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Year-End Tax Planning: Keeping Your Money Safe And Secure

What do you do on December 31st?

Most of us file our taxes and hope for the best. But what if you can avoid filing altogether? 

Our team at Pearl Lemon Accountants is here to help. We can guide you through the process of year-end tax planning, whether you’re looking to reduce your tax burden or take advantage of special tax breaks that could save you money.

Contact us today to learn more!

Why Is Year-end Tax Planning Important For Individuals?

Year-end tax planning for individuals is crucial in the UK because it allows taxpayers to assess their financial situation and plan accordingly before the end of the tax year. Doing this allows them to take advantage of any available tax-saving opportunities and avoid unnecessary penalties or charges.

One of the primary reasons why year-end tax planning is important is that it helps individuals to minimise their taxable income. This can be achieved by claiming all eligible deductions and allowances, such as charitable donations, pension contributions, and business expenses.

By reducing taxable income, taxpayers can lower their overall tax liability and free up more money to invest or save for other financial goals.

Another reason year-end tax planning is essential in the UK is that it enables individuals to use any remaining ISA allowance before the deadline. Additionally, year-end tax planning is important for individuals because it helps them prepare for potential changes in taxation laws and policies.

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Pearl Lemon Accountants Advice

As the year winds down, it’s time to start thinking about your taxes, especially in the UK, where tax laws and regulations can be complex and overwhelming. 

At our company, we understand how important year-end tax planning is for individuals and businesses. We’ve put together this guide to help you navigate the process.

Capital Gains Tax

CGT is a tax that you pay on any profit you make when selling an asset such as property, shares or investments. Being aware of this tax is important as it can significantly impact your finances. With CGT rates varying depending on your income and other factors, it’s vital to understand how you can use allowances and deductions to minimise your tax bill.

One piece of advice our company recommends is using your annual CGT allowance wisely. In the UK, every individual has an annual allowance for CGT, which currently stands at £12,300 per year. By carefully planning when and how to sell assets throughout the year, you can utilise this allowance effectively to minimise your overall tax bill.

If you have multiple assets that have increased in value over time, it may be worth considering selling some before the year ends so they fall under this exemption limit.

Dividends

Dividends are an excellent way to earn passive income while benefiting from a lower tax rate. The UK government offers a dividend allowance allowing you to receive up to £2,000 in dividends without paying taxes.

If you have investments that pay dividends, consider timing their distribution towards the end of the year so that they fall into the next tax year’s allowance. Doing so will allow you to reduce your taxable income for this year and increase it for next year.

Pension savings

In the UK, individuals are allowed to contribute up to £40,000 per annum into their pension pot and receive tax relief on those contributions at their highest marginal rate. This means that if you are a higher-rate taxpayer and contribute £10,000 towards your pension before the end of the year, you will receive an additional £4,000 in tax relief from HM Revenue & Customs (HMRC). 

It’s also worth noting that if you haven’t used up your full annual allowance from previous years (up to three years ago), you may be able to carry this forward and use it towards additional contributions this year.

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ISA

The Individual Savings Account (ISA) is one of the UK’s most flexible and tax-efficient ways of saving. It offers savers an easy way to save money without paying income or capital gains taxes on their investments.

As you may already know, they allow you to save up to £20,000 per year without paying any tax on your savings or investment income. If you have some spare cash lying around, it makes sense to put it into an ISA account rather than leaving it in a regular bank account, where it will be subject to tax.

Two types of ISAs are available: cash ISAs and stocks and shares ISAs.

Cash ISAs are essentially savings accounts that allow you to earn interest tax-free, while Stocks and Shares ISAs allow you to invest in equities, bonds, property funds, or other financial products without paying any taxes on gains or income earned from them.

Itemised And Standard Deductions

As the year ends, it’s essential to start thinking about your tax planning strategy. One of the critical decisions you’ll need to make is whether to take the standard deduction or itemise your deductions. As a UK taxpayer, this choice can significantly impact how much you owe or receive refunds.

Firstly, let’s define these two options. The standard deduction is a fixed amount that taxpayers can claim without needing to provide any additional documentation or receipts. In the UK, this personal allowance applies to everyone who earns under a certain threshold.

On the other hand, itemised deductions allow taxpayers to claim specific expenses such as medical bills or charitable donations which are directly related to their income-generating activities.

The standard deduction is a flat amount that every taxpayer can claim without any additional paperwork or documentation. For the 2021/22 tax year, the UK’s standard deduction is £12,570 for most individuals.

However, if your income exceeds £100,000 per year, this amount will decrease gradually until it reaches zero at an income level of £125,140. So, opting for the latter may be more beneficial if your total itemised deductions are less than the standard deduction threshold.

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Conclusion

In conclusion, PL Accountants offers various services that can help with the year-end tax planning process. 

Our team of experienced professionals is well-versed in the intricacies of tax regulations and can provide expert guidance tailored to individual or business needs. Whether it’s identifying potential deductions and credits, optimising tax strategies, or ensuring compliance with the latest tax laws, PL Accountants is dedicated to maximising tax efficiency and minimising liabilities.

To know more about which services could fit your needs, contact us today and let’s start your year-end tax planning!

FAQs

There are a few things you can do to make the most of your retirement accounts during the year-end tax planning season:

  • Make sure you are taking advantage of all of the available deductions and credits available to you. 
  • Try to ensure that all of your income is reflected on your tax return to maximise your deductions and credits.
  • Consult with an accountant or financial advisor to help you figure out the best way to structure your taxes to take advantage of all available benefits.

There is no one-size-fits-all answer to this question, as the best approach for year-end tax planning may vary depending on your circumstances. However, it is generally preferable to defer income rather than accelerate deductions. This is because accelerating deductions can result in larger tax bills, while deferring income can reduce your overall tax liability.

Additionally, it is often advantageous to make deductions that are specific to your situation (such as charitable contributions or mortgage interest payments). Doing so can minimise the impact of any changes to these deductions in future years.

You will need to have your tax return, any amended returns and any additional information that the HMRC may request. In addition, you will need to keep records of all income, deductions and credits used to calculate your tax liability. Finally, you should make sure that you understand the UK tax system and keep up to date with changes to the legislation.

When you're thinking about starting a building company or your career as a builder, an innovative financial strategy is essential, rooted in accounting basics.

If you have an effective financial plan, you can reduce your administrative duties so they do not overshadow your customer relationships and ability to work independently. You can use accounting basics to reduce your company's costs, increase your profitability, and minimise your tax liability when you establish this strategy early in your company's lifecycle.

So if you want to build up your business's account, you need an accountant by your side.

We can be that accountant for you. Contact Pearl Lemon Accountants today!