Year End Tax Guide 2023/24

As the tax year draws to a close there are various rules, rates and allowances in place which if used effectively can ensure you are tax efficient. This is why we have created a Year End Tax Guide which covers the following topics from personal allowances and reliefs through to penalties and upcoming changes.

Personal Allowances and Reliefs

The personal allowance for the current tax year is £12,570. Non-savings income above the personal allowance is taxed at rates from 20% to 45% (or 19% to 46% in Scotland).

A higher marginal tax rate may be payable between £100,000 and £125,140 when the personal allowance is gradually withdrawn. This gives an effective marginal rate of 60% (61.5% in Scotland) in this band for non-savings and savings income.

You may be able to transfer £1,260 of your unutilised personal allowance to your spouse or civil partner if neither of you is a higher-rate taxpayer.
Generally speaking, it is relevant when one spouse or civil partner is not able to use all of their personal allowance.

Capital Gains Tax

The capital gains allowance for the current tax year is £6,000, this means if you sell a second home/rental property, stocks and shares or another taxable asset, you can make a total profit of up to £6,000 on gains made in the year without paying tax on those. Once your profit exceeds this amount you will pay 10% at basic rate or 20% above basic rate on gains made on any asset except residential property, or you will pay 18% at basic rate or 28% above basic rate on gains made from the sale of residential property.

It is important to note that the capital gains allowance is being halved for the next tax year (2024/25), so it may be prudent to consider if you have assets you are thinking of selling for a gain to try to maximise the higher tax free capital gains allowance on offer before the end of the current tax year.

Corporation Tax

Companies making profits in the UK pay the main rate of corporation tax at 25% in the Financial Year ending 31st March 2024. Margin relief may be available depending on your companies' profits, this relief can reduce the amount of Corporation Tax due to 19% for companies with profits under £50,000.

Companies must keep accounting records and prepare company tax returns. Payment is usually due nine months and one day after the company’s accounting period, while company tax returns are usually due 12 months after the company’s accounting period. However, larger companies may be required to pay via quarterly instalments depending on the profits being made.

Business Deductions

Business owners are entitled to claim deductions from income for costs which are incurred wholly and exclusively in running the business. Determining how this rule applies in practice can be a challenge. In most circumstances, a deduction may not be claimed in respect of depreciation. However, deductions in the form of Capital Allowances are available for some expenditure on qualifying capital expenditure.

Pension Contributions

Making the most of the annual pensions allowance is a particularly attractive option for higher earners. Personal tax relief is available on pension contributions made by individuals.

Contributions paid by an employer will be an allowable expense for corporation tax purposes, the amount payable into a pension may be restricted by the lower of the annual allowance (£40,000) or 100% of net relevant earnings.

Penalties

The penalty regime covers income tax, corporation tax, VAT and inheritance tax. Miss the first income tax return filing deadline and the next day you will be liable for a £100 fine. Leave it for another three months and the maximum penalty rises by £10 a day, up to a maximum of £900. After six months a further £300 or 5% of the tax due – whichever is the higher – is added.

In addition to late filing penalties, penalties are also charged for late payment of any taxes due. HMRC do allow up to 30 days after the 31^st January deadline before the first late payment penalty is charge which is 5% of any tax due, however they do start to charge interest on top of the tax due daily from the 31^st January deadline. Late payment penalties also increase over time if payment is not made. You can avoid late payment penalties by speaking to HMRC and arranging a repayment plan if you are unable to pay your income tax bill on time.

In some serious cases the penalty can be even higher than this. There are also penalties to cover the notification of starting a business and filing returns and accounts at Companies House. Penalty rates range from £150 for a private company filing the accounts not more than one month late, up to £7,500 for a public company filing accounts more than six months late.

Proposed changes to the penalty code which involve switching to a ‘points’ system, rather than an automatic penalty are to be introduced from April 2024 for Income Tax.

A penalty points system for late submission of VAT returns and late payment of VAT due came into place from January 2023.