Everything You Need to Know for Year-End

As the UK’s largest contractor accountant, we’re focused on providing you with the best support possible whenever you need it. That’s why we’ve pulled together the key points you need to be aware of to make sure you’re prepared for tax year-end.

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Use your personal allowance

The standard personal allowance is £12,570 and this will remain fixed until April 2026.

If you are taking a salary below the personal tax allowance and have no other income, it may be wise to utilise the remainder of this by declaring dividends from the company’s available profits, as no element of an unused personal allowance can be carried forward. This will need to be actioned before 5th April 2023.

If you have earned over £100k in this tax year, then you will lose some of your tax-free allowance. For every £2 earned over the £100k you lose £1 of your tax-free allowance, and in addition will likely be asked by the HMRC to complete a self-assessment tax return, even if you are fully employed through the year.

Contribute to a pension

You can pay up to £40,000 into your pension pot each year without incurring any tax implications, and this can be a combination of company and personal contributions. Any company contributions will receive corporation tax relief, and personal ones will receive personal tax relief.

Your personal contributions are capped at the lower of any unused balance of the £40,000 limit and 100% of your relevant earnings (excluding dividends) for the year. Personal pension contributions mean that more of your income is taxable at a lower rate, and so you should pay less tax. If you want to make the most of the tax relief for your personal pensions, you need to make sure the contributions are with your pension provider by 5th April 2023 - so this is a great time to get in contact with your pension provider to discuss your options.

You can carry forward any unused pension allowances for the past three years, assuming you have had a pension in place for this period. If you haven’t done so already, you may be able to benefit from additional tax relief by utilising these unused allowances.

Taper relief starts to apply to the annual pension contributions limit of £40,000 when income (inclusive of pension contributions) reaches £200,000.

Looking for more on pensions this financial year? Speak to our partners at CMME for a free consultation on pension planning. Alternatively, if you are an Caroola client already, please speak with your accountant who will be able to assist.

Declare dividends

Dividends can only be taken out of your company’s post-tax profit, with personal tax being paid by the shareholder currently receiving them as follows for the 22/23 year:

0% on any dividends that are covered by the personal allowance
0% on the first £2,000 of dividends declared in excess of the personal allowance (this is covered by the dividend allowance)
8.75% Dividends in the basic rate band
33.75% Dividends in the higher rate band
39.35% Dividends at the additional rate (total income in excess of £150,000)

If you have not declared any dividends this tax year, and have the profit in the company to do so, you may want to consider utilising any remaining tax-free allowances that you may have.

Review your shareholding

In certain circumstances it can be tax efficient to gift some shares to your spouse or civil partner, assuming that you meet the criteria. If you would like to discuss this further please let your accountant know.

Please note that, should you gift shares to your spouse, they will then become their property. Any dividends declared after the transfer would then be split per the new shareholding and will need to be paid to them; tax will be calculated based on the dividends that each shareholder receives and will be payable by the shareholder.

The rate that they will be taxed will be dependent on the overall income for each shareholder. So having received the same amount of dividends, one shareholder could pay a higher rate of tax and another basic rate, so careful planning is needed here.

What else should I be aware of?

Payments on account

If your untaxed liability is greater than £1,000 for the 2022/23 year, HMRC will require you to make payments on account (in advance) towards the 2023/24 liability. These payments on account are 100% of your untaxed liability for 2022/23 (as HMRC will assume you earn the same level of income as in the prior year). The payments will be due in two equal instalments with the first payment on account (POA) being due by 31st January 2024 and the second POA due 31st July 2024.

If you know you won’t earn so much the following year, you can apply to reduce your payments on account, and your tax adviser/accountant can help with this.

Student loan

Remember, If you have a student loan, dividends count towards your income, and hence if you have breached the repayment threshold (£20,195 for Plan 1 or £27,295 for Plan 2) there will be a student loan repayment required at 9% of any income received in excess of the threshold. Note that this is just for England, other parts of the UK will vary.

Residential property disposals

Since 6th April 2020, any disposal of residential property which generates a taxable gain must be reported to HMRC within 60 days. A sale of your main residence will not generate a taxable gain, however, if you sell a second home or investment property let you will need to inform HMRC.

Child Benefit

Some people may have to pay some of the child benefit received during the tax year, if they go above the £50K. This can sometimes be complex, so if you are feeling confused at all always speak to an accountant.

So, what to do now

As you can see, there are many things to consider before the end of the tax year, and so why not take advantage of the time left before the tax year-end to speak to an accountant or tax adviser who can provide the most appropriate advice for your individual circumstances.