Today is the last day of the 2010/11 tax year, adjustments to employee taxes need to be made and paid by 31st January 2012 and of course the self-employed have until the same date to submit and pay their returns. Today also sees the final execution of the A-Day Pension Rules from 2006.
Regrettably, remembering that “we’re all in it together”..the new tax year which begins tomorrow is more complicated and for the majority of people, will mean that more tax is paid across to HMRC.
The most significant issue is that pension contributions are reducing from a possible £255,000 to £50,000 as a maximum for 2011/12. You also need to be warned that the way that this works in practice is not straight-forward. Contributions are based upon input periods, not necessarily payments made in the actual tax year. There is also now the option of using Carry Forward Allowance of unused relief from the previous 3 tax years. In addition the lifetime allowance is in its final year of £1.8m – this time next year it will be dropping to £1.5m unless Treasury plans are reversed. 
The basic personal allowance rises by £1,000 to £7,475 before any tax is paid, which is good news for nil and basic rate taxpayers. Everyone else will actually start paying a 40% tax rate earlier as the banded earnings has reduced from £37,400 to £35,000. In other words in 2010/11 you had to earn £43,875 before paying tax at 40%, for 2011/12 this has reduced to £42,475. For those earning over £100,000 the personal allowance is removed entirely from £114,950 (in 2010/11 this was the case at £113,490). The £150,000 income earners retain a 50% tax rate on income above £150,000. National Insurance contributions will also rise.
So as we look forward to the new tax year, there are lots of changes. My role is to help clients use their allowances legitimately and perhaps more than ever before, financial planning advice is vital for anyone with an income over £42,475 and of particular importance to anyone with a six figure income.
The new ISA allowance is raise to an investment of £10,680 and the tax free benefits of ISAs are becoming ever more valuable with each passing tax year. So if you can, fill your boots with ISA and pension allowances where appropriate.
Don’t forget that Self-Assessment means that YOU are responsible for correctly reporting and paying your taxes to HMRC. So, if you don’t already, make sure you keep a tax year file…. yes include all those silly dividend slips from shares that your granny gave you. The old Hector character from HMRC used to regularly remind us to keep documentation, now that they use former BBC newsreaders, the sentiment seems to have been dropped from the script, but not from the practice.
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