We are approaching the end of the tax year 2022/23 and it would be helpful at this point to summarise the top tax-saving tips and related action points solopreneurs need to consider before 5th April 2023 as well as to prepare to implement best tax-saving practices for the next tax year 2023/24.
So, before you get to the end of the month, make sure you do the following:
- If your financial situation permits, top up your ISA account to £20,000 a year to get the full benefit.
- If you are a company owner, check how much of the director’s salary and dividends you paid yourself up until now and make the final adjustment in order to optimise your tax bill due in January 2024. Remember that the optimal salary for a solo director with no other employees is £9,100 per year and, if you have more than one director or have employees, the best salary is £12,570. With regard to dividends, you pay 0% tax on the first £2,000 and then 8.75% tax on dividends up to the basic rate threshold of £50,270. Dividends exceeding this threshold are taxed at 33.75%.
- Bear in mind that, if you feel you need to take more dividends now but your total annual income is already at or over the threshold, wait until 6 April 2023 to take this new dividend so you would be taxed in the following year.
- If you are self-employed or if your company’s year-end is 31 March and you have been considering buying some new business equipment – now is the time!
- If during the year you have taken a tax-free loan from your company, try to bring the loaned amount to just under £10,000 by repaying part of it. This is to avoid creating a taxable benefit-in-kind, which would attract personal tax liability and also the company would be liable for Class 1A NI on the benefit.
- Remember that if you are trading as self-employed and incurred losses in the tax year, you can claim to set off those losses against your other taxable income and get either a reduction of your overall tax bill or a tax refund.
Now, let’s move on to prepare for what’s ahead, in 2023/24:
- The optimal salary for a sole director remains £9,100. No tax or National Insurance will be payable to HMRC on this amount.
- If your company has more than one director or has other employees, then the optimal salary for each director would be £12,570. This is above the Secondary Threshold for NI, therefore the Employer NI will be due. However, practically, the company won’t need to pay this because of the Employment Allowance available for small businesses with a NI bill under £5,000 a year.
- The tax-free Dividend Allowance is reduced from £2,000 to £1,000 in 2023/24. It’s shame but there is nothing we can do about it. This will bump up your personal tax bill by £87.50.
- ‘Trivial benefit’ thresholds remain the same: £50 per purchase and £300 in total per employee (including directors) per year. This is tax-deductible for the business and a tax-free perk for the receiver.
- The tax-free limit to pay for an annual function like a Christmas party also remains the same: £150 per person. Another £150 can cover the director’s ‘plus one’. The function must be for all company employees, not only directors unless there are no other employees! If the payment for the event exceeds the limit of £150 by any amount, the whole amount will be taxable. So, stay within the lines. You can read more details here.
- If you have available funds in the company and are considering buying a company car in 2023/24, purchasing or leasing a fully electric vehicle would be the most tax-efficient option. A taxable ‘benefit-in-kind’ for a director driving a fully electric car remains at 2% until April 2025 and then increases by 1% each year after that until 2028. My favourite enterprise has a good article about this topic here.
- From April 2023, the Annual Exemption Allowance for capital gain tax will be reduced from £12,300 (2022/23) to £6,000 (2023/24), and then reduced further to £3,000 from April 2024 (2024/25). This is the tax free amount a person can receive annually where a capital gain arises before they have to pay capital gains tax. Therefore, if you are considering selling or gifting an asset soon, think about the timing of your disposal carefully and if required, seek professional advice.
If you would like more information on any of these tax-saving tips and reliefs, feel free to get in touch here.