Strategic Financial Planning for the Upcoming Year End: What Are the Key Opportunities for Savings?
As we approach the conclusion of the financial year, ending 5th April 2024, there are various options to consider that may significantly impact your financial position.
This article discusses these options and how your financial position could be impacted. If you would like to discuss any of the options below, please do not hesitate to contact us.
1. Profit Forecasts for the Tax Year Ended 5th April 2024
Given the level of inflation and volatility in commodities prices, your profits may have been affected, ultimately affecting the income tax due for the year ending 5th April 2024.
You can understand your position better with profit forecasts. These benefit businesses by facilitating strategic planning, budgeting, resource allocation, risk management, and investor confidence. They serve as a benchmark for performance evaluation, aid in transparent communication with stakeholders, support loan approvals, influence market positioning, and contribute to operational efficiency. Overall, profit forecasts are essential for informed decision-making and long-term success.
2. Reduce Tax Payments on Account on 31st January 2024 and 31st July 2024
If your taxable profits for this year are anticipated to be lower than the previous years and you have incurred significant expenditures, repairs, and capital items. You could consider options to reduce your tax payments on accounts due in January 2024 and July 2024; these should be discussed with your accountant.
3. Personal Pension Contributions
You may wish to consider making an additional contribution to your pension scheme before 5th April 2024. Pension contributions may benefit in two ways:
• You can claim tax relief at source on pension contributions
• If you are a higher-rate taxpayer, you may receive further tax relief at your marginal rate of tax through your self-assessment return
4. Capital Allowances Rules
The Annual Investment Allowance (AIA) allows 100% tax relief against taxable trading profits of a business, expenditure on qualifying purchases with expenditure over the AIA receiving the appropriate writing down allowance (currently 18% or 6%), with any balance being carried forward to be relieved in future years.
The AIA has remained at £1 million and will continue to do so for the foreseeable future.
In addition to the AIA, as part of the Spring Budget in 2023, the Chancellor announced that “full expensing” would be introduced for expenditure incurred on new and unused qualifying assets from 1 April 2023 to 31 March 2026.
Expenditure incurred from 1 April 2023 to 31 March 2026, on qualifying purchases will be entitled to a 100% first year allowance, and you will receive a 100% deduction in respect of your expenditure against your total taxable profits.
Full expensing is available to companies subject to corporation tax only. Therefore, unincorporated businesses cannot claim full expensing, but such businesses are entitled to claim the AIA, which offers the same benefits as full expensing for the investments it covers (up to £1 million per year, as detailed above).
5. Incorporation
Dividend tax rates and corporation tax rates have recently increased. However, individuals should consider the implications of full or partial incorporation. Whilst this will not affect your tax liability for the year ending 5th April 2024, it may assist in mitigating future tax liabilities.
6. Capital Gains Tax (CGT) And Inheritance Tax (IHT)
Exploring strategies to leverage Capital Gains Tax (CGT) and other planning options, such as realising capital losses when disposing of chargeable assets through gifting or sale before the year-end, can enhance your overall financial position.
Additionally, it's beneficial to optimise Inheritance Tax (IHT) considerations by regularly assessing your position and ensuring that Wills and business structures can bring substantial financial benefits.
7. Change of Basis Periods
For Sole Traders, Partnerships and Limited Liability Partnerships (LLP), basis period rules are changing, which may impact your tax position for this tax year. There are some tax planning options to consider with your accountant
