In the context of this article tax credit does not refer to the child or working tax credits – these are part of the benefits system. Tax credits in this article refer to a deduction made from your overall tax liabilities, usually at a fixed percentage rate of the relevant income.

For example, up to 5 April 2016, dividend payments were made net of a deemed tax credit of 10%. If you received a dividend of £100 this would actually be a gross dividend of £111.11, less a 10% tax credit of £11.11. As far as HMRC was concerned, if your dividend income formed part of your basic rate band no additional tax would be payable. In this case your basic rate Income Tax liabilities on your dividend income could be said to be covered by the tax credit.

After 5 April 2016, the 10% tax credit was abolished and replaced by the so-called dividend tax allowance. Dividends received of up to £5,000 are taxed at 0%, and any dividends received in excess of this amount are taxed at 7.5%, 32.5% or 38.1% depending on whether the dividends fall into your basic, higher or additional rate bands.

However, the £5,000 allowance does not reduce your income for tax purposes. If your income from dividends is £5,000 or less this amount will still be added to your taxable income. The relief is actually applied further down your tax computation for the year. The first £5,000 of your dividend income is effectively taxed at 0%.

Why does this matter? After all, the effect would appear to be the same…

Unfortunately, it does matter. If the allowance is no longer a valid deduction from your income, but instead, is a reduction in the tax payable, the extra income may push you into the higher rate or additional rate bands, or if your income is in excess of £100,000 you may lose part of your personal allowance.

The Treasury seems to be viewing this reclassification of tax allowances as tax credits as an uncontroversial way to increase their Income Tax take simply by turning reductions in taxable income into a tax credit, even when, as with the title “dividend allowance” the £5,000 is not an allowance/deduction but a 0% tax band.

For the tax year 2016-17, most taxpayers are entitled to claim a tax-free personal allowance of £11,000 from their taxable income. The maximum income that can be taxed at the basic rate of 20%, after the personal allowance has been deducted, is £32,000.

Accordingly, if your total income is £43,000 or below you will only pay Income Tax at the basic rate. Any income earned in excess of £43,000 will therefore be taxed at higher rates: 40% or 45%, unless the £43,000 has been increased.

For 2016-17, the higher rate (40%) Income Tax band is £118,000. Income taxable in excess of £150,000 (£43,000 plus £118,000 less the £11,000 personal allowance) will be taxed at the additional (45%) Income Tax rate.

How can you increase your Income Tax bands?

The most common way is to make personal pension contributions or charitable donations under the gift aid regulations. You will get no basic rate Income Tax relief for charitable donations as the payment you have made to the charity is deemed to be the amount of the gift after basic rate tax has been deducted. However, your higher rate (40% and 45%) Income Tax liabilities will be reduced as the basic rate and higher rate Income Tax bands will be increased by the gross gift aid payments you have made: “gross” means the amount before the basic rate tax is deducted. If you make a gift aid contribution of £100, the gross payment is £125 (100/80 x100).

Pension contributions – paid net of basic rate tax relief – have a similar effect, but there are limits on the amount of contributions that can be paid. Advice should be sought before considering this option.

These options for tax planning are especially beneficial for tax payers with annual income between £100,000 and £122,000; as the Income Tax personal allowance is gradually reduced for taxpayers in this income band the effective rate of tax chargeable is 60% on the gross income equivalent.

When you reach the State Retirement Age (SRA) you stop paying Class 1 NI contributions if you are employed, and Class 2 contributions if you are self-employed.

You will still have to pay Class 4 NIC, the most significant self-employed NIC charge, for the entire tax year during which you achieve the SRA. The next year you will be exempt.

If you are unsure when you will reach SRA, there is a free “check your SRA” on the GOV.UK website at https://www.gov.uk/state-pension-age.

For the self-employed, reaching the SRA can influence your tax planning options. Ordinarily, if a sole trader is profitable, it may pay to consider incorporating the business as the combined Corporation Tax plus dividend tax may be less than the combined Income Tax and Class 2 and 4 NI contributions. However, if you no longer have to pay the Class 2 and Class 4 NIC it may be more beneficial to continue as a self-employed person.

It is best not to generalise, there may still be good reasons for considering incorporation, but a rethink when you attain SRA may reduce your overall tax bill.

Married couples and civil partners can gift each other assets and there will be no Inheritance Tax (IHT) charge on the lifetime gift as long as the recipient is domiciled in the UK.

However, transfers to others that are not covered by the reliefs listed at the end of this article, are treated as potentially chargeable lifetime gifts or transfers (PETs). The gifts can be included in the estate of the donor if they were made less than 7 years before the date of death.

If the person making the gift gave away more than £325,000 in gifts in the last 7 years of their life, and this includes the gift to you, you may be required to pay any IHT directly attributable to the gift. Otherwise, IHT is paid by the estate.

IHT is payable at the following rates on PETs made between the date of the gift and date of death:

• Less than 3 years –  40%
• 3 to 4 years – 32%
• 4 to 5 years – 24%
• 5 to 6 years – 16%
• 6 to 7 years – 8%

These rates may be reduced if the deceased qualified for a reduced rate of IHT.

Gifts that aren’t charged to IHT include:

Annual exemption

Up to £3,000 of gifts made each year. The £3,000 exemption from the previous year may also be available, if not used in that year.

The following allowances are generally in addition to this.

Wedding gifts

There’s no Inheritance Tax on a wedding or civil partnership gift worth up to:

• £5,000 given to a child
• £2,500 given to a grandchild or great-grandchild
• £1,000 given to anyone else

The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.

Gifts up to £250

There’s no Inheritance Tax on individual gifts worth up to £250. You can give as many people as you like up to £250 each in any one tax year.

You can’t give someone another £250 if you’ve given them a gift using a different exemption, e.g. the £3,000 annual exemption.

If you give someone more than £250 in a tax year, the whole amount counts – the first £250 is not exempt.

Regular gifts from the giver’s income

There’s no Inheritance Tax on gifts from the deceased’s income (after they paid tax) as long as the deceased had enough money to maintain their normal lifestyle. These gifts include:

• Christmas, birthday and anniversary presents
• life insurance policy premiums
• regular payments into a savings account

Payments to help with living costs

There’s no Inheritance Tax on gifts to help with other people’s living costs if they’re made to, for example:

• an ex-husband, ex-wife or former civil partner
• a relative who’s dependent on them because of old age, illness or disability
• a child (including adopted and step-child) under 18 or in full-time education

Charities

There’s no Inheritance Tax on gifts to charities, museums, universities or community amateur sports clubs.

Political parties

There’s no Inheritance Tax on gifts to political parties that have either:

• 2 members elected to the House of Commons

1 member elected to the House of Commons and received at least 150,000 votes in a general election.

Under new rules, initially announced in the 2015 Budget, farmers will be able to average their profits for Income Tax purposes from two years to five years.

This change will help farmers with fluctuating profits better manage risk and level out the impact of tax on their farming profits. For example, they may avoid paying tax at higher income rates in one year, when in the next few years they may have significantly lower profits.

In recent times market conditions, driven by the impact of global volatility, make it difficult to budget for tax costs.

Chancellor George Osborne is reported as saying:

“A resilient and thriving food and farming industry is fundamental to the success of the UK economy. This government recognises the challenges our farmers face from volatile markets and we are absolutely committed to supporting them.

Today’s reforms will provide farmers with additional security to plan and invest for the future, allowing them to spread profits over a longer period of time. Over 29,000 farmers can benefit from the changes, saving an average of £950 a year.

The fairer tax system for famers is among a number of reforms to taxes, National Insurance allowances and others measures coming into effect today to back hard work, support savers and economic security at every stage of life.”

As well as having the new option to average tax over five years, farmers will also retain the choice to average profits over two years. The dual option, announced in December, follows industry feedback in consultation over how to deliver the extension to five years. It became evident that the two-year option was well understood and had provided significant relief to farmers dealing with financial pressures and should be retained.

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1 April 2016 – Due date for Corporation Tax due for the year ended 30 June 2015.

19 April 2016 – PAYE and NIC deductions due for month ended 5 April 2016. (If you pay your tax electronically the due date is 22 April 2016.)

19 April 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 April 2016.

19 April 2016 – CIS tax deducted for the month ended 5 April 2016 is payable by today.

19 May 2016 – PAYE and NIC deductions due for month ended 5 May 2016. (If you pay your tax electronically the due date is 22 May 2016.)

19 May 2016 – Filing deadline for the CIS300 monthly return for the month ended 5 May 2016.

19 May 2016 – CIS tax deducted for the month ended 5 May 2016 is payable by today.

31 May 2016 – Ensure all employees have been given their P60s for the 2015-16 tax year.

In a further bid to encourage savings for a first property purchase, or retirement, a new ISA is being launched from April 2017 – the Lifetime ISA.

It will be available from April 2017 for adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive a 25% bonus from the government.

Funds from the Lifetime ISA, including the government bonus, can be used to buy a first home at any time from 12 months after the account opening, and be withdrawn from age 60. There will be penalties for early withdrawals.

The government also announced that the overall annual ISA subscription limit will be increased to £20,000 from 6 April 2017.

CGT rates have been significantly reduced from April 2016.

The rates at which capital gains are taxed depend on where they would fall to be taxed for Income Tax purposes if they were added to income. This would determine whether the gains would fall to be taxed at basic or higher rates, or part and part.

• If at basic rates, gains will now be taxed at 10% instead of £18%
• If at higher rates, gains will now be taxed at 20% instead of 28%.

These reductions will not apply to residential property sales of second homes or buy-to-let properties – the 2015-16 rates of 18% and 28% will continue to apply.

There is also a surprising change to Entrepreneurs’ Relief (ER). It is being extended to afford relief to investors in non-quoted companies. The revisions will introduce the following change to legislation:

“The extension to ER, introducing investors’ relief, will apply to gains accruing on the disposal of certain qualifying shares by individuals (other than employees and officers of the company). In order to qualify for relief, a share must:

• be newly issued, having been acquired by the person making the disposal on subscription for new consideration
• be in an unlisted trading company, or unlisted holding company of trading group
• have been issued by the company on or after 17 March 2016 and have been held for a period of three years from 6 April 2016
• have been held continually for a period of three years before disposal

The rate of CGT charged on the qualifying gain will be 10%, with the total amount of gains eligible for investors’ relief subject to a lifetime cap of £10 million per individual. Rules will ensure that this limit applies to beneficiaries of trusts.

Because the relief is designed to attract new capital into companies, avoidance rules set out in the legislation will ensure that shares must be subscribed for by individuals for genuine commercial purposes and not for tax avoidance purposes.

This is a welcome change, and one that should stimulate interest from investors in smaller concerns that would otherwise struggle to attract inward investment.

Up to 5 April 2016, directors who overdrew their loan accounts in a company ran the risk of an additional 25% Corporation Tax charge if the debt remained outstanding nine months after their company’s trading period end.

The tax can be claimed back, but not until there is a repayment of the debt. From a cash flow point of view this can be a hefty penalty, and makes this type of temporary cash extraction by shareholder directors, unattractive.

The Treasury has decided to tighten the screw.

Legislation has been introduced in the Finance Bill 2016 to specifically link the rate of tax chargeable on loans or advances to, or arrangements conferring benefits on, participators made by close companies to the higher dividend rate. The rate will be increased from 25% to 32.5%. The new rate will apply to loans made or benefits conferred on or after 6 April 2016.

This is a 30% increase in the tax charge. A company that allows a director or shareholder to maintain an overdrawn loan, taken out after 6 April 2016, for say £50,000, still unpaid after the nine month deadline, will incur a corporation charge of £16,250 instead of £12,500.

Companies affected would do well to revisit the cash flow implications.