Tax Year End Planning

As we start the new year, there are still a few months left to consider some year-end tax planning.

With the change to basis periods, this will be more important for those who do not have a year end that is 31 March or 5 April, as you will need to decide to whether to change your yearend or not. Where your year end is not 31 March/5 April, you will have more than 12 months trading profits, so you will need to ensure tax planning is made before the end of the tax year.

While quite a lot of farming enterprises are seeing substantially lower profits in the 2023/24 tax year, tax planning can still reduce tax. Should repairs or capital profits be brought forward, to further reduce profits, or even create losses, this can then enable savings to be made on the high farming profits from the previous tax year.

Where income will remain high, you may wish to consider taking advantage of making payments into a pension scheme. If you have enough ‘relevant earnings’ you are now entitled to make a pension contribution of up to £60,000 per annum. Pension contributions extend the basic rate bands and can save income tax - They can also enable you to retain your child benefits.

Charitable donations will also extend the basic rate band, so if you are a higher rate taxpayer and have made donations, make sure you keep a record of these to reduce potential tax liabilities.

The changes in National Insurance will also lead to slight savings where expenses are brought forward. Where the business is a partnership or sole trader, by bringing expenses forward, this could give rise to a 1% saving! While there are benefits in bringing costs forward, you clearly need to have the cash in the first place and expenditure shouldn't be incurred just to get a tax saving! Remember, you still have to spend it to save it!

Where you trade through a limited company, you may wish to consider issuing dividends before the year end. The dividend allowance will decrease from £1,000 to £500 per annum. You may also wish to consider paying yourself interest if you have loaned your company money. Where you can pay interest, this could be tax free in your own hands and save the company tax up to 26.5%.

Looking at capital gains tax, there are a few things to be aware of. As mentioned earlier, you may have a capital loss to claim in the year. See article on Basic Payment Scheme. Where you have other assets to dispose of, and again, you should consider timing of sale to the year.

Where you have losses in year, these have to be offset against gains, therefore, meaning that annual exemptions maybe ‘wasted’. However, as of 6 April 2024 the annual exemption will decrease to £3,000, so you will also need to consider this aspect. If you have any assets to dispose of at a gain, please call us to discuss this further.

Most reliefs are on a ‘use it or lose it’ basis, so it is advisable to take action before 5 April to benefit from the savings. If any of the above is of interest, please do get in touch.