Don't overlook tax changes or lose tax allowances

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The end of the tax year can be a stressful time. For business owners and individuals, alike, effective tax and financial planning shouldn’t be a mad March rush. With a number of key allowances and thresholds currently frozen until at least April 5, 2026, an increasing number of individuals will find themselves paying larger tax liabilities in 2023/24 as a result of fiscal drag. Aiming to get ahead next year will ensure you don’t overlook tax changes or lose valuable tax allowances that can help reduce your tax bill.

Unincorporated businesses and basis period reform

For business owners, one of the things you will need to consider in planning up to the tax year end in 2024 is the major reform of the income tax basis period. The ‘basis period’ is ordinarily the 12-month period in which an individual’s profits or losses are calculated, which will normally be the accounts year-end. Therefore, if the year-end is September 30, you will be taxed on the business profits for the 12 months to September 30. However, from 2023/24 all businesses will need to pay tax on profits to the end of the tax year (April 5, 2024). Therefore, if an individual’s basis period ends on September 30, 2023, you will be taxed on profits arising in the 12 months to September 30, 2023, plus the additional profits from October 1, 2023, to April 5, 2024. As a result, an individual will be taxed on 18 months of profits in 2023/24 instead of only 12 months. If, for example, your taxable business profits are normally £40,000 you will see these increase to £60,000.

Changes to Corporation Tax for companies 

At present, all companies pay 19% Corporation Tax on all their profits. This is due to change in April, when the rate of tax will depend on the level of profit and whether you own any other companies. For a company with no other associated companies, the first £50,000 of profit will be taxed at 19%. The next £200,000 of profit is taxed at a marginal rate of 26.5% and any balance over £250,000 is taxed at 25%.

Effective financial planning

For individuals with significant levels of savings and investments, the end of the tax year might mean you think about utilising all your available allowances, for example, pension allowances, inheritance tax allowances, capital gains tax and dividends allowances, as well as ISA allowances. For example, for some people, depending on circumstance, by making an increased pension contribution, they could bring their income back down to a lower threshold, to avoid paying a higher rate of income tax. Planning ahead ensures you use up an allowance that may otherwise be lost after the end of the tax year. Armstrong Watson has both financial planning and tax consultancy expertise all under one roof. This allows it to provide both a bespoke and joined-up service for its clients and when their businesses where specific needs arise. Both financial and tax planning is subject to individual circumstances and all the options and allowances mentioned here are not suitable for everyone. Furthermore, some of the areas, such as making pension contributions, are provided by AW’s financial planning consultants, whereas others, such as advice on inheritance tax, could be provided by a mixture of the two services.