Just like the first day of January marks a fresh beginning for personal goals and resolutions, the start of the new tax year offers a similar opportunity for your finances.
Here are three key things to keep in mind as we embark on the journey of the new tax year:
Tax Allowances Reset: Think of it as hitting the reset button on your tax obligations. Every year, on the stroke of midnight on April 6th, tax allowances are refreshed, providing you with a clean slate. Some popular tax allowances are:
Personal allowance refers to the amount of money that you can earn from your employment before you start paying income tax. Most people are eligible for this allowance, but not all. The current annual tax year personal allowance is £12,570.00.
Dividend allowance – Dividends are money you receive as a company shareholder or as part of your pay package as a company director. Dividend allowance is the amount you can receive in dividends before you are required to pay tax. The allowance used to be £1,000, but as of this new tax year, it has been lowered to £500.
If you are a company director, I suggest you speak to your payroll specialist to determine if taking dividends as part of your pay package is still the best option for you.
Personal savings allowance is the amount you can earn in interest from a savings account before you become liable to HMRC for tax. If you are a basic rate taxpayer (earning less than £37,701 during the tax year), you can earn up to £1,000 without paying tax. If you are a higher-rate taxpayer (earning more than £37,701 during the tax year), you can earn up to £500 without paying tax.
ISA Contribution Limits Reset: Just as your tax allowances reset, so do the limits on contributions to Individual Savings Accounts (ISAs). Monies held within an ISA do not incur tax, making them a tax-efficient way to save and invest. The ISA limit remains at £20,000 per tax year. £4,000 of that amount can be put into a Lifetime ISA aka LISA.
Income Resets to Zero: With the start of the new tax year, your income for tax purposes resets to zero. This means you can plan your income strategically throughout the year to minimise your tax liabilities. By understanding the tax brackets and thresholds, you can ensure that you make the most of your earnings and pay the right amount of tax. The tax brackets for this tax year are:
The first £12,570 of income incurs no tax
£12,571 to £37,700 incurs income tax of 20%
£37,701 to £125,140 incurs income tax of 40%
Income over £125,141 incurs income tax of 45%
Please be aware that the tax brackets mentioned are incremental, meaning the tax you are liable for increases as your earnings move into higher income brackets. As your income exceeds the thresholds outlined above, you will be subject to higher tax rates accordingly.
As you embrace the new tax year, consider setting financial resolutions and goals to guide your business journey. Whether it's saving for a major business purchase or simply managing your business finances more effectively, the new tax year provides the perfect opportunity to take action and make changes.
Remember, while this blog provides valuable insights, it's essential to seek personalised tax advice from a qualified professional (like me!) to address your specific situation.
Here's to a prosperous New Tax Year filled with financial business success and empowerment!
Thank you for reading my blog post. As your down-to-earth bookkeeper, my goal is to ensure your financial recipe is just right for the unique flavour of your business. I virtually support female-led sole proprietors, micro-corporations and partnership businesses in England and Wales. My goal is for my clients to gain confidence in their financial matters while optimising profits. If you are interested in working with me, you can contact me here.