Understanding when your tax bill may hit the 40% tax bracket is key when it comes to balancing books and budgeting ahead for your business. We’ll explain all in this handy guide and offer top tips to reduce your tax bill:
Tax brackets explained
Your personal tax bill will grow as your business and revenue expands, so knowing what to expect before your self assessment comes around will help with your financial planning. Your income tax bracket will be based on your total income across the tax year, which runs from April 6th to April 5th. The first key thing to remember is that everybody in the UK has a tax-free personal allowance of £12,570 – and if your yearly income is below this, you won’t pay any income tax at all. However, if your income exceeds this amount each year, you’ll fall into one the income brackets below:
The basic rate: You’ll fall into the basic rate for an income amount between £12,570 and £50,270. If this is you, you’ll pay tax at a rate of 20%.
The higher rate: If you fall into this tax bracket, you’ll pay tax at the 40% rate. This stands for total income between £50,270 and £125,140. However, remember you will only pay the 40% rate on amounts over the basic rate threshold of £50,270.
The additional rate: The additional rate of 45% applies in a similar way if you earn over £125,140.
If you need support to tackle your tax affairs and accounts, consider enlisting the help of Tewkesbury accountants such as Randall & Payne www.randall-payne.co.uk/services/accountancy/tewkesbury-accountants.
How can I reduce my bill?
There are ways you can reduce your tax bill, especially if you fall into the higher bracket. Firstly, careful accounting will be key to ensure your expenses are all recorded accurately. Investing in an ISA is also a great start, as these allow you to save up to £20,000 tax-free each year. You could also consider maximising your pension contributions or using your dividend allowance or capital gains allowance, if you have one, to minimise your end-of-year tax bill.