MoneyMagpie Editor and financial expert Vicky Parry warns readers to make sure they act now to maximise profit at the start of the new tax year
The new tax year on April 6 brings with it opportunities to make sure you’re turning 2025 into your most profitable year yet. With changes on the horizon with Chancellor Rachel Reeves’ recent Spring Statement, it’s important to get your ducks in a row this tax year, too.
Maximise your Cash ISA allowance
It was expected that the Chancellor would announce a significant cut to Cash ISA allowances from £20,000 a year to £4,000 a year. But we’ve been given a reprieve – for now. Rachel Reeves’ Spring Statement did refer to ‘ISA reform’, so we know there will be changes looming in the future.
That’s why it’s important to maximise your full allowance this tax year – as soon as possible – in case changes come later in the autumn or next year, reducing what you can put into the tax-free savings accounts as cash. If you have children, make sure they also have a Junior ISA to make the most of the £9,000 tax-free allowance to help them save for their future.
Prepare for making tax digital
Avoid upcoming tax fines by implementing third-party software approved for Making Tax Digital, if you’re a sole trader or small business – including if you’re a landlord earning more than £20,000 a year from property income. The quarterly reporting system is being phased in for earners to declare their income every three months, ensuring more accurate tax reporting and avoiding massive end-of-year tax bills.
However, by 2028 anyone earning over £20,000 will need to use approved third-party software to submit their tax returns to HMRC. Get ahead of these changes now by shopping around for the best software – there will be lots of deals on offer as the MTD deadline looms. Many business bank accounts offer approved software as an integration for free, too. Getting used to the system now will help you and your accountants avoid last-minute errors, often incurring costly fines, when the deadline comes around.
Complete your self-assessment now
While we’re talking about self-employed and property income taxes, it’s important to turn in your 2024/5 Self Assessment as soon as possible. Doing it in April or May this year, rather than waiting for the January deadline, will help you budget. More importantly, it’ll help you avoid late filing fines, and interest on late payments.
Being able to see many months ahead exactly how much tax you owe will also give you time to submit an adjustment before the January tax deadline to avoid extra charges on your previous Payments on Account declaration. File as soon as you can, and then put the amount of tax you owe into a high-interest account. Then, you can keep your cash earning interest until you need to pay in January – without worrying about scrabbling for last-minute cash to pay your tax bill.
Shop around for savings accounts
Most people keep the same savings accounts year in, year out. But your introductory rate is likely to lapse, meaning your money isn’t working as hard as it could. April is a good time to search for the best savings interest rates around, especially if you want to open a new Cash ISA or find a fixed-term account to lock your cash in for a couple of years.
Take your £500 dividends now
If you have shares paying dividends, opt to take them now rather than later in the tax year, if you can. The money is better in your high-interest savings account now compared to a last-minute withdrawal next March!
Set up a direct debit to your savings
When you get paid, is your first instinct to pay off all of your bills? Add yourself to that list, too! It is much easier to create a savings habit if you save even a small amount at the start of the month instead of scraping together what you might have left at the end of the month.
That’s because it’s easy to spend ‘spare’ money when it’s in our current account. But if you pay yourself first, with a Direct Debit to a savings account on payday, that cash won’t sit in your spending account balance. So, it’ll be easier to ignore that you’ve got the money as it’s tucked away in your savings. Even £25 a month means £300 saved in a year.
Make a budget
The new tax year is a good time to spring clean your spending. Take a few hours to review your spending from the previous year and decide where you might want to reduce your expenses. You can also use money management apps to help you – such as Emma, Plum or Snoop – as these can spot recurring subscriptions you might have forgotten about.
Check your tax code
It’s the time of year for a P60 from your PAYE job, which means you can easily see what you’ve earned in the last year and how much tax and National Insurance you paid. But it will also tell you your tax code. For most people with one job or pension, it will be 1257L – but if you have other income, started or finished a job partway through the tax year, or you get certain work benefits like health insurance, it could be different.
Around 15% of taxpayers every year are thought to be on the wrong tax code – and that could mean you’re paying hundreds or even thousands more in tax every year. Or, worse, you’ve been underpaying tax and will need to have to repay when HMRC works it out. When they claw back underpaid tax, you’ll be left short on your usual pay cheques and living costs. Check the tax code on your P60, and also your April payslip to ensure it hasn’t changed. If it doesn’t seem right to you, alert your payroll as soon as possible. This will prevent under- or overpaid taxes from racking up over the entire tax year.
Learn more about investing widely
If you aren’t ‘into’ investing, or you stick with a stocks and shares ISA, now is a good time to set yourself the goal of learning more this year about how to invest in a diverse portfolio. From choosing tracker funds to crypto to physical assets, there are lots of ways to invest and maximise your gains. MoneyMagpie Invest is hosting a free webinar on April 24 which compares the pros and cons of investing in gold and cryptocurrency as a beginner.
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