Your small business tax year-end checklist

Your small business tax year-end checklist

By Published On: 17 March 2021Categories: Tax

Ensure you make the most of your tax-saving opportunities before April 5th.

The end of this tax year is almost upon us, so now is the time to act and ensure you’ve done everything you can to reduce your tax bill. In this blog we look at the top ten ideas to consider to ensure your money work as hard as possible for you.

  1. Make use of your £20,000 ISA allowance.
  2. Ensure your partner or spouse has also maximised their ISA allowance, to ensure you’ve utilised the combined £40,000 allowance.
  3. Make up to £9,000 of contributions per child into their Junior ISA.
  4. If you’re wishing to maximise your pension savings, then you should consider fully utilising your annual allowance. Any unused allowance can be carried forward, but only for the previous three years. If you’ve already utilised your 2020/21 allowance, it’s worth checking over the previous three years to see if there’s any outstanding allowance.
  5. If you’re a high income earner, then there are steps you can take to reduce your taxable income by making pension contributions or charitable donations. By doing so it can help:

– Bring your income to below the additional rate tax band, which starts at £150,000

– Regain your Personal Allowance, which begins to be withdrawn once your income exceeds £100,000.

– Avoid losing out on Child Benefit, which begins to be reduced once one parent in the household’s earnings exceed £50,000 pa.

  1. Release £12,300 in gains this tax year, to take advantage of your Capital Gains Tax (CGT). There’s rumour that the Government may increase CGT rates soon, it’s worth making the most of the current rate whilst you still can.
  2. Ensure you use your IHT gifting exception of £3,000 for this year.
  3. Minimise your Income Tax Liability, by spreading any large pension withdrawals over two or more tax years.
  4. To avoid National Insurance Contributions (NICs) ensure you pay yourself a low salary, and top up your earnings with dividends. The first £2,000 dividend income is tax-free.
  5. Reduce your company’s liability to Corporation Tax, Income Tax (including on dividends), and NICs by diverting your company’s pre-tax profits into a personal pension. You’ll need to make any contributions before your company’s financial year-end, so that your business qualifies for the deduction in that accounting period.

But tax planning doesn’t end there!

Whilst the previous ten points are the main ones we suggest actioning before April 6th, there are other areas to focus on to ensure you’re minimising tax and making your money work as hard for you as possible. These points tend to have the greatest impact if started before the start of a new tax year, so have a think about them now.

Be aware that this list is not exclusive, and covers the tax opportunities available to only those who reside within the UK for the 2020/21 tax year and 2021/22.

Be aware that whilst tax planning is important, it doesn’t form the entire picture when running your Limited Company. Always ensure you enlist the services of a specialist accountant who will be able to professionally advise you on all aspects of running your company.

Income tax

  • Avoid 45% tax by reducing your income below the £150,000 threshold. You can reduce your taxable income with pension contributions.
  • If you’re married or in a civil partnership make sure you both have sufficient income to use your personal allowance, which is £12,500 for 2020/21.
  • If your adjusted net income is above £100,000 then the personal allowance will gradually be withdrawn. Individual pension contributions for those with incomes above 100,000 before April 6th 2021 can reduce their income to below £100,000 to restore all / some of the 2020/21 personal allowance which would otherwise be lost.
  • Consider investing in tax free investments, such as ISAs. This will replace taxable income and gains with tax free income and gains, or investment bonds which can provide valuable tax deferment.
  • Consider distributing your investment capital between spouses / civil partners. This could potentially reduce the rate of tax incurred on income and gains. If you’re living with your spouse / civil partner, or where the asset that’s to be transferred is an investment bond, then no capital gains tax or income tax liability will arise on transfers between one another.

Pensions – planning opportunities

  • Carry forward rules allows you to use any unused annual allowance for a maximum of three tax years. If you have unused allowance, April 5th 2021 will be your last opportunity to make the most of any leftover allowance up to the value of £40,000 from the 2017/18 tax year.
  • In 2020/21 the threshold income level and the adjusted income level for the tapered annual allowance are £200,000 and £240,000. This should mean that less pension members will be impacted by the tapered annual allowance from 2020/21 than in the previous years. This will ultimately mean greater pension savings along with the possibility of avoiding a tax charge.
  • If your adjusted net income exceeds £100,000, then the personal allowance reduces by £1 for every £2. So for the tax year 2020/21 there will be no personal allowance available once your adjusted net income exceeds £125,000. By making extra pension contributions you’ll not only be increasing your pension provisions, but if you’re also subject to reduced personal allowance, then a personal pension contribution could claw back some of this allowance giving an effective tax saving of around 60%, and possibly more with salary sacrifice.
  • Pension contributions can also help families get their child benefit back. Child benefit is reduced once a single member of a household earns £50,000 or above, and is completely removed once a member earns £60,000 or above.
  • The death benefit rules on pensions from April 6th 2015 should have instigated a review of the pension scheme and/or the expressions of wish regarding the recipients of pension death benefits. If this has not yet been done, then now is the time to do so. So in theory a person’s pension plan could provide an income for the people they leave behind, as beneficiaries will be able to pass the money to their children and so on and so forth.
  • It’s advised that individuals consider making personal net pension contributions of up to £2,880 (£3,600 gross) per year for members of their family, including any children and grandchildren, who do not have the relevant UK earnings. The basic rate tax relief of £720 added by the Government each year is a significant benefit, and the sooner pension contributions are started the greater they’ll benefit from compounded tax-free returns.

ISAs and JISAs

  • Unused subscription amount cannot be carried forward into the new tax year, so any annual subscriptions (£20,000 and £9,000 respectively) should be maximised before April 6th.


Subscriptions must be made before April 6th 2021 in order for them to be relieved in tax year 2020/21:

  • EISs – You can invest up to £1 million, or £2 million where any amount above £1 million is invested in knowledge-intensive companies. The maximum income tax relief is 30%. Unlimited capital gains tax deferral relief – so long as some of the EIS investment could potentially qualify for income tax relief. It must be paid by April 6th 2021 in order to be able to carry back An EIS subscription for tax relief in 2019/20.
  • VCTs – up to £200,000 can be invested, and the maximum income tax relief is 30%. There’s no ability to defer capital gains tax, but any dividends and capital gains generated on amounts invested within the annual subscription limit are tax free.

Be aware! Of the likely greater investment risk and lower liquidity that will need to be accepted in return for the enticing tax reliefs offered by EISs and VCTs.

Capital gains tax

Capital gains tax planning is based around the action either ahead of, or at the time of the disposal of an asset to reduce or eradicate a current or future liability to capital gains tax. This process may involve one of the following:

  • The timing of the transaction ie – either bringing it forward or delaying it
  • Ensuring that all of the available exemptions and reliefs have been taken full advantage of
  • Depending on what your own personal objectives are, prior transactions such as transfers to a spouse/civil partner, or the use of a trust
  • Making full use of the annual exempt amount
  • Also making use of any available losses

Capital gains tax planning

  • Make the most of this year’s annual exemption (which is currently £12,300). Remember that any amount which isn’t used cannot be carried forward, so use or lose it!
  • If you wish to defer the tax payment for a year, make a disposal after 5th April 2021.
  • If you want to use two annual exemptions close to one another, make one before April 6th, and the other afterwards.

Ensure that each spouse/civil partner uses their annual exemption. Assets can be transferred between partners to facilitate this.

Inheritance tax

  • Each person has an annual exemption of £3,000 per tax year. If you have any unused exemption you’re able to carry it over for one year, so check to see if you have any outstanding, and be sure to use it before April 6th.
  • The annual £250 exemption can’t be carried over into the next year. You’re able to make as many gifts of up to £250 as you wish that’s free of inheritance tax, so long as the recipient doesn’t receive any part of the giver’s £3,000 annual exemption.
  • If you have income that’s surplus to your requirements, it might be a good idea to establish a plan whereby regular gifts are made from your income in order to make use of the normal expenditure out of income exemption. A good way to do this is to pay premiums into a whole life policy in trust to provide for any inheritance tax liability.

How can Vantage help?

Ensuring you’re making the most of your money before the new tax year can be daunting, especially if you’re unsure which options are available to you and how much of each exemption is left for you to use.

The expert director-level accountants here at Vantage deal with Limited Company contractors and their specific individual needs, both on a personal and professional level every day, ensuring that they’re making the most from their take home pay. If this sounds like the level of support and guidance you need in order to be bringing home the most of your contractor pay as possible, get in touch today.

Note: All the information and advice in this blog post was correct at the time of writing.

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