It's spring in London, British Summer Time has arrived and we are hoping for a warm summer. This may not naturally make you think about the end of the current 2013/14 tax year, but a few of those ISA savings adverts will soon remind you.
So if you are a business owner or a contractor with a limited company, what should you be doing before the tax year ends on 5 April 2014?
Here is my very short list of 3 Things you should be doing before 5 April 2014.
1. Pay yourself a Salary
A salary can be a good tax efficient way to extract some income from your company. For the 2013/14 tax year, you can pay yourself a salary of £9,440 with no income tax becoming due. However, you and the company will be liable for National Insurance.
The most tax efficient salary to extract is typically £7,696 as this avoids Income Tax, Employees National Insurance and Employers National Insurance.
2. Remember to extract your Dividend
Every year you can extract a dividend up to the value of your personal allowance and basic rate band without paying any further amounts in Income Tax or National Insurance.
If you haven't already, you should extract the remainder of your profits via a dividend. For startups or new small businesses, you may not have enough cash to pay a dividend (even though you may have made a profit).
To not waste the basic rate band, you can pay the dividend, but then loan the cash back to the company. When times are better, you can repay the loan to yourself with no tax becoming due.
For 2013/14, if you have already paid a salary of £7,696, you can extract a further £30,378 in dividends and pay nothing further in Income Tax.
3. Make any pension contributions
If you are making payments into a personal pension scheme. The payment will be deductible in the 2013/14 tax year, only if the payment is made before 5 April 2014.
If your income has gone above the basic rate band, it is a very efficient way to save for your retirement. For a higher rate tax payer. Every £100 paid into a personal pension scheme will turn into £167 instantly. Where else can you get that type of return?
I hope you have found the above useful. If you have any further questions, you can arrange a free consultation by emailing email@example.com
As always, advice on this blog is for information only and may not be suitable in your personal circumstance. You should seek professional tax advice if you are unsure.
About the author
Kabir Ali CTA ATT is the founding Director at KBR Accountancy.