Other considerations ● This is also a good time to review your choice of company car. Switching to an electric or hybrid model could mean significant tax savings for you and tax and NICs savings for your company, as well as reducing other costs. ● If you hold share options, you should consider your tax position both before and after the tax year end when deciding whether to exercise them now or in a future tax year. ● Directors who are shareholders may be able to reduce NICs by taking dividends rather than salary. Dividends With the tax-free dividend allowance decreasing by 50% on 6 April 2024 from £1,000 to £500, you may need to take action. You should consider paying a dividend before then if you operate your business as a limited company and have not already made full use of the higher allowance. Bringing forward a dividend could also help if you expect your marginal tax rate to be higher next tax year than it is in 2023/24. You could even give shares to your spouse or civil partner before paying a dividend, provided you genuinely transfer ownership. It is advisable to leave as much time as possible between the gift and the subsequent dividend payment. Self-employed The director/employee tax planning approach around income levels applies equally if you are self-employed. There are now fewer tax advantages to running a business as a limited company than was previously the case and these diminished further with the increase in corporation tax from 1 April 2023 and changes to NICs announced in the Autumn Statement 2023. SPECIAL REPORT | December 2023 | Year End Financial Planning 4 Partner’s salary If you are a business owner, you could pay an otherwise nonearning partner a salary. For sole traders, this can reduce the amount of profit charged to tax at the higher or additional (top) rates. You normally must keep PAYE records even if the salary is below the national insurance contributions (NICs) lower earnings limit, which is £533 a month in 2023/24. If, however, the salary is between £533 and £1,048 a month, your partner will avoid paying any NICs, but will still qualify for state benefits. Employer’s NICs would be due on salary above £758 a month. You can also pay an employer’s contribution to your partner’s personal pension plan. There are no taxes or NICs on the payment itself, and it should be an allowable business expense. However, the total value of your partner’s salary, benefits and pension contributions must be justifiable in relation to the work performed. Alternatively, you could plan ahead to share the profits of your business by operating as a partnership in 2024/25. You both need to be genuinely involved as business partners, though not necessarily equally. DIRECTORS, EMPLOYEES AND THE SELF-EMPLOYED Bringing income forward could be a sensible approach if you think you could end up paying more tax at higher rates in 2024/25. ● If your income is less than £125,140 this year but is expected to exceed £125,140 next year, you could bring forward income into 2023/24 to avoid the additional (top) rate applying next year, and to make the most of the dividend allowance before it reduces further in 2024/25. ● If your income will fall below £125,140 in 2024/25, you might be able to avoid the additional (top) rate of income tax this year by delaying a bonus until after 5 April 2024. This same strategy can keep your income below the level at which you would lose your personal allowance. Alternatively, you might be able to sacrifice salary to bring your income below any of the thresholds in exchange for a tax-free employer’s pension contribution. Planning point Using all of the opportunities above, you will gain the maximum income tax saving if plans are put in place before 6 April 2024 so that you benefit for the entire 2024/25 tax year. Credit: AlisaRut\shutterstock.com
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