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How much National Insurance will my company pay in 2025-2026?

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As the dust settles on Labour’s first Budget in 14 years, we look at the impact for businesses, in particular single directors’ of limited companies.
The biggest budget announcement related to employers National Insurance – hitting employers hard with a double whammy:
1.2% increase in employer’s National Insurance contributions (NICs) and

Lowering the secondary threshold (ST) which means employers will start to pay NICs on employees earnings from £5,000 instead of the current £9,100 threshold.
However, the Employment Allowance (EA) will be increasing from £5,000 to £10,500 which will help offset some of the additional costs – for some employers but not all.
Sole Directors of Limited Companies
A company with only one employee paid above the Class 1 National Insurance Secondary Threshold, where that employee is also a director of the company are specifically excluded from claiming the employment allowance.
Whilst this has always been the case (and seems somewhat outdated considering the reduction in the dividend allowance in recent years,) it does mean that sole directors will face additional NIC costs.

Example of a Director’s salary in 2024-2025
In 2024, for a single director working through their own limited company, the most common annual salary was typically £9,100 or £12,570.
A salary of £9,100 did not attract any Employers’ National Insurance because it was below the secondary threshold. The salary also suffered no employee tax or National Insurance contributions and secured a pension credit for the director, as if it had been paid and securing a qualifying year towards the state pension.

National Insurance Chart

What will be the optimum director’s salary in 2025/26?
We anticipate that for the 2025/26 tax year, sole Director Companies (with no employees) will choose between:
A salary of £12,570, achieving the most efficient tax savings available and securing a qualifying pension year, or
Lower salary, not achieving full tax savings and forfeiting a qualifying year, or
No salary, reducing administrative costs and forfeiting a qualifying year.
A salary of £6,000 would incur an Employers NI liability of £150 but it is too low to qualify for the state pension credit because earnings need to be equivalent to the National Insurance Lower Earnings Limit (LEL) (£533 per month 24/25 and £542 25/26).
However, a £6,000 salary + £150 Employers NI would save corporation tax of 19% = £1,169.
If you were to take £6,000 as dividends rather than a salary, the personal tax would be £481 based on the basic dividend rate of 8.75%.
Alternatively, employing an additional staff member could make the business eligible for the Employment Allowance, offsetting Employer NI costs.
There is no definitive answer as to what the best optimum salary for a limited company director is. It will depend on your personal situation, business position, personal priorities and overall tax position.
For company directors with employees (who can claim the Employers Allowance) the optimum salary will usually be £12,570.

What about larger companies?
Let’s look at a larger business who employs 150 workers paying them an average salary of £38,000 per year.
This example highlights the real impact of the Employers’ National Insurance changes with a clear illustration of how the government expects to raise extra revenue.
150 employees x £38,000 = £5,700,000
2024 Employers NIC x 13.8% = £598,230
The company is not eligible to claim the Employment Allowance as it’s Employers NICs exceeds £100,000.

In 2025, with the same number of employees and the same pay rate, the business will be eligible for the Employer’s Allowance due to the removal of the £100,000 cap.
150 employees x £38,000 = £5,700,000
2025 Employers NIC x 15% = £742,250
Less Employers Annual Allowance = £10,500
Total Employers NIC = £732,000
This employer will pay an additional £133,770 in NICs each year (22%) which is a very significant additional tax burden.

How Can I Prepare for the Employers National Insurance Increase?
Adapting to these new additional costs will require thoughtful adjustments to business strategies.
Here are some proactive steps you can take:
Review Payroll Budgets: Businesses should reassess their payroll budgets to account for the higher NI rate and the lowered threshold. By factoring in these changes early, businesses can better prepare for their financial impact. The National Minimum Wage increase should also be considered, where applicable.

Optimise Workforce Planning: Employers may consider restructuring roles or adjusting part-time and flexible work arrangements to manage costs effectively. Prioritising efficiency within the workforce and identifying ways to improve productivity could help offset some of the increased NI expenses.

Consider Salary Sacrifice Schemes: Some companies may explore tax-efficient remuneration options like salary sacrifice schemes, where employees opt to exchange part of their salary for non-cash benefits, reducing the NI liabilities for both employers and employees.

National Minimum Wage
The 6.7% increase in the National Minimum Wage from April 2025 will have a significant impact on employers.
The National Living Wage will increase to £12.21 from 1st April 2025, for employees aged 21 and above.
The National Minimum Wage rate for employees aged 18-20 will increase to £10.00.
The National Minimum Wage rate for employees aged 16-17 will increase to £7.55.
The National Minimum Wage rate for apprentices will increase to £7.55.

Conclusion
There were other announcements that will impact business owners that we have not covered in this blog. For your free Budget Report and complimentary personalised NIC projection, please call 01386 366741 or email us here

What are the Financial Reporting Changes from January 2026?

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The Financial Reporting Council (FRC) has announced changes to FRS102 and other financial reporting standards, affecting millions of UK companies from 1 January 2026. 

The changes are designed to enhance the quality of financial reporting in the UK and consistent with international standards.

What is FRS 102 and FRS 105?

FRS 102 is the Financial Reporting Standard applicable in the UK.

FRS 105 is the Financial Reporting Standard applicable to the Micro-entities Regime, a simplified version of FRS 102 to reflect the simpler nature and smaller size of UK companies. 

Check with your accountant if you’re unsure which Financial Reporting Standard you’re adopting.

What are the significant changes coming up in FRS 102?

The two headline changes relate to lease accounting and revenue recognition. 

In terms of lease accounting, the changes only affect FRS 102 (not FRS 105). 

Amendments to revenue recognition affect both FRS 102 and FRS 105.

Lease accounting

Almost all operating leases will be recognised on the balance sheet’ by lessees within the financial statements, bringing an asset and liability into their accounts, eliminating the distinction between operating and finance leases.

Currently, FRS 102 classifies leases as either operating or finance leases. Assets held under operating leases are not recognised on the balance sheet and the lease payments are expensed in the profit and loss account.

Assets held under finance leases are recognised on the balance sheet with a lease liability included in creditors for the lease rental payments due. Regular lease payments reduce the liability, they are not charged to the Profit and loss. Instead, depreciation and interest are recognised as an expense.

The amendment will remove operating leases from FRS 102 meaning that all leased assets will be included on the balance sheet and accounted for in the same way as finance leases.

There are some exemptions available for short term and low value leases.

Balance sheets will show more assets and liabilities. This could affect various financial ratios.

There will be some practical issues with assessing all current leases too. 

In terms of profit and loss account, there will be a charge for depreciation and interest on the lease liability.

Revenue recognition

Under FRS 102, revenue is recognised with reference to the stage of completion of the transaction. This will vary depending on whether the transaction is a sale of goods, provision of services or a contract over a period of time, such as construction.

The amount and timing of revenue included within the financial statements may change as a consequence of the new five-step recognition criteria, which is a simplified version of IFRS 15 ‘Revenue from Contracts with Customers’.

Distinct goods or services promised to a customer will be recognised when they are transferred to the customer.

The five-step revenue recognition model is:

  • Identify the contract with the customer.
  • Identify the performance obligations in the contract.
  • Determine the transaction price.
  • Allocate the transaction price to each performance obligation.
  • Recognise revenue when the performance obligation has been satisfied.

There will likely be little to no impact for many companies if their revenue recognition already follows this model.

Let’s look at an example of a mobile phone company providing a mobile phone to a customer, on a two year contract. 

  1. The contract is for the phone and the data/calls plan
  2. The obligation is to provide a mobile phone and two years of data/calls
  3. The transaction price will be the monthly cost, over the two year contract
  4. The transaction price is allocated between the mobile phone handset and the data/calls package
  5. The mobile phone revenue would be recognised on day 1, as soon as the phone is handed to the customer. The revenue from the data/calls would be recognised monthly over the life of the two year contract

How You Can Prepare for the Lease Accounting Changes Under FRS 102

Early adoption is an option, but you will have to adopt all leases at once.

It’s important to review your lease agreements. This is probably the most important and initially the most time-consuming part. 

Identify which leases are short-term leases and which are ‘low-value’ assets that qualify for exemptions. 

All remaining leases are “finance leases” and, if you are not already accounting for them as such, they will need to be brought onto your balance sheet from 2026.

It is crucial that you understand the impact on recognition and measurement on your financial statements if you adopt the revisions early. For example, most operating leases coming onto the balance sheet will increase assets and liabilities on your balance sheet. Your profit or loss will have an increased depreciation charge, increased interest/finance expense and decreased lease rental charge.

If you would like to discuss this further the please contact us on 01386 366741 or email here and one of our advisers will be happy to help.

What does my tax code mean?

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Ever wondered what your tax code actually means?

What does my tax code mean?

We’ve put together a guide which will help you understand the mystery behind your tax code.

1257L

1257L reflects the amount of income everyone can earn before paying tax (£12,570, with the zero removed from the code)

It’s used for most people with one job and no untaxed income, unpaid tax or taxable benefits 

Your tax code can change either upwards or downwards depending on your circumstances The letter L is what most taxpayers will see. It means you are entitled to the personal allowance

BR

Tax is deducted from all income at the basic rate. Most commonly used when an employee has two jobs and their personal allowance is already being used in the other employment.

0T

Tax is deducted from all income. There is no Personal Allowance.

Most commonly used when an employee has not given you a P45 or enough details to work out their tax code, or when their Personal Allowance has been used up

M

Tax is deducted at basic, higher and additional rates depending on the amount of taxable income.

For an employee whose spouse or civil partner has transferred some

N

Tax is deducted at basic, higher and additional rates depending on the amount of taxable income.

For an employee who has transferred some of their Personal Allowance to their spouse or civil partner.

NT

No tax is deducted.

Used in very specific cases, for example musicians who are regarded as self-employed and not subject to PAYE

T

Tax is deducted at basic, higher and additional rates depending on the amount of taxable income.

Used when HMRC needs to review some items with the employee. For instance, if you earn more than £100,000 a year then £1 of your allowance is deducted for every £2 you earn over that amount.

K

Used when your tax deductions already owed to HMRC from previous years are greater than your Personal Allowance. 

This code results in more tax being collected in comparison to having a standard tax code because your personal allowance is reduced to allow for more tax to be taken from your salary.

Emergency Codes

Emergency tax codes are a temporary tax status given to employees until HMRC works out which tax code applies. 

You might be placed on emergency tax because you don’t have a P45 or you have recently switched from being self-employed.

Emergency tax codes are usually:

  • 1257 W1
  • 1257 M1
  • 1257 X

Think your tax code is wrong?

If you think your tax code is wrong, you should contact HMRC and ensure they have the correct information so they can work out your correct tax code. Your tax code will then be updated automatically. 

Check your next payslip. Make sure your new tax code is in place and this will then ensure your tax deductions have been adjusted accordingly.

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Tax Benefits of Renting Rooms in Your Home

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In the face of looming expiration of many cheap fixed-rate mortgage arrangements, an increasing number of individuals find themselves grappling with the challenge of managing mortgage payments. The situation is expected to become even more daunting as these favorable deals come to an end. However, there is a solution that can provide some much-needed financial relief: renting a room to a lodger.

Renting a room to a lodger
Renting a room to a lodger

Renting a room to a lodger will allow you to earn up to £7,500 a year tax free which will certainly help with mortgage payments, providing the following criteria is met:

  • Your house must be fully furnished and your lodger has access to other parts but exclusive use of their room. Rooms let unfurnished do not qualify. You must still live at the property.
  • You need to get permission from your lender to allow a lodger – most will grant this – possibly with a consent to mortgage form being completed for each one.
  • Your home insurance provider also needs to know to amend the policy; otherwise, they’ll null and void it on a claim.

You need a tenancy agreement of some sort. Websites such as spareroom.com provide excellent templates. You don’t need a lawyer, as lodgers come and go.

Where at least one other person receives income from letting a room in the same property, the tax-free limit is halved to £3,750. The limit of £3,750 per person applies where two or more people receive letting income in relation to a property, meaning that it is possible to receive tax-free income in respect of a single property in excess of £7,500 a year.

Based in the Heart of Evesham, The Accountancy Office are here to help with all of your accountancy needs.

If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.

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Associated Companies for Corporation Tax 2023

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Associated Companies for Corporation Tax – New Rules from April 2023 

closeup-low-angle-view-of-a-woman-using-adding-machine

The rules around corporation tax changed on 1 April 2023. The amount of corporation tax that a company will pay will depend on the level of its profits, and also whether or not it has any associated companies.

From 1 April 2023, companies with profits below £50,000 will pay corporation tax at the small profits rate of 19% whilst companies whose profits exceed the upper limit of £250,000 will pay corporation tax at the main rate of 25%.

Where two or more companies are “associated” with each other, the Corporation tax limits are divided by the number of companies concerned.

What is an Associated Company?

A company is an associated company of another at any time when:

  • One of the two has control of the other or
  • Both are under the control of the same person or persons

Companies are considered associated for the full accounting period, even if they are only associated for part of that period. Associated companies can also include both UK and Non-UK tax resident companies. 

Dormant Companies which are not carrying on any trade or business are excluded from the associated company calculation.

When considering whether a person has control over more than one company, the most common test for “control” is the voting power of a shareholder. In a simple case, where each of the company’s shares carries one vote, any person or persons who own more than 50% of the shares will “control” the company.

It is important to understand the number of associated companies as soon as possible to estimate tax liabilities. If you are forecasting to produce significant profits for your company and you have one or more Associated Companies, you may wish to considering restructuring your activities to minimise any loss of marginal relief.

If you wish to discuss any aspect covered in this article please don’t hesitate to call 01386 366741 or email us here.

10 Reasons Why You Should File Your Tax Return Early

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TAX Accountants Broadway
It’s a job we all dread but being in control of your tax affairs is hugely important.

Every limited company director and self employed individual will usually need to complete a tax return and pay the income tax they’re liable for.

Filing your tax return is the very start of this rather time consuming and stressful process. Here are our 10 reasons to file your tax return before the mad rush:

1: The task doesn’t get overlooked and you will avoid a £100 late filing penalty.
2: Less risk of errors. When you’re rushing and short on time, it’s less likely that you’ll check things through thoroughly.
3: It reduces stress by giving you plenty of time to organise the documents you need.
4: It gives you a greater amount of time to consider future tax planning strategies.
5: The earlier you know what your tax liability is the sooner you can start to plan for the payment. After Christmas, personal finances can be pretty stretched!
6: If you’re due a tax refund from HMRC you’ll receive it sooner too. You may also be able to reduce your payment on account for July!
7: The sooner you complete and file your tax return, the sooner you’ll have an extra year’s worth of tax information which is essential if you’re considering applying for a mortgage or loan.
8: You’ll be able to contact HMRC far easier should the need arise.
9: You can sit back and enjoy Christmas with a smile on your face knowing that you don’t need to worry about sorting your tax return in the New Year.
10: It will make your accountant very happy!

To guarantee filing your tax return on time, our latest internal deadline for receiving your tax return information is 31st October 2023. If we receive your information after this date, we cannot guarantee that we will have sufficient time to file the return. You will also incur additional fees from us for receiving your information late.

Only in exceptional circumstances will we consider preparing self assessment tax returns after the Christmas break, subject to availability and additional charges. We’re a small team working hard to provide the best possible service we can to our clients and hundreds of last minute tax returns prevent us from doing this.

If you wish to discuss any aspect of your accounts or need any help with getting your records up to date or what you can or can’t claim as a business expense, please don’t hesitate to call 01386 366741 or email us.

Thank you very much for your help in supporting our efforts to have an organised and stress free tax return season!

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Do I need an Accountant if I’m using Xero?

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Xero accounting-businesswoman-learning

As much as we love Xero, yes you do! Don’t be fooled – it’s great software but it doesn’t replace professional advice!

You may expect us to say that because we’re accountants but here’s a few reasons why we strongly advise that every business owner still needs an accountant, even if they’re using fantastic software such as Xero.

1: Software is a tool. It automates labour intensive tasks, enabling the user to perform specific tasks far more efficiently. It doesn’t replace the knowledge of a highly skilled bookkeeper or accountant. The software relies on the user entering data correctly and it doesn’t identify errors made by the user. Mistakes happen, it’s human nature but mistakes can sometimes be costly, if not identified and corrected promptly.

2: If you don’t understand the purpose of a journal in your accounting records, you probably should leave it to a professional that does. Bookkeeping is a highly skilled job and is far more than data entry. If you don’t understand double entry bookkeeping, you probably won’t understand how to correct any mistakes you make. Journal entries are often required to make corrections to your accounting records.

3: Your accounting software won’t accurately calculate the tax you owe. Various adjustments to the accounts are required to arrive at your taxable profit. This will include adding back items such as personal expenses and depreciation. Capital allowances also need to be considered. These items are adjusted on the tax return. Your accountant will ensure your tax bill is minimised and that everything is claimed correctly.

4: Many small businesses start off with a great idea but lack the financial knowledge required to make good commercial decisions. Many businesses fail due to incorrect accounting data, lack of legislation knowledge, poor advice and lack of expert guidance. Your accountant will be able to support you through all these challenges, ensuring you make timely and accurate decisions to ensure successful business growth – and to keep your business running smoothly.

5: The human touch. People forget that many accountants also serve as business advisers. Keeping your business on track, identifying mistakes and offering support throughout the year whenever it’s needed, are just a few things your accountant can help with. Accountants carry a wealth of knowledge through working with clients from all walks of business. Most experienced accountants will have seen most of the problems and challenges that a business may encounter. As a result, an accountant can provide an unbiased sounding board for your ideas, warn you of potential risks and alert you to any opportunities that you may have missed.

6: Running a business is tough and extremely time consuming. Your accountant should be a partner to your business, taking care of the many financial tasks involved in running your business – reducing your workload and saving you both time and money.

7: Using an accountant that specialises in Xero will ensure that you’re getting the most from the software. They will be able to provide you with training in using Xero but also suggest other add-on applications that will integrate with Xero and automate your processes, saving you time.

8: If you’re looking for financial borrowing, you will need the help of an accountant to support any financial applications such as mortgages and bank loans.

9: Tax laws are always changing. With the full roll-out of Making Tax Digital around the corner, you will need an accountant on side to help you understand and implement the changes.

10: Your accountant will act on your behalf with HM Revenue & Customs. Contacting HM HM Revenue & Customs can be a very time consuming process so your accountant. Your accountant can save you lots of time by speaking to them for you, saving you the pleasure!

For qualified advice on Xero Accountants contact The Accountancy Office in Evesham were we will be happy to discuss your requirements. Visit us at our website,  email us or call us on 01386 764761

Summer Holidays Tips for Working parents

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This week marks the start of the school summer holidays for most in the UK.

🤯 It often brings about mixed feelings – a chance to spend extra quality time with the family whilst also raising huge challenges in terms of managing work and childcare.

Flexibility is probably the main reason you decided to be your own boss! Try to enjoy the extra time with your children as much as you can.

Here are a few tips below, shared recently by some of the wonderful parents that we work with:

1) Plan in advance your work schedule and don’t be tempted to take on too much additional work. Prioritise – what must be done and what can wait.

2) Manage expectations – be clear with customers and colleagues that timescales may be a little longer than usual if that’s the case. Your out of office message should clearly state when a response can be expected.

3) Build in flexibility to your work schedule to allow for unforeseen events.

4) Work from home when you can to decrease travelling time and to increase ‘working’ time. Set up a workspace area where you can work without distractions if you don’t have one.

5) Enlist the help of friends and family to share childcare where you can, helping each other out wherever possible. Set up play dates. If you have a partner, divide the responsibility wherever possible.

6) Make use of school summer clubs and other local clubs where needed – booking in advance is usually essential.

7) Book weekly grocery deliveries to keep the cupboards stocked (we all know how much children can eat!) and consider subscriptions for everyday items such as pet food that you’re constantly re-ordering. This can save time and is also one less thing to think about over the holidays!

8) Schedule in all the back-to-school stuff – uniform fittings, school shoes etc

9) Keep all the usual household chores to the necessary minimum – get the basics done and don’t worry too much about anything else.

10) Take time for yourself when you can as it should be a break for you as well!

Changes to how self employed business profits are taxed from 2023/24 – Basis Period Reform

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two-businesswomen-having-meeting-in-office

Are you self-employed or a partner in a trading partnership?

If so, you should be aware of how the ‘basis period reform’ may affect you.

A major change in tax is being introduced from 6 April 2024, resulting in self employed individuals being taxed on the profits made within the tax year irrespective of when their accounting year ends. 

This will impact businesses who do not have a 31 March or 5 April year end and who previously have only been taxed on the profits of the accounting year which ended within the tax year. 

Self employed people who have an accounting period that aligns with the tax year will continue as normal.

What is a ‘basis period’?

Self employed generally prepare accounts to the same fixed date each year. This is known as the ‘basis period’.

Specific rules determine the basis period in certain cases, including during the early years of trading. These rules can create overlapping basis periods which can result in profits being taxed twice which generate ‘overlap relief.’ This is usually released on cessation of the business or retirement. Overall, this basis of taxation is called the ‘current year basis.’

For example, currently, if a business draws up its accounts to 30 April, in the 2022/23 tax year, it will be taxed on the profits for the year ended 30 April 2022.

The change in ‘basis period’ will result in a significant impact for the tax year to 5 April 2024 as businesses without a 31 March (or 5 April) year end will be taxed on more than 12 months profit, being the profits to their current accounting year end plus the profit between that date and 5 April. 

Transitional rules for the 2023/2024 tax year 

In the transitional year, self employed businesses that do not have an accounting year end date between 31 March and 5 April will need to recognise two profit elements:

  • The usual profits of the accounting period ending in the 2023/24 tax year; and 
  • The profits from the period starting immediately after the end of that accounting period to 5 April 2024, less any available overlap relief brought forward

A self employed business with a 30th April year end will be exposed to paying tax on nearly 2 years profit under the new rules, creating a significant cashflow disadvantage.

There are two ways that this can be managed:

  1. Where an individual has unused overlap relief available from the start of their trade (or a previous year end change), this can be offset against the profits of the additional period; and
  1. Businesses can elect to spread the additional profits over 5 years.

If you fall within the criteria which requires a change in the basis period for your business, it’s important to realise that you will not pay additional tax, but there may be an acceleration in the payments of tax you owe. 

What to consider:

These changes are intended to simplify tax for the self employed but they can create complexity for those affected. The change to the basis period will simplify reporting requirements as the Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) changes are eventually rolled out.

Think about the cashflow implications of the changes and how you will manage them.

Give some thought to changing your year end to 31 March to make the calculation of taxable profits from 2024/25 clearer.

The changes may result in significant tax balances owing through the transitional period, so it pays to plan ahead and be prepared for the change. 

For further information visit: https://www.gov.uk/government/news/how-hmrc-assesses-profits-for-some-sole-traders-and-partnerships-to-change#:~:text=Changing%20your%20accounting%20period,31%20March%20or%205%20April.

 

For qualified advice and help contact The Accountancy Office in Evesham were we will be happy to discuss your requirements. Visit us at our website,  email us or call us on 01386 764761

Tax Saving Tips For High Earners

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According to the Office for National Statistics, in the 2021/22 tax year, just over 4.5 million people in the UK were paying higher or additional rate tax, a figure that has risen year on year. 

Over two million more people are likely to be higher-rate taxpayers by 2028 due to the freezing of the higher rate tax threshold. This not only raises the rate of income tax you pay but it hikes the tax on capital gains and dividends and reduces your personal savings allowance.

There are several ways to reduce the tax you pay on your annual income as a high earner. Here are ten suggestions for you to consider.

  1. Pay into a pension

Higher-rate taxpayers benefit from tax relief at their highest marginal rate, so you stand to get a 40% boost on your contributions.

However, it doesn’t necessarily stop there. It also has the benefit of reducing your net adjusted income. If you’re a parent earning over £50,000, cutting back towards £50,000 means you can reduce your high-income child benefit tax charge.

Remember money in a pension can’t normally be accessed until you reach the age of 55 (57 from 2028).

2. Salary Sacrifice

Asking your employer if you can enter into a salary sacrifice contribution arrangement to your pension, which will reduce the amount of money subjected to the highest rate of income tax. This can be quite complicated and more details can be found on the government website.

A key additional benefit of salary sacrifice arrangements is that depending on your employer, they may pay the National Insurance Contributions savings they make from the forgone salary into your pension.

3. Use pensions to deal with the £100,000 threshold

Investing in your pension pot is an attractive option to increase your savings in a tax efficient way. We actively encourage clients, when suitable, to contribute regular amounts to their pension to not only build up their pension pot but also to benefit from tax efficiencies.

If someone earning over £100,000 pays into their pension, and cuts their adjusted net income, it means they get back some of their personal allowance. So for every £2 their income falls, they’ll get £1 of their allowance back.

It means less of their income is subject to tax at an eye-watering 60%. Plus, if a parent can bring their income back under £100,000, they could also keep their eligibility for tax-free childcare.

4. Make full use of your annual allowance

The annual allowance will increase from £40,000 to £60,000 from 6 April 2023.

This is the maximum amount someone can contribute to a pension each year while still receiving tax relief. It’s also possible to carry forward unused allowances from the previous three tax years.

5. Child Benefit Charge

An individual can receive Child Benefit if they are responsible for raising a child who is either under 16 or under 20 if they stay in approved education or training. 

If you are a couple claiming Child Benefit, where one or both individuals have an income above £50,000 per annum, or someone else claims Child Benefit for a child living with you and they contribute at least an equal amount towards the child’s upkeep, you may have to pay a tax charge. This is known as the ‘High Income Child Benefit Charge’. More details can be found on the government website here.

The tax charge is calculated through the tax return on any partner whose income is more than £50,000 a year. In the event that both partners have incomes over £50,000, the charge will apply to the partner with the higher income. The tax charge will be 1% of the amount of Child Benefit received for every £100 of excess income.

By making a personal pension contribution, you may avoid the tax charge as the adjusted net income used by HMRC will reduce. If the pension contribution is enough to reduce this to below £50,000, the High Income Child Benefit tax charge will be avoided.

6. Tax efficient investment schemes

An investment into a qualifying Venture Capital Trust (VCT), Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) attracts significant tax benefits. For an EIS or VCT, you can receive 30% income tax relief on the amount you invest, for SEIS this increases to 50% relief. This 30% is only achievable if you have paid sufficient tax for the year in question.

7. Make use of the Married Couple’s Allowance

High earners can also reduce their tax liability by making use of the married couple’s allowance. This allowance allows married couples to transfer some of their unused personal allowance to their partner, which can help to lower the overall tax bill.

8. Plan as a couple

If you’re married or in a civil partnership and your partner pays a lower rate of tax, you can transfer income producing assets into their name. That way you can both take advantage of your allowances and then the rest is taxed at their marginal rate rather than yours.

9. ISAs

Higher-rate taxpayers pay tax on dividends at 33.75% with a tax-free allowance of only £1,000 in the 2023/24 tax year. 

If you use the share exchange process to shelter income-producing shares in an ISA, you won’t pay tax on these dividends. Because the dividend tax rate is higher than the capital gains tax rate, it’s often worth prioritising this when deciding how to use your ISA allowance. 

10. Make a charitable donation

This will cut your tax bill although clearly won’t leave you better off overall. The charity will receive 20% in gift aid and you can claim back the other 20% through your tax return.

To do this, you must register for gift aid with a ‘Gift Aid Declaration’, keep a record of your gifts and gift no more than four times your total income and capital gains tax payment for the tax year in question

Please note that this article isn’t personal advice. Tax rules change frequently and any benefits depend on your circumstances. If you’re not sure what’s right for you, please seek professional advice.