When does the tax year end and what do I need to do beforehand?

THE tax year in the UK doesn't run from January to December like a normal year.

Instead it starts and ends in the middle of the year – in April to be exact.

Many other countries around the world have tax years that run with the calendar year.

In Ireland, the US, France and Germany for example, it starts on January 1 and ends on December 31.

But in the UK for historical reasons, our tax year starts and finishes mid-way through.

When does the tax year end?

The current 2020-2021 tax year comes to an end on April 5.

Each tax year you get certain allowances, like how much you can earn, save and put into your pension tax-free.

How much tax you have to pay can also change from one year to the next too.

For example, you can earn £12,500 this tax year before you start paying tax.

In the next tax year, it will be £12,570 but the Chancellor Rishi Sunak has said it won't rise after this, announcing in his Budget that it will be frozen until 2026.

What do I need to do before the end of the tax year?

Use up your ISA allowance

Savers will want to make the most of their ISA allowances before the end of the tax year.

An ISA (individual savings account) is a type of savings account where you don't pay any tax on interest.

Each year you get an allowance which is the total amount you can save into it each year to take advantage of this tax benefit.

You can save up to £20,000 each year into an ISA and if you don't use it up you can't carry it over to the next year.

First-time buyers saving into a Lifetime ISA (LISA) can save up to £4,000 into this account each year tax-free.

As the balance in an ISA grows though, it remains free from tax year after year.

How do you switch Isa provider?

IF you’re in the market for a new, better paying Isa, there’s one thing you shouldn’t do.

Never withdraw money from your Isa account to put it into your new one – if you do it'll lose its tax free benefits.

Instead you need to follow the simple transfer process.

Make sure that the new account you want to use accepts transfers (not all do) and then fill in the Isa transfer form with the new provider.

It will arrange for your savings to be transferred over, with the process taking no more than 15 working days.

And remember, you can only have one "active" Cash Isa per tax year.

If you put your cash in a bog standard bank account that's not an ISA, you'll be taxed on any interest over £1,000 if you're a basic-rate taxpayer.

For higher rate taxpayers it's £500 while additional rate taxpayers don't get this allowance, which is know as the personal savings allowance (PSA).

The ISA tax-free allowance is more generous than the PSA which is useful if you have more saved.

Use up your child's ISA allowance

Junior ISAs, known as JISAs for short, are savings accounts for kids that work in the same way.

But the amount you can save into one tax-free each year is less at £9,000.

It used to be much less at £4,368 but the amount was increased in the Budget last year.

Check your child benefit

Parents earning over £50,000 and who claim child benefit could owe money.

Child benefit is worth £21.05 a week for an eldest or only child and £13.95 a week for each additional child.

There was a change to the rules in recent years and many parents may not be aware of it.

It means that if either parent earns over £50,000 they lose some of the child benefit they are entitled to and have to pay it back.

This is known as the High Income Child Benefit Charge and effectively you lose all child benefit when you earn over £60,000.

A change in situation such as a salary increase or new partner could change entitlement to child benefit because of these rules.

Can I claim child benefit?

YOU can claim child benefit if you’re responsible for one or more children under 16.

You may also be entitled to the extra cash if the child you're responsible for is aged under 20 if they stay in approved education or training.

The payments are worth £21.05 a week for your eldest or only child, and then £13.95 a week per child for any additional children.

You may have to pay a tax charge if you (or your partner’s individual income is over £50,000. This is known as the ‘High Income Child Benefit Charge’.

This can result in a big bill to repay, even adding up to thousands of pounds for some families.

Before the end of the tax year if you find you earn over this amount it could be worth looking at ways to reduce your taxable income within the rules.

For instance, putting money into a workplace pension or using employer salary sacrifice schemes can reduce your taxable income without losing money.

Salary sacrifice is an agreement to reduce an employee's cash pay for non-cash benefits, like childcare vouchers or cycle to work scheme.

Use up your capital gains tax allowance

Capital gains tax is charged on the profit you make when you sell something that has gone up in value, such as stock and shares, artwork or even a second home.

The first £12,300 of profit is tax free but after that you'll be charged up to 28% depending on what rate taxpayer you are and what you sold.

If you're planning on selling something and the profits could be over this amount, cashing in at the right time can keep profits below the threshold or reduce your capital gains tax bill.

For example, cash in stocks and shares in two transactions over multiple tax years rather than a single transaction.

When does the new tax year start?

The new tax year for 2021-2022 starts on April 6.

There are quite a few changes taking place that can affect your finances.

Some are directly related to tax and others are timed to come in at the same time.

A number of big changes for drivers will be coming into force from next month as the new tax year begins.

Universal Credit claimants and those on other benefits will see the money they get rise this April.

Chancellor Rishi Sunak outlined key changes for those who claim Universal Credit and other benefits in his Budget last week.

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