Ideas for reducing your taxable income 2011-12

Before we describe a few basic ideas for reducing your taxable income this year it is worth pointing out that you only have until 5 April 2012 to take action…

Deferring income
If you receive bonuses this month or a dividend from your company you should estimate your earnings for the next tax year, 2012-13, and if next year’s earnings are likely to be lower than the current year’s earnings consider deferring the voting of a dividend or bonus until after 5 April 2012. In this way you can defer any liability and possibly reduce your overall tax bill.

Gift Aid Payments
Any Gift Aid payments you make in 2011-12 will effectively increase the amount of income you can earn at basic rate. For a higher rate tax payer (especially those with earnings of £100,000 to £114,950) this can significantly reduce the net cash cost of your donation. This strategy is particularly useful as, unlike the other ideas in this article, the deadline for making gift aid payments for 2011-12 is the date you file your 2012 self-assessment tax return – this is because such gift aid payments can be ‘carried back’ a year.

Self-employed tax payers and Companies
As we mentioned in our newsletter last month, don’t forget that from 6 April 2012 (1 April 2012 for companies) the Annual Investment Allowance (AIA) is dropping from £100,000 to £25,000. If you are contemplating a significant, capital purchase this summer that qualifies for the AIA, crunch the numbers and see if it would make sense to bring forward the expenditure, to before 6 April 2012 (1 April 2012 if a limited company).

Furnished Holiday Let Property
If part of your income for 2011-12 arises from the letting of furnished holiday let property it may be possible to reduce or eliminate this income by taking advantage of the Annual Investment Allowance mentioned above. This type of property letting is considered to be a trade so qualifying expenditure on refitting or refurbishing your property could be brought forward to this month and used to eliminate higher rate tax.

Pension payments
Have you maximised the amount you can pay into qualifying pension schemes this year? Although basic rate tax relief is generally deducted before you pay your contributions you can claim for the higher rate tax element on your tax return. Talk to your pension’s advisor about a possible top up.

Hopefully you will already have given serious consideration to these and other ideas to minimise your tax position for the current tax year. You still have a few weeks to fine tune your planning. As soon as midnight passes on 5 April 2012 these options, apart from the gift aid strategy, will cease to be effective. The clock is ticking.

Original post by Latest Taxation News and many thanks to them and their entry and picture of their BMX Bike