With only weeks to go until the end of the tax year, it’s time to check that you have everything ready and are making the most of your tax reliefs and allowances.
Prepare for your Payroll year end
- Get your P6-s ready.
- Check when your payroll ends. Does your payroll end on week 52, or do you have a week 53 to take account of?
- Check for and process leavers.
- Send your final FPS of the year and, if required, EPS.
- Use your payroll software to process and submit your year end. Make sure your processing date is set for the 5th April.
- Produce employee P60s and ensure they receive them by the end of May.
- Check that your Payroll software is MTD ready for 2019/20.
Maximise pension savings tax relief.
If you are an additional or higher rate taxpayer, you can contribute up to 60% (when personal allowance is reinstated) to maximise tax relief. You can also carry forward to make contributions in excess of the current allowance.
You can also maximise tax relief, at higher rates for you and your partner, before paying contributions that will only secure basic rate relief. You can top-up pensions for your partner, up to the limit of your partners earnings – and they can get tax relief on top.
High earners. Make a pension contribution before the 5th April.
Higher earners face a reduction in the standard £40,000 Annual Allowance this year as the Allowance is reduced by £1 for every £2 of income over £150,000 in a tax year. Until the allowance drops to £10,000. But it’s possible to reinstate the full £40,000 allowance by making use of carry forward. A large personal contribution using allowances from the previous 3 tax years can bring income below £110,000 and restore the £40,00 allowance for 2018/19.
Boost pension savings now before triggering the Money Purchase Annual Allowance.
Triggering the Money Purchase Annual Allowance (MPAA) will restrict your ability to continue funding into your DC pension to just £4,000 a year, with no carry forward. If you have other ways of meeting income requirements you can retain your full £40,000 allowance if you only take your tax-free cash.
Sacrifice bonus for employer pension contributions
By exchanging a bonus for an employer pension contribution both the employee and employer benefit from reduced NI contributions.
Take business profits as pension contributions
As a business owner, taking profits as pension contributions could be the most efficient way to pay themselves whilst cutting their overall tax bill. Not only that, but if the director is over 55, they now have full unrestricted access to pension savings. National Insurance contributions do not apply to dividends or pension contributions and the savings could be applied to the director’s pension fund. Bear in mind that employer contributions get relief at 19% and that this rate is set to drop to 17% in 2020. So, if your profits and cash allow, it’s worth putting the maximum you can afford away now.
Recover personal allowances
Pension contributions reduce taxable income and can have surprising benefits for higher earners by reducing their tax bills. For example, a pension contribution that reduces income to below £100,000 will restore the full tax free personal allowance, giving an effective tax relief on contributions to as much as 60%.
Another way to supplement income tax-efficiently is to withdraw funds from an investment portfolio and keep the gains within your annual exemption. Even if the cash isn’t needed, taking profits within the £11,700 CGT allowance and re-investing in a similar fund or through a pension or ISA.
Any unused allowances could be used against savings income. If you have no other income, gains of up to £17,850 can be taken tax free.
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