Happy New Financial Year
The UK is the only country in the world to have a financial year which runs from 6th April to 5th April. Most other countries have the sensible new financial year date of 1st January.
The reason for the strange date goes back to 1752 when a change to the UK calendar required the calendar year to have only 354 days to realign with the solar calendar of 365 days. Also, prior to 1752, New Year’s Day was not 1st January as it is now, it was the 25th of March. This was also the start of the new financial year.
The change from the Julian calendar to the Gregorian calendar moved New Year’s Day to the 1st of January, however, as the Treasury didn’t want to lose out on tax revenue, it insisted the tax year remain 365 days long. This would have kept 25th March as the start of the financial year if not for 1752 having 11 missing days. This moved the financial year start date along to the 5th of April.
This was then moved along by one more day to the 6th of April, where it has remained ever since, in the leap year 1800.
What does the new financial year mean for you?
You have money to invest
A new financial year means most of your tax allowances have reset. Everyone now has a new;
- £2,000 dividend allowance
- £12,300 capital gains allowance
- £1,000 savings allowance (for basic-rate taxpayers)
- £500 savings allowance (for higher-rate taxpayers)
- £20,000 ISA allowance
Everyone has also had their annual allowance reset. This is the amount of money you can place in a pension and receive tax relief on the contributions.
Everyone aged below 75, regardless of income, is entitled to an annual allowance of £3,600. This increases to a maximum of £40,000 or 100% of your earnings for the tax year (whichever is the least).
You now have 12 months to use these allowances, they cannot be rolled over to the next year (with the exception of the annual allowance).
You currently have investments
For those of you who have money invested already, it may be time to take advantage of a few things.
One example is a Bed & ISA. This is where you have investments held in a non-tax efficient wrapper, such as a collective investment account, and you move them to an ISA.
Everything grows tax-free within an ISA, and you are not limited to the allowances mentioned above (dividend, savings, and capital gains allowances), so, given the choice, you’d rather have your investments held within an ISA than held outside one.
What is best for you will depend on your specific circumstances.
Your State Pension
If you earned enough money to pay National Insurance contributions in the last financial year, you have now locked in an extra 1/35th of your state pension.
This year, this amounts to £5.29 per week (£275 per year).
If you didn’t earn enough last year to qualify, you do have the option of paying a voluntary contribution. You can check your National Insurance contributions history here; https://www.gov.uk/check-state-pension
For the self-employed, sole traders and partnerships, the new financial year means you can submit your self-assessments for the tax year 2021/22. You have until 31st January 2023.
Employed people who have paid taxable expenses through the last year should also complete a self-assessment to claim the tax back.