A new tax year dawns, time to think ahead

We are now a few weeks into the new tax year and with the coronavirus continuing to make life difficult for most individuals, it is time to think about makings plans. Unlike the beginning of past tax years, the ongoing pandemic presents ongoing challenges, especially for those whose income has gone down, but also for those lucky few who’ve seen their income rise. So, here are a few thoughts for you.

New Tax Year 21-22: Working from home

In my Blog on January 21st (P87: Tax Relief for Employees working from home) I went into the various areas of potential tax relief for expenses incurred if you are an employee, such as working from home.

The good news is that providing you’re only claiming the basic allowance on offer, you do not have to keep records of specific expenditure, but you will have to complete form P87 to obtain the benefit. As an alternative, if you can persuade your employer to pay you the homeworking allowance, it will be tax and NIC-free for you and tax-deductible for him/her.

However, any claim or employer payment in excess of the fixed allowance is taxable unless it reimburses specific expenses deductible under the normal rules for employment expenses necessarily incurred in the course of employment.

New Tax Year 21-22: PAYE coding

Everyone in PAYE employment receives a coding notice for the forthcoming tax year, which normally lands on your doorstep in February. Unfortunately, however, HMRC have a track record of making mistakes, especially if something has changed. Also, your new code may contain adjustments for unpaid tax, deductions, or other income, based on the preceding tax years’ figures.

The most common area for HMRC errors, is when your circumstances have changed, such as the loss of a part-time job, a drop in investment income or perhaps a significant redundancy payment. So, if your PAYE tax code is anything other than the standard 1257L (2021/22 tax year) it may be incorrect and it’s worth checking by visiting https://www.gov.uk/check-income-tax-current-year.

Additionally, you should also check that your current code reflects any additional allowances that you’ve claimed, such as the £6 per week for working from home or the protective clothing allowance.

New Tax Year 21-22: Self-employed payments on account

The first 2020/21 self-assessment payment on account that should have been made on 31st January will have been based on 2019/20’s income and tax liability. If however, your liability for the 2020/21 tax year is likely to be lower than the previous year, you can make a claim to reduce the payments on account, to not only reduce the payment due in July, but also giving you a repayment of the excess payment made in January.

If, on the other hand, you’re one of those lucky few who made additional profits during the pandemic, you only have to pay the amount requested by HMRC.

New Tax Year 21-22: Gift Aid

Most people are aware of Gift Aid for regular charitable donations; for most individuals, this occurs when you commit, say £10 per month to a registered charity, who then claim the 20% tax on that sum.

However, if you’re a higher rate taxpayer, you can also claim back the difference between the higher rate and basic rate tax on the value of your gift as the following example of a £100 donation will demonstrate:

The cost to you monthly as a 20% tax rate payer                  £80.00
The cost to you monthly as a 40% tax rate payer                  £60.00
The cost to you monthly as a 45% tax rate payer                  £55.00

You can even sell unwanted clothes, books, CDs and more through a UK charity shop – then give the proceeds to charity under Gift Aid. If you want to explore charitable giving further, those nice people at the Charities Aid Foundation will be glad to help, go to: www.cafonline.org/

New Tax Year 21-22: Buy a house and get a bonus from HMRC

Stamp Duty Land Tax (SDLP) is currently temporarily reduced to zero on the first £500,000 of a property’s cost. This means that on a property purchase you could save up to £15,000 of SDLT, but be warned, unless Rishi Sunak changes his mind, normal rates will apply in full from 1st October 2021.

Also, whilst all relief is lost if completion takes place after 30 September, there is a limited relief for purchases where the contract process starts before 31st July (the end of the ‘initial temporary relief period) providing completion takes place on or before 30th September 2021.

New Tax Year 21-22: An alternative to the Christmas Party

Many employees complained last Christmas that not only were they about to go into an indefinite coronavirus lockdown, but to make matters worse, they’d also missed out on their annual Christmas party. Well, to cheer you up, you can have a summer party instead.

The £150 per head exemption (£300 for a couple) can be used at any time of the year, so if you are one of those who missed out last Christmas, have a word with your employer to have a summer party instead.

Just a word of caution, however, this is an annual exemption and strictly speaking, if you have a summer do in lieu of the cancelled December 2020 event, it will mean two such events in the same tax year, assuming of course that the Christmas party for 2021 is allowed to go ahead.

If your employer didn’t claim in the last tax year, in view of the exceptional circumstances, I do not expect HMRC to be mean-spirited if you have two in the same year, but it might be advisable to ask them nicely before committing.

New Tax Year 21-22: Tax Accountant Comment

Today I’ve highlighted six areas that could be of possible benefit to you, but in truth there are quite a few more, which I intend to explore in the coming weeks.