Stefanie Tremain, Director at Blick Rothenberg, highlights that: “Generally, any tax due for the previous tax year is due for payment to HM Revenue & Customs (HMRC) by the tax return filing deadline, which is 31 January. So, any taxpayers who owe tax for the 2020/21 tax year will have to make a payment to HMRC by 31 January 2022. If the amount due for the year is less than £3,000, however, taxpayers can ask HMRC to collect the tax through their PAYE tax code.
“What this means practically is that rather than having to pay up to £3,000 in tax by 31 January 2022, the tax is paid in 12 equal instalments over the course of the 2022/23 tax year. This would reduce net take home salary or pension income. However, many taxpayers may prefer this to having to pay out a large amount in January.
“There will be some taxpayers who can’t choose this option, for example if you don’t have enough PAYE income or you would end up paying more than 50% of your PAYE income in tax. If taxpayers are eligible and do decide to tick this box, they should make sure they remember to include details of the tax collected through PAYE on their 2022/23 tax return.
“Another tip that many may not be aware of is that taxpayers can carry back tax relief for any Gift Aid donations made after the end of the tax year, up to the point at which they file their tax return. For example, if a taxpayer’s 2020/21 tax return has not yet been filed and they make a Gift Aid donation today, they can treat the donation as having been in 2020/21 tax year and claim their tax relief earlier. This can be particularly helpful if a taxpayer knows their income will be lower in the current year and that carrying back relief would save tax at a higher rate.
“It is easy to forget about Gift Aid donations and personal pension contributions, but as well as claiming higher and additional rate tax relief, the grossed-up value of any Gift Aid payments and pension contributions is taken into account when calculating a taxpayer’s ‘adjusted net income.’
“This is particularly important for any taxpayers with income between £100,000 and £125,140 as the restriction to the personal allowance is based on adjusted net income rather than total income. Including any Gift Aid donations or pension contributions on your tax return could therefore save tax at 60%, which is the effective rate for those with a partially restricted personal allowance.
“The High-Income Child Benefit charge is also based on adjusted net income rather than total income, so including full details of Gift Aid payments and pension contributions on your tax return could reduce the amount of the charge you have to pay back.
Would you like to know more?
If you would like to discuss the above or how it may affect you and your business, please get in touch with Stefanie Tremain or your usual Blick Rothenberg contact using the details on this page.