It’s that time of year again. The P60s have arrived. So it’s time to get on with filing that self-assessment tax return. Why do so many people leave it to the last minute? I just don’t understand. I’ve already generated mine using the Government Gateway. It’s the second year I’ve used it to file my tax return. So much easier than going through an accountant as I had done in previous years. It means that I can rely on my own calculations instead of double-checking someone else’s arithmetic.
Of course not everyone has to file a self-assessment tax return. Only about one in three of us. But if filling out a tax return seems tiresome, at least it gives you an opportunity to review your tax affairs and make sure that you are only paying what you are required to pay. Nothing more. So remember to deduct those professional subscriptions. There are also some new kids on the block with which all of us need to be aware. One of them is not so new but it has just come to prominence because it is catching out so many people. About 2 million of us. I’m talking about the 60% tax trap.
The 60% tax trap was introduced in 2010 and applies if, taken together, your gross taxable income tops £100,000 but does not quite reach the 45% threshold which kicks in on anything above £125,000. Anything in between is doubly taxed because it is not only within the 40% higher rate tax band but you are also losing a deduction of £1 on your personal allowance for every £2 you earn above £100,000. Here are a few ways to mitigate that tax liability:
- If you are below State pension age, increase your voluntary pension contributions sufficiently to bring your taxable pay below the £100,000 threshold.
- Increase any Gift Aid charitable contributions you make, to reduce your taxable income. Giving to charity means that you CHOOSE who spends your hard earned money instead of having it taken out of your wage packet and wasted on something over which you have no control. Remember also that for every £40 you contribute in gift aid, your chosen charity gets £100
- Think twice before working those extra hours. What is the point if you are going to lose 60% in tax?
There are other changes in the offing. Like a requirement for some self-employed business people and landlords to submit quarterly returns. Isn’t that another reason to get out of the residential lettings market? The government calls it ‘making tax digital’. I thought that my tax was already digital when I logged onto the Government Gateway
BRUCE AND HOLLY 