Saving Tax: Making the Most of Your Allowances Before the End of the Tax Year

With the cost of living set to sky rocket over the next few months, here at PaperRocket, we are dedicating a few of our weekly blogs to looking at ways to ensure that you are not missing out on any allowances that you may be entitled to, that could save you money in these testing times.

In this week’s blog, with the end of the tax year rapidly approaching, we are going to take a look at the various 2021/22 allowances we are entitled to, to help you check that you aren’t missing out on utilising any of them before they disappear with 21/22.

Dividend allowance

In the 21/22 tax year, there is a tax free dividend allowance of £2,000. This is irrespective of any other personal income that you may have in the tax year, so if you haven’t already withdrawn your tax free dividends, and if your company has the profit available, now is the time to do so.

Any dividends over the tax free £2,000 (but still within the basic rate tax band) will be taxed at 7.5%, so it is also advisable that, company profit dependant, you also take advantage of this low rate of tax by withdrawing dividends within the basic rate band, especially as, from 6th April 2022, this tax will increase from 7.5% to 8.75% to accommodate the Health and Social Care Levy.

Capital Gains Allowance

Any investment or funds including gains from the sale of properties that aren’t your main residence are subject to this tax on disposal, and each year you receive a tax free allowance for such income. For 21/22 this is £12,300 which can be used on gains before any tax is paid. The tax payable can be as high as 28% of the gain, and you are unable to carry over any allowance, so it is important that you plan the disposal of any assets taking this into account.

ISA allowance

If you have a large amount of savings attracting a large amount of interest (over £1,000 for basic rate tax payers, or over £500 for higher rate tax payers), then it may be worth investing in a ISA.

Since the introduction of the Personal Savings Allowance in 2016, having an ISA, for most, is no longer the most tax efficient way to save as, provided your interest does not exceed the above amounts for the year, no tax will be payable anymore. However, if you do receive interest in excess of these amounts, then it may still be worth investing and making use of your allowance for the year, which for 21/22 is £20,000. This allowance can be split between the various types of ISAs, cash ISAs, stocks and shares ISAs, Lifetime ISAs etc.

The Lifetime ISA (LISA) allows you to save towards a first home, or your retirement, with the government adding a 25% bonus on top of what you save. This has its own separate rule as to how much you can pay in per year which is £4,000.

Pension allowance

Each year, each UK tax payer an allowance of up to £40,000 (or possibly more if in the last 3 years you didn’t fully utilise your annual allowance) that can be invested into a pension.

If you pay into a pension personally, you will receive personal tax relief on this amount when you come to complete your self assessment return for the year.

If you pay into a pension directly from your company, your company will receive corporation tax relief on the amount paid as a tax deductible business expense.

PaperRocket Accounting provide accounting and tax services to professional contractors, freelancers, and small businesses working in the UK.

We offer our clients a flexible choice of fixed fee monthly packages which cover all of their accounting and tax needs (so no hidden costs or surprise bills!). All of our accounting packages include a monthly subscription for a cloud accounting software subscription provided by the awarding winning FreeAgent.

Each of our clients is given their own dedicated qualified accountant with unlimited access in person, telephone, or by email.

We pride ourselves on our client satisfaction and customer service and were awarded ‘Best Contractor Accountancy’ firm 2020 in The Contracting Awards and ‘Welwyn Hatfield Business of the Year 2019’ in the SME Hertfordshire awards.

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