For many, the approaching tax year-end on April 5th can be a source of confusion and stress.
While it’s particularly relevant for self-employed taxpayers, PAYE (Pay As You Earn) taxpayers should also be aware of how the tax year interacts with their responsibilities.
This blog aims to clarify the concept of the tax year and provide actionable advice to help you handle this April deadline effectively.
The Tax Year End for Salaried Employees and PAYE
Under the PAYE system, your employer automatically deducts income tax and National Insurance contributions from your wages based on your earnings within the tax year.
The HMRC provides a tax code to your employer, indicating how much tax should be withheld from your salary.
The link between PAYE and the tax year lies in how your income and tax deductions are calculated and reported:
- Annual Summary: At the end of each tax year, you receive a P60 form summarising your salary and the tax deducted in that year. This form is important for any additional tax-related processes, like claiming a refund or filing a Self Assessment.
- Adjustments and Claims: If you have overpaid tax or are eligible for tax relief (such as work-related expenses), these are typically reconciled with the HMRC at the end of the tax year.
The Tax Year End for Self-Employed Individuals
If you’re self-employed, you must complete a self-assessment tax return.
This includes sole traders with earnings over £1,000 and partners in a business partnership.
Self-assessment is also necessary for anyone with untaxed income, such as rental income, commissions, or foreign income streams.
Further, if your tax bill is over £1,000, you may need to make ‘payments on account’, which are advance payments towards your tax bill for the next year.
Preparing for the Tax Year-End
For Self-Employed Individuals
- Early Preparation: Prepare your accounts as soon as possible to ensure a smooth filing process.
- Seek Professional Help: Consider consulting with a tax adviser, especially if your tax filing process is complex.
For Salaried Employees
- Review Your P60: Check your annual summary for discrepancies and understand your total income and tax paid.
- Claim Eligible Reliefs: Investigate if you are eligible for any tax reliefs or refunds and make claims promptly.
Other General Tips To Consider Before the Tax Year End
- ISA Contributions: Ensure you fully utilise your annual ISA allowance of £20,000 for tax-free savings growth and income.
- Pension Contributions: Review your pension contributions to maximise the tax relief available. Contributions can reduce your overall taxable income.
- Capital Gains Tax (CGT) Allowance: Utilise your annual CGT allowance.
- Dividend Allowance: Take advantage of your tax-free dividend allowance.
- Charitable Donations: Making donations under Gift Aid can increase the value of your donation and provide tax relief.
Final Thoughts
Understanding the tax year and its implications is essential for both salaried and self-employed individuals.
By staying informed, maintaining accurate records, and planning, you can navigate the end of the tax year effectively, ensuring regulatory compliance and optimising your financial situation.
Remember, being proactive about your taxes can save you from last-minute hassles and financial stress.
So, as the tax year end approaches, make sure to prepare and get your ducks in a row!
Contact Hugh Davies & Co for tax professional consultation or more information on tax duties and how to fulfil them.