Tactical Tips for Founders - Manage Your Taxes
As a founder, navigating the tax landscape can be a daunting task. However, with some tactical tips and professional advice, you can minimise your tax liability and maximise your tax efficiency. In this article, we will explore some important aspects of personal tax, pensions, National Insurance, PAYE, and upcoming deadlines that every founder could be aware of.
Heard of Payments on Account? Think of them as an advance payment towards next year's tax bill. These payments are also made to HMRC to settle any under or overpayments in your current tax bill which can often happen because your income levels may rise and fall as the years go by.
These payments are usually made on two dates:
Half by 31st January (the usual Self Assessment tax return deadline)
Half by 31st July
Payments on account often get forgotten about or most people decide to “leave” it until they file their self-assessment tax return but this can be a risky strategy. Making sure you consider these payments can help you avoid paying interest and penalties on underpayments, and receive a refund on any overpayments.
The next Payment on Account is due 31st July.
Alternatively, if you know your tax bill is going to be lower than last year, you can ask HMRC to reduce your payments on account.
Do your self-assessment earlier
You will receive your P60 by the end of May and your P11D (if it applies) by July. You could then make a start by preparing your self-assessment tax return early.
I know what you are thinking.. But filing your self-assessment tax return earlier can help you avoid last-minute stress and you will have a better idea of your tax liability so you can plan accordingly, and save for that holiday you wanted. Additionally, early filing can give you the opportunity to claim any tax refunds that may be due to you.
The deadline for filing your 2022-23 self-assessment tax return is January 31st 2024.
NIC, Pension Contributions & Dividends
Make the most of tax-free personal pension contributions.
Directors can make significant savings on tax by making the most of the tax-free personal pension contributions available to them. Up to £60,000 can be contributed each tax year without incurring any tax charges. By taking advantage of this, you can reduce your personal tax liability while investing in your future retirement.
Be mindful of your ER NIC liability. ER NIC liability refers to the employer's national insurance contribution that is payable on employee salaries. It's important to track how much ER NIC liability you have been paying as it can impact your eligibility for the Employment Allowance. If your ER NIC liability goes above £100k in the tax year, you lose eligibility for the Employment Allowance, which is currently £5k in 2023-24 tax year.
Split salary and dividends
As far as National Insurance was concerned, the 2022/23 tax year was a tricky one, but 2023/24 is looking far more straightforward. That’s because the government decided to align the NI threshold to your personal allowance (which currently stands at £12,570) which means a useful tactic would be to consider splitting your remuneration into salary and dividends. This is because when income exceeds £12,570, dividends are more tax efficient than additional salary.
This can be a tax-efficient strategy that takes advantage of the alignment of the NI threshold and personal allowance and by doing so, you can maximize your tax efficiency and reduce your overall tax bill.
PAYE & P11D
Paying PAYE via direct debit can assist with cash flow and make the process more streamlined. By doing so, you can avoid late payments and associated penalties.
By meeting these deadlines, you can avoid unnecessary costs and stay compliant.
31 May 2023 – Give a P60 to all employees on your payroll
6 July 2023 – Submit P11D forms online to HMRC, give employees a copy of the information.
6 July 2023 – Also on this date is the EMI annual return so make sure you have contacted your relevant EMI return service provider.
If you've missed any of these deadlines we can help, just reach out. Jot these dates down for next year, too.
In conclusion, navigating the tax landscape can be challenging for founders. However, by being mindful of these tactical tips and seeking professional advice when necessary, you can minimize your tax liability and maximize your tax efficiency. By taking these steps, you can focus on growing your business and achieving your goals. At Accountancy Cloud - we can help with friendly expert accountants on call. Simply contact us to find out more.