As the personal tax year-end approaches on 5th April, self-employed individuals and company directors must take proactive steps to ensure they are tax-efficient and compliant. Careful planning can help minimise liabilities and maximise allowances, ultimately saving money and avoiding last-minute stress.
In this guide, we’ll break down the essential considerations for self-employed individuals and company directors before the tax year ends.
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Utilising Your Tax Allowances and Reliefs
Personal Allowance – Every UK taxpayer is entitled to a personal allowance, which for the 2024/25 tax year is £12,570. If your income exceeds £100,000, this allowance is gradually reduced, so tax planning becomes even more crucial.
Dividend Allowance – Company directors who take dividends should make full use of the tax-free dividend allowance, which is £500 for the 2024/25 tax year. Consider whether you can optimise dividend payments to remain within lower tax bands.
Marriage Allowance – If your spouse earns less than the personal allowance, transferring some of your unused allowance to them can reduce your overall tax bill.
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Reducing Your Taxable Income
Pension Contributions – Making contributions to a personal pension can reduce your taxable income and qualify for tax relief. Basic rate taxpayers receive 20% tax relief, while higher rate taxpayers can claim additional relief via their tax return.
Gift Aid Donations 
– Charitable donations made through Gift Aid can also reduce your taxable income, especially if you are a higher or additional rate taxpayer, as you can claim further tax relief.
Investing in Tax-Efficient Schemes – Schemes such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer tax relief opportunities. However, these investments carry risks, so seek professional advice before proceeding.
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Managing Business Expenses Effectively
Claiming Allowable Expenses – Ensure you have recorded all allowable business expenses, such as office costs, travel expenses, professional fees, and necessary equipment. Keeping accurate records throughout the year makes this process easier.
Annual Investment Allowance (AIA) – If you plan to invest in business assets, making purchases before the tax year-end could allow you to claim tax relief under the Annual Investment Allowance, reducing your taxable profits.
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Reviewing and Planning Your Taxable Income
Understanding Your Income Brackets
– Assessing your total income for the tax year can help you understand which tax brackets you fall into and allow you to make strategic decisions on when to take additional income.
Salary and Dividends – Company directors should review their salary and dividend mix to identify what impact it has on their income tax position.
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Reviewing Your Self-Assessment Tax Return
Self-employed individuals and directors should ensure they have all necessary documents and records ready for their self-assessment tax return. Filing early can help you understand your tax position and avoid penalties.
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Planning for National Insurance Contributions (NICs)
Self-employed individuals should check their NICs to ensure they qualify for the State Pension. Making voluntary Class 2 or Class 3 contributions may be beneficial for those with gaps in their records.
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Avoiding Last-Minute Tax Pitfalls
Meeting Deadlines – Missing the 5 April tax year-end could result in missed opportunities or the self-assessment deadline (31st January) can result in penalties. Keeping track of important dates ensures compliance and avoids unnecessary fines.
Keeping Good Records – Maintain accurate financial records to support your tax return, including invoices, receipts, and bank statements.
Summary
Planning for the personal tax year-end is crucial for self-employed individuals and company directors. By maximising allowances, reducing taxable income, managing expenses, and ensuring compliance, you can optimise your tax position and avoid last-minute stress.
Always seek advice from your accountant and independent financial advisor before making any financial decisions. Proactive tax planning today can lead to significant savings in the long run. If you’d like to speak to us about planning for your tax year-end get in touch today.
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