There must be several hundred separate deadlines for UK tax purposes, but the most common is the end of the tax year. In the UK this is 5 April.
Historically, a deadline was a line drawn around a prison. If inmates crossed it, they were shot. This phrase has been extended and is generally used to describe an event, usually a date, by which a certain action needs to be taken.
Two weeks ago, we posted an article that set out the reasons for the odd date, 5 April. This week, we want to underline the importance of considering your planning options for the current tax year. Once the 5 April 2019 passes, so do 99% of your planning options for 2018-19.
Why is planning necessary?
The best way to answer this question is to set out two examples.
- Is the income of the highest earner in your family approaching or exceeding £50,000 for 2018-19? If so, any child benefit claimed in that year may have to be repaid.
- Is your income approaching or exceeding £100,000 for 2018-19? If so, you may start to lose your income tax personal allowance. This loss of your basic tax allowance, £11,850 for 2018-19, means that any income earned between £100,000 and £123,700 is taxed at an effective rate of 60%, not 40%.
What can be done to reduce tax liabilities?
The key to tax planning is to estimate your tax position in a tax year before the end of the tax year and act as appropriate.
Once the deadline, 5 April, passes, most of your planning options disappear. Actions you could take before 5 April 2019 include:
- If you are in business, what options are there to reduce business tax: bringing forward capital expenditure for example.
- To reduce your income tax liability, you could:
- review your pension options,
- reduce the tax charge on benefits in kind, for example, repay your employer for any private fuel provide for your company car,
- consider deferring bonuses until after 5 April 2019 if your income for the next year looks to be lower.
- Make sure you utilise any tax allowances available to you in 2018-19 as many cannot be carried forward to the next tax year. For example:
- the £2,000, zero rated dividend allowance,
- your personal income tax allowance,
- your £11,700 capital gains tax exempt amount,
- and various tax-free gifts that can be made.
What should I do next?
Every taxpayer has different issues that need to be considered and there is no universal agenda that should be followed. In the first instance, call us so we can help you consider your options.
Very often, any investment in our time will be more than covered by reductions in your tax and/or National Insurance liabilities.
The clock is ticking. Once the 5 April 2019 passes, so do the majority of your options to reduce tax for that year.