshold before you move into higher rate tax, making it a very worthwhile tax planning opportunity.
Don’t forget to carry forward benefits. When you rush your tax return at the end of the year, you often overlook some of your allowances. Luckily, some of these can be carried forward to the next year. For example, your pension benefits. In this case you will have to use your current year allowance before using up your previous year’s.
Manage your investments. There are a number of good ways to invest your money that help you save on your tax bill. ISAs, for example tend to have a better interest rate than standard savings accounts and give you tax free savings up to your annual allowance (currently £20,000).
In addition, you could take advantage of business investment opportunities. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government initiatives that can provide excellent tax savings when investing in smaller businesses in their early years. These can be risky so this must be balanced with the potential return.
Put your tax planning in safe hands
These are just a few of the ways that you can benefit from early tax planning. Remember that it is often beneficial to take advantage of allowances early in the year as rewards, such as interest, accumulates.
Understanding your own business also means that you can make changes and take opportunities at the right time to get the best benefit for you.
To help you work out the best business structure for you and how to make the most of your allowances, contact us.
AJN will help you to properly plan based on your personal circumstances so you can make the right decisions, saving you time, stress and money.
AJN Accountants are specialists in helping contractors, freelancers and small businesses to save tax and time.
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T: 020 3866 8951
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