With the new financial year just around the corner, here is some advice on the processes, deadlines and changes in the wonderful and complex world of tax.
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Each tax year starts on 6th April and runs until 5th April the following year. As an employer, if you operate Pay As You Earn system (PAYE), you will need to complete the following tasks:
- Submit your final Full Payment (FPS)
- Submit Employer Payment summary (EPS)
- Provide a P60 (paper or electronic) to each employee on the payroll who was working for you on the last day of the tax year by no later than 31st May
All of this information is used by HM Revenue & Customs to make sure that the right amount of income tax and National Insurance contributions have been paid as well as to calculate entitlements to state benefits, tax credits and pensions.
Income tax changes
The current government has introduced a few changes to the income tax. The basic personal allowance for 2013/2014 is £9,440, which is due to increase to £10,000 in 2014/15.
Many small business owners pay themselves a small salary which is close to this allowance and then draw dividends from the company, which allows them to save some money. However, if you’re on a higher income, you will be liable to additional tax.
Here is a quick overview of this year’s and next year’s income tax rates for each taxable band:
|Starting rate for savings: 10%*||£0 - £2,790||£0 - £2,880|
|Basic rate: 20%||£0 - £32,010||£0 - £31,865|
|Higher rate: 40%||£32,011 - £150,000||£31,866 - £150,000|
|Additional rate: 50%||N/A||N/A|
|Additional rate: 45% from 6 April 2013||Over £150,000||Over £150,000|
Tax relief and allowances
Whether you are new to the world of tax or have some experience already from running your own business, it might be worth hiring a tax advisor who can make suggestions about how to legitimately save money off your tax bill without being branded a tax dodger. Some of these options include using tax-efficient investments or making use of married couples’ allowances, tax reliefs, pension contributions and other exemptions.
Generally speaking, in order to maximise the use of your individual tax allowances, reliefs and exemptions for each tax year, you should start your tax planning at the beginning of the tax year otherwise you risk losing out.