The tax year of 2020/2021 was not quite what any of us expected. You are bound to have faced some financial challenges during the year, and if you are a business owner, you will have tackled a lot of paperwork!
Whilst it may have been a tough time, it’s still important not to lose sight of any tax benefits you can enjoy.
So, as we are now in the final quarter of the tax year, we wanted to talk to you about making sure you are making the most of your tax allowances.
It’s always easier to plan in advance and make decisions and changes now, rather than wait until the beginning of April, and realise you have missed the boat. The old adage – forewarned is forearmed!
The maximum allowance for ISAs for this tax year is £20,000. The allowance can be spread across cash ISAs and investment ones, but must be invested by 5 April 2021, to be included in this tax year.
Remember, if you have put money into an ISA you can get it out if necessary, although you may incur financial penalties, so bear that in mind. But the big benefit is that ISAs are tax free, so a very efficient way of saving.
The rules around the limits for pension contributions, and the allowances, are rather more complex. Much of this is the difference between auto enrolment and employer pensions, versus private pension schemes.
The minimum contribution for employer schemes is 8% – 3% from your employer and 5% from you. But that is only the minimum and if you are able to save more, then we encourage you to do so.
The maximum contribution allowable for the current year is £40,000 which includes your Employer’s pension contribution, however, this may be reduced if you are an additional rate tax payer.
If you have already taken taxable income benefits from your pension plan you may be affected by the Money Purchase Annual Allowance (MPAA) and your allowable pension contribution is reduced to £4,000 per annum including your employer’s pension contribution, so please seek advice on your particular circumstances.
If you are a business owner or director, have you taken dividends from your business, if there are sufficient funds? Your personal tax free allowance is only £2,000 now, but is still worth having.
Dividends above that amount are taxed at 7.5% for basic rate tax payers, and 32.5% for higher rate payers.
Again, we encourage you to seek specific advice for your set up, but do make sure you get advice so you can make the most of any tax savings you can.
Self-Assessment Tax Returns
If you normally complete a self-assessment tax return, don’t forget the deadline for submitting this is 31 January 2021.
31 January is also the deadline for paying any final tax due for the year 2019/2020. If you usually pay on account, it is also the deadline for your first instalment for the year 2020/21, with the remainder owed by 31 July.
This is definitely a bit of a whistle stop tour of tax considerations. We cannot emphasise enough how important it is that you seek advice on your own personal situation, to ensure you are doing the right thing for you.
If you would like to discuss maximising your tax allowances in any more detail, please give us a call on 01344 875 310.