What will you do this financial year?
What will you do this financial year?
For most, springtime marks the start of a new financial year – and the opportunity to get your house in order.
February 9, 2023

The rush of January’s tax deadline has passed and a fresh twelve months lie ahead. So, what will you do with them?

We find that many Hive clients enjoy kicking off this new financial year with tax planning. This is your chance to really think about how to maximise your income and what you want to spend it on in the coming year, whether that’s holidays, home improvement projects, or even a monthly date night budget.

To begin with, we suggest getting on top of your bookkeeping. Granted, this might not feel like the most exciting step, but having your books up-to-date opens the gateway to so much more that you might want to do in the year. Taking opportunities, building plans, investing in growth… All rely on having fast access to current, accurate numbers.

During this process, we can also look at other forms of tax planning that might be beneficial to you. This includes things like increasing your pension contribution in line with rising profits, or considering if it’s worthwhile for you to become incorporated. If you’re a limited company, we can plan your salary and dividends in advance, so that you can maximise your income and access it in as tax-efficient manner as possible.

We’ll start by looking at areas such as your profitability and drawings, and considering how many dividends you’ve taken. From this, we can find the best and most tax efficient plan. During a personal budget review, we’ll incorporate everything that you want to spend your personal money on, and create a budget that aligns with it. This includes everything from your mortgage and utility bills to monthly streaming subscriptions or a new car; we’ll lay it all out on the table and see how we can make it happen.

Then, depending on how much money is in your company, we’ll shape your income to suit your expected expenditure. When we know how much yourself and your spouse need to support your lifestyle, we can calculate how much you could declare from your company on a quarterly basis, with a defined amount you’ll need to put to one side for personal tax. If, for instance, you need £8,000 per month to live on, we’ll suggest a dividend of £10,000 to allow for personal tax.

Running through this exercise provides you with a unique opportunity to decide how tax efficient you want to be. Of course, we all think that we want to be as tax efficient as possible, but it’s easier to slip into inefficiency than you might expect. As the director and shareholder of a limited company, if you take a salary of around £12,000, plus dividends of £38,000, you’ll pay tax on a dividend rate of 8.25% from 22/23 (as opposed to the far higher figure of 20% for those who are employed or self-employed). If you increase your annual income to be over £50,000, the dividend rate creeps up to 33.75%, meaning a huge chunk of that extra money is lost before you’ve even gained it. And, if your income hits between £100,000 and £125,000, the £25,000 could ultimately cost you 60%.

You might think that this risk doesn’t apply to you, but if you have other sources of income and you’re not planning at the start of the year, you can easily go over this £100,000 marker. For instance, if you have rental properties as well as your practice, your profits and expenditure could fluctuate enough to throw any loose mental estimation into turmoil.

This time of year essentially represents an opportunity to get your books up to date, review your personal requirements and understand your business’s profitability to maximise your tax position going forward. By doing so, you can make a plan and avoid any surprises when next January inevitably rolls around. You can rest easy, knowing you’re as tax efficient as you can possibly be, while still doing everything you want to do.

And of course, this is life – even the best-laid plans can fall foul of fate. If your circumstances change throughout the year, your personal plan can also flex. Provided you’re continuing to keep track of things, we can tweak your budget, showing how things might look in a new form, and give you updated figures for how much you need to set aside as personal tax.

If you’re already a Hive client, it’s our role to optimise your taxes. If you’re not a Hive client yet, but think you’d benefit from working with an accountant who’s a specialist within the dental industry, do get in touch. The start of a new financial year can form a natural point at which to transition elsewhere. Get in touch if you’d like to talk through your options.

The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Team Hive
If you have any questions or comments about this article, please get in touch.
Call Now Button