Managing Workload up to the End of the Tax Year

If you speak to any financial planner, they will tell you the same; no matter how hard they try to educate their clients, there is always a rush towards the end of the tax year. We’ve all been there, put off today what we can do tomorrow, tomorrow never arrives, and then all of a sudden, the tax year end is upon us. 

Technology and financial gadgets have helped, perhaps more in the delivery process than the workload, so it is still challenging for many planners. This brings us to the role of paraplanners and their value as the tax year-end looms.

Client concerns as the tax year-end approaches

It’s important to appreciate that all client situations are unique; rarely will you find two situations the same, but there are several common issues to consider. These include:-

Maximising tax allowances and reliefs

In theory, it should be a case of listing the tax allowances and reliefs and ticking them off when used. In practice, as we have seen in recent months, there have been significant regulatory changes and adjustments to various allowances and reliefs. In this area, some of the more common topics to address include:-

• Pension contributions
• Capital gains tax allowance
• Inheritance tax
• ISAs 

In recent years, there have been relatively minor changes to the actual income tax rates, but the freezing of the tax bands has prompted what is known as “fiscal drag”. As a consequence of static tax bands, as our income increases, we pay more tax, with some people dragged into a higher tax band. Consequently, where it is possible to impact the timing of the receipt of income, this can reduce tax liabilities and may even avoid moving into a higher tax band.

Income tax

In recent years, there have been relatively minor changes to the actual income tax rates, but the freezing of the tax bands has prompted what is known as “fiscal drag”. As a consequence of static tax bands, as our income increases, we pay more tax, with some people dragged into a higher tax band. Consequently, where it is possible to impact the timing of the receipt of income, this can reduce tax liabilities and may even avoid moving into a higher tax band.

Tax efficient investments

While there is some overlap between pension contributions and ISAs in relation to tax-efficient investments, it’s also essential to consider other investment vehicles. Perhaps more focused on high-net-worth individuals, there are numerous options to defer or reduce income and capital gains tax. These include:-

• Venture capital trusts
• Enterprise investment schemes
• Seed Enterprise investment schemes

Even though there is an element of flexibility regarding timing and potentially backdating relief, it is essential to plan ahead as much as possible.

Tax compliance and reporting

Often taken for granted, you must also plan ahead concerning tax compliance and reporting. This not only includes time-critical actions you need to take before the end of the tax year but also (for a growing number of people) the lodging of your self-assessment tax return. 

We know from official HMRC data that 1.1 million people (up 10% from last year) missed the 31 January 2024 self-assessment tax deadline. Initial fines alone totalled £110 million with additional interest charges and further penalties until the return is lodged and tax paid.

Unfortunately, there may be situations where you have 99% of the information required to hand in, but that final element needs to be included. On occasion, individuals with no additional tax to pay have been fined because they could not prove this before the last reporting date. 

In a perfect world, we would all start to plan for our next tax return on 6 April, the first day of the new tax year, but this can be difficult. Well, we say difficult; it is impossible for many people.

Changes in legislation

Many elements of the taxation system have seen tweaks and changes over the years; some were relatively minor, while others can significantly impact short, medium and long-term liabilities. A financial planner’s role is to monitor these changes, speak to their client and ensure that tax planning adjustments are made as soon as possible.

Something as simple as missing the capital gains tax allowance reduction could create an avoidable tax liability. As well as knowledge of the regulatory changes, it’s essential to identify the timescale as these can often be spread over several tax years.

Structuring the end-of-tax-year workload

So, now we have looked at some of the typical issues you may face in the run-up to the tax year-end, let’s consider a more structured approach. Working with your client (and paraplanner), how can you reduce the pressure and introduce a more structured approach

Proactive communication and planning

Communication and planning are the keys to managing the end-of-tax year workload for individuals and financial planners. A proactive approach by financial pros allows information to be gathered sooner rather than later and gives clients confidence that you have the issue under control.

Tax optimisation

As mentioned above, every situation is different, so tax optimisation for one client may not be relevant for another. Tailoring a short, medium and long-term tax strategy to an individual’s situation and aspirations is critical. This will likely take in various topics, such as pension contributions, ISAs, capital gains tax, and even gifting, as a critical element of inheritance tax planning. The options and mix for different clients can be huge!

Data management

Data management and organisation are invaluable skills and ones that come to the fore as we approach the end of the tax year. Many financial planners use paraplanners to assist in collating data and creating financial reviews and tax summaries. 

This information must be accurate and up-to-date and clearly define an individual’s tax position. There is a skill in collating all of the relevant information required, but an even greater skill is producing a simple report on what can be a complex topic.

Client facing time

As a client or a financial planner, there is a lot you can do by email, telephone and Zoom, but a face-to-face meeting enhances interaction and can help identify potential issues. As financial services companies look to outsource more of their data gathering and report production to paraplanners, this leaves more time for client meetings. 

Looking at this from a purely business point of view, we also know that enhanced client/planner interactions often lead to more business and referrals. This is undoubtedly a win-win for all parties.

Building relationships

While it is essential to focus on the reports, advice, data and regular updates, the personal side of the client/planner relationship is often overlooked. You mustn’t underestimate the value of sitting across a table from your client, interacting, discussing and very often diverging away from finance into their personal life. 

Long-term client relationships aren’t created overnight!

The role of a financial paraplanner

Reading through the above information, it is easy to see the role of a financial paraplanner, often behind the scenes but now a lot more integrated into client operations than many might think. Some of the more common activities include:-

Research and analysis

This will cover financial products and markets as well as reporting on an individual client’s finances. Consequently, this may involve research and identifying market trends, product suitability reviews, cash flow, investment strategies, and asset allocations.

Financial planning

Most financial paraplanners will be involved from the data gathering phase to financial modelling and drafting financial plans. These plans will include an element of tax planning, investment recommendations and an overall view of risk management.

Client support and communications

As the skill set and the value of financial paraplanners continue to grow, many are now directly involved with client communications, a point of contact. They may also take a proactive approach when updating client records and ensuring that all information is accurate.

Administration

The approach to the tax year end can get manic for clients and financial planners, but a clearly defined workflow strategy can reduce the pressure. This enhances efficiency and maximises output in what are often very challenging times.

Third-party collaborations

Many people see a financial paraplanner’s stereotypical role as supporting a financial planner. This is the crux of the relationship for many, although numerous paraplanners also collaborate with accountants, tax planners and other specialist services. The role of paraplanners is changing and expanding as more financial planners begin to appreciate the benefits.

Planning ahead is the key

As an individual, financial planner or paraplanner, the key to managing finances is the ability to plan confidently. We appreciate that nothing is ever set in stone, things change, and very quickly, guidance and information may be out of date and need refreshing. As financial paraplanners, we have worked with many companies, not just planners and accountants. 

Each client is different, enhancing our experience and expertise, which we can use further down the line.

Over the years, we have created internal procedures which maximise efficiency and output, but we also build in a degree of flexibility. It is a very fine art, balancing the production of accurate information in a time-efficient manner. Thankfully, this is where we excel, planning ahead and maximising our resources in a controlled and managed way.

Don’t get us wrong, we’re not saying it doesn’t get busy toward the tax year end, just that we still feel in control.

Checklist: Tax year-end planning

Many issues associated with the tax year end are time-critical and unique to individual clients. The following checklist covers the topics that financial planners need to consider when reviewing client finances.

Broad topics

• Overall performance of investments
• Retirement planning
• Tax planning

Focused Topics

• ISA Allowances
• Pension Contributions
• Capital Gains Tax (CGT)
• Inheritance Tax (IHT) Planning
• Gift allowances
• Dividend Allowance and Interest Allowance
• Marriage Allowance
• Check Tax Codes
• Consider Investments in VCTs or EIS
• Property Allowance

It’s also important to sit down with clients and discuss changes in their personal and professional lives and long-term investment strategies.

Summary

Whatever the deadline, whether it be a tax report or the MOT for your car, while we all endeavour to be more punctual and organised, there is a lot going on in life. Unfortunately, there are many time-critical issues regarding tax allowances, reliefs, and long-term tax planning. Often referred to as “use it, or lose it”, it’s essential to plan ahead, structure your workload in the run-up to the tax year-end and avoid the dreaded overload.

In recent times, the role of a paraplanner has started to change; it is less in the background and often more prominent in data gathering and speaking directly to the clients of financial planners. Taking a structured approach, the data-gathering process will usually begin many months before the tax year-end, invoking a degree of calm and confidence among financial planners and their clients.

As hard as we try, and financial planners have tried for decades, there will always be an increased workload as we approach the end of the tax year. Managing the increase is the key; that is where we come in.