The end of the tax year is getting nearer – is there any action you need to take?

If you are a sole trader or partnership with a 31st March or 5 April year end, now is perhaps a good time to look at your profits to see if there is any scope for some tax planning – if cashflow allows, perhaps you can make a lump sum payment into a pension to reduce your tax liability, or perhaps some capital expenditure such as new equipment for the business?

If you are a director of a limited company and you draw dividends from the company, you can choose to either delay drawing any more dividends until the start of the NEW tax year 6 April 2022, to delay the payment of tax on those dividends drawn.   However, do note that the dividend tax rate does increase by 1.25% from April 2022

  • basic rate taxpayers will pay 8.75% rather than 7.5% and
  • higher rate tax payers will pay 33.75% instead of 32.5% and
  • additional rate tax payers will pay 39.35% instead of 38.1%.

So delaying until after 6 April for that next dividend payment will delay the payment of tax by a year, BUT you will pay a higher level of tax on that delayed dividend.

Given these increases, in situations where sufficient company profits are available, it may be advisable to pay increased dividends before the new dividend tax takes effect. Provided the company has reserves available, dividends can be voted and credited to the director/shareholder loan account. Although the personal tax liability is based on this date of credit, the funds can be retained within the company until cash is available.

Please give us a ring if you wish to chat this through in more detail.   Our office number is 01670 528416.