The advent of a new tax year offers the ideal chance to formulate strategies aimed at reducing your tax bill for the forthcoming year. Whether you’re juggling multiple jobs, managing savings, or both, it’s crucial to understand your tax obligations and leverage tax-free allowances to augment your earnings. Additionally, it’s equally significant to understand the implications of your business setup on your personal affairs.
A focal point for the 2022-2023 tax year is your Personal Savings Allowance. This provision allows basic rate taxpayers to pay no tax on the first £1,000 of income from savings. For those within the higher rate band, the tax-free limit is £500. This allowance means you only start to pay tax on income from savings once you cross these thresholds. Consequently, if you derive income from savings, leveraging your savings allowance can drastically cut your tax liabilities.
Another pathway to enhancing your savings and reducing tax is through full utilization of your Individual Savings Account (ISA) allowance. You’re permitted to deposit up to £20,000 into an ISA account for the upcoming tax year, maintaining the same limit as the previous tax year. This allowance can be invested in a cash ISA, stocks and shares ISA, or spread across both. Maximizing your ISA allowance is an excellent method to boost your tax-free savings.
If your income is derived from various sources or different jobs, it’s paramount to understand your tax codes and ensure your Personal Allowance is fully utilized. If your combined earnings from more than one source fall below £12,750, your tax code should be split between the jobs. This approach could potentially decrease or even erase your tax obligations. However, if you’re earning less than £12,750 at one job and are paying the Basic Rate (20%) at your second job, then it’s critical to reevaluate your situation as you could be overpaying tax.
When setting up a business, it’s crucial to understand its impact on your personal affairs. If you opt to run your business as a sole trader, be aware that you will have unlimited liability for any debts the business incurs, with no legal distinction between you and the business. This essentially means that your personal assets are at risk in the event of business debt. On the other hand, shareholders are only liable for company debts up to the amount of share capital they own, thus preserving their personal assets from any company debts.
Operating your business as a sole trader may also necessitate you to enhance your skills to handle various aspects of the company, such as accounting, legal obligations, purchasing, and stock management. In such cases, it might be beneficial to consider employing experts to handle areas that divert your attention from running the business day-to-day. This could be due to a skill shortage, which is one reason why some entrepreneurs form partnerships to increase their available skill set, make cost-effective decisions, and get additional support in the administrative and financial sectors.
For landlords seeking to minimize their tax bill, it’s crucial to understand what qualifies as an expense. The HMRC doesn’t provide a comprehensive list on their site, necessitating a careful examination of potential expenses to ensure you’re not missing out on opportunities to reduce your tax liability.
Similarly, it’s crucial to regularly check your National Insurance Contributions (NICs) online. This ensures that your contributions or credits are up-to-date and that there are no gaps in your record, which could impact your State Pension’s qualifying years. If there are gaps, you may need to make voluntary contributions to fill these gaps. The deadline for such contributions is the 5th of April for each year, and usually, you can pay voluntary contributions for the past 6 years.
Understanding your tax obligations, managing your National Insurance Contributions, and optimizing your savings can be a daunting task. The intricacies of balancing business and personal affairs require expert insights and careful planning. Whether you’re a business owner, an individual with multiple sources of income, or a landlord looking to reduce your tax liability, a proactive approach to financial management can significantly impact your financial success.
At Yorkshire Accountancy, we’re committed to providing tailored solutions for all your accounting needs. With decades of combined experience in the accounting industry, our team of friendly professionals is ready to help you navigate the complexities of tax codes, personal allowances, and tax-free savings. We’re here to ensure you’re fully compliant with tax regulations, minimize your tax bills as much as possible, and offer strategic advice on saving money and boosting revenue.
Please call or email to arrange your FREE consultation for any of our services.
We're a modern, friendly and proactive accountancy service.