Just 71 days to go until the end of another tax year!

Here at EBA, we’re just coming up for air after a very busy tax return filing season! It’s hard to believe that the end of the 2024/25 personal tax year just 71 days away! So, with that in mind, it isn’t too soon to start doing some housekeeping to ensure that your tax position is as efficient as it can be.

Whilst we will do everything that we can here at EBA to ensure that you pay no more than you need to in respect of your personal taxes (income tax and capital gains tax), there are things that you can do, too. In some cases, there are decisions you’ll need to make and actions you’ll need to take if you feel that anything you read here might be beneficial.

Over the next few weeks, I’m going to look at some things you might want to consider. Some of these will help you to reduce your tax liability for 2024/25. Others may lead you to consider changes you could make in the new tax year (2025/26) which begins in a few weeks’ time. 

Income tax rates for 2024/25

Firstly, here’s a reminder of the tax rates applicable to the current tax year.

• First £12,570 of income – 0% (personal allowance)
• Next £37,700 of income – 20% on most types of income* but only 8.75% on dividends**
• Over £50,270 and up to £125,140 – 40% on most types of income but 33.75% on dividends
• Over £150,000 – 45% on most types of income but 39.35% on dividends
• *personal savings allowance – the first £1,000 of interest is tax-free for basic rate taxpayers (only the first £500 is tax-free for higher-rate taxpayers).
• **dividend allowance – the first £500 of dividend is exempt from the 8.75% charge (note that this was previously £1,000)

The objective is, as far as possible, to utilise the lower rates of income tax for both yourself and other members of your family, where relevant.

Tax-free allowance for dividends

The dividend allowance dropped from £1,000 to £500 back on 6^th April 2024. So, in tax year 2024/25 only the first £500 of your dividend income is tax-free. That reduction from £1,000 was on the back of previous reductions; the allowance was £2,000 prior to that. There is no further reduction planned for 2025/26 and beyond.

If you don’t usually receive dividends, but your spouse does, you might want to consider transferring some of your spouse’s investments to yourself so that you utilise your £500 allowance.

Avoid the high income child benefit charge

If you have children and receive Child Benefit, look at the total incomes of both yourself and your partner. If either one of you has income in excess of £60,000 (for 2024/25 and beyond) then Child Benefit is gradually withdrawn at the rate of 1% for every £200 over the £60,000 threshold. It is clawed back through the tax system in the form of the HICBC (high income child benefit charge). So, you’ll see it added to your tax liability and pay it through the self-assessment system.

If the income of either partner reaches £80,000 then the child benefit will have been clawed back completely. Had income been £70,000 (halfway between the £60,000 and £80,000) then 50% of it would be clawed back. So, look at how you might be able to engineer both incomes so as not to exceed £60,000, perhaps by switching income around between you. Please be sure to tell us, when you submit your tax return checklist, if you or your partner received Child Benefit in 2024/25 as we need to know.

Note that the two thresholds mentioned above are higher than they were in 2023/24. The lower threshold was £50,000 and the higher one was £60,000.

Donate tax-efficiently

Consider making donations under Gift Aid to a registered charity. If you donate say £80 then the charity can claim back £20 from HMRC. If you’re a higher rate taxpayer, you’ll also get £20 off your personal tax bill which reduces the true cost of your donation to £60. So, it costs you £60 and the charity receives £100. But if you’re a basic rate taxpayer (and EBA tries to make sure you are!), you won’t feel any personal tax benefit from donating via Gift Aid. Instead, consider getting your company to make charitable donations, as your company will be able to reduce its taxable profits by the amount donated. Charitable donations can’t be used by companies to create or increase a tax loss, so only look at the company route if you know that your company is going to have a taxable profit – otherwise there’s no benefit.

If you have made charitable donations personally in 2024/25, please tell us as we’ll need to ‘claim’ for these on your tax return.

It’s also worth noting that, if you’re in a position to personally donate assets to a charity, then this can be done without having to pay any capital gains tax on the assets transferred.

Making payments back to your company for benefits in kind

It will soon be time (again!) for us to produce P11D’s for our clients and their employees. If you have any benefits in kind (company car, private medical insurance etc. paid for by the company) it could be worth looking at making a payment from yourself back to the company to reduce the size of the benefit in kind. So, if your company car benefit in kind value works out at £5,000 for 2024/25 and you pay £3,000 back to your company by 5^th April 2025, you’ll only be taxed on £2,000 rather than £5,000. Let us know if this is something you’d like to consider. 

Efficient company cars

If you drive a company car, look at changing it for a more tax-efficient vehicle. Electric and hybrid vehicles are the most tax-efficient to drive as company cars. Looking forward to 2025/26, here is what you’ll pay, annually, in income tax, depending on your company car’s CO2 emission. I have also shown you the employer’s class 1A national insurance charge which the company has to pay (this will rise from the current 13.8% to 15% from April 2025).

A 4% surcharge applies to diesel vehicles not meeting the RDE2 standard.

Let’s take three examples. The first is a petrol car with a list price when new of £50,000 and CO2 emissions of 148g/km. The second is a hybrid car of the same value, with an electric range of 50 miles. The third is a wholly electric car, again costing £50,000 new. Note that the taxable benefit in kind value is always computed on the list price of the car when new, even if the car was bought second-hand – and even if its value is now lower.  I have shown, below, the annual cost to the driver in terms of income tax and to the employer providing the car with regards to the P11D Class 1A employer’s NI payable.