DID you get any Valentine’s cards last week? The good thing about Valentine’s Day is that it is an early reminder that the end of the tax year, April 5, is not far off.
If you have a company, or are running a business, and you have something to buy for the business, for instance a new computer system or a company car, the trick is to do it in March.
You only pay tax on your profits, so if there is something that is going to have to be bought anyway, it pays to reduce the year’s profits before the tax deadline. That way, you pay less tax.
But perhaps you don’t run a company.
If you did, you wouldn’t be sitting around reading the newspaper at this time of day. Or even worse, standing in the shop, reading it free of charge.
But we don’t have to be a company. There are certain things we can do as private individuals to streamline our own finances.
We have tax relief available to us, and we can reduce the amount of our income that goes to the taxman. Pension saving is the prime example.
Your pension is one of the most tax-efficient ways you can save. If you are a basic rate taxpayer, your marginal rate is 20 per cent. That means that, for every pound you earn, the taxman takes 20p.
But you can have that 20p in the pound, in the form of tax relief on your pension contributions. However, in order to obtain relief on tax in this tax year, you need to act before April 5.
It doesn’t carry over. The old saying holds true: “Use it before you lose it.”
Above and beyond your normal pension contribution regime, you can make additional voluntary contributions to maximise your tax relief, over the next few weeks, if you so wish.
Actually, the Chancellor of the Exchequer, Philip Hammond, will announce details of his budget on March 8, which won’t necessarily involve cuts to tax relief, but given the pattern of cuts to tax relief in each of the last four years, it could too. He’s a new kid on the block, and although he hasn’t asked my opinion yet, I’m expecting the phone to ring any minute.
Aside from pensions, if you have an individual savings account (ISA) you can put in up to £15,240 this year, before April 5. If you have a child, you could open a junior ISA and put away up to £4,080 for him or her, as well.
The junior ISA can be a great focal point for the whole family to give a gift to a child on their birthday and at Christmas. Putting some money into an ISA is a way of building up a nest egg for them which they can take later, just in time for buying that first car, going to college, or even getting their foot on the property ladder.
Changes to the rules last year mean that now, all children are eligible to have a junior ISA. Almost as good as getting a Valentine’s card?
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005 . Further information on Facebook at 'Kennedy Independent Financial Advice Ltd'
