Janice Parker, director of personal tax at Oxford-based Critchleys accountants and business advisers, reveals how thousands of people could fall into a new tax band and suggests what can be done about it

The Government has enveloped another 750,000 UK citizens within the higher rate tax band of 40 per cent from this month. Many people will be unaware this has happened until they see the figures on their wage slips.

While those of us under the age of 65 will enjoy an increase of £1,000 in the personal allowance — going up from £6,475 to £7,475 — by reducing the basic rate tax band from £37,400 to £35,000, the threshold at which higher rate tax will be due is set to fall from £43,875 to £42,475.

None of us is willing to pay more tax. So what can we do to protect ourselves?

First, you should check your income levels to find out if you are likely to earn more than £42,475 in the next tax year (2011/12).

If you are an employee, the task is simple — all you need to do is check your last P60 and/or your current payslip.

For those who are self employed, the task is not so easy, because you will have to gauge whether your net profits for accounting periods ending in the year ended April 5, 2012, will exceed the limit.

But also bear in mind that if you receive investment income or pensions, the gross equivalent of what you expect to receive in 2011/12 also needs to be taken into account.

Once that has been done and you believe that you total income for 2011/12 will exceed the higher rate tax threshold, you could consider the following options: n Use your ISA allowance Investments held in an ISA escape income tax and capital gains tax, so if you can, use your full annual savings allowance of £10,200, of which £5,100 can be cash investments.

Because choosing an ISA can be a bit of a minefield, we recommend you take financial advice to get the one that’s right for you.

n Make pension contributions Contributions to a pension scheme, whether it is your own or an employer’s, qualify for income tax relief at your highest rate. So by making contributions into such a scheme, you will lower the overall tax that you will pay.

If you are already making pension contributions then you may want to consider increasing the amount you pay.

n Salary sacrifice Lifestyle choices are what salary sacrifice is about and there are a few options where, if you are an employee, you could ask your employer if it is possible to give up some of your salary in exchange for something else that would be exempt from tax and National Insurance contributions.

Suggestions include pension contributions, a mobile telephone, additional holiday and childcare vouchers with a maximum weekly value of £55.

By sacrificing salary for non-taxable alternatives, you will lower the level of taxable income, resulting in the payment of less tax and National Insurance.

n Use your spouse’s tax allowance Do you have investments — for example, savings accounts, stocks/shares, or property that you rent out?

The income from all of these sources is also subject to higher tax rate, so if you are married or in a civil partnership, and your partner is within the basic rate tax threshold, then you could consider transferring all or part of the income-producing assets to them.

By doing this, you will shift income from the 40 per cent to the 20 per cent tax bracket or, even better, there could be no tax payable at all if your spouse/civil partner is able to use their tax free personal allowance of £7,475 against the transferred income.

n Company car Depending on your circumstances, now might be a good time to consider whether to get rid of a company car, change a company car for a more tax efficient model, or ask if you can have a company car so your employer covers the expense of running one.

Having a company car is a taxable benefit that can be expensive in terms of the tax payable on the vehicle, so deciding what to do for the best can be complicated, so it might be wise to take advice.

n Gift Aid payments Payments to charities registered in the UK and EU countries qualify for income tax relief at your highest rate of tax, provided they are made using the Gift Aid scheme. So if you are feeling generous, this is a good way of reducing your taxable income.

If you do make Gift Aid payments, whether on a regular basis or the odd £1 to a worthy cause, keep a note of the amounts you have paid so you can claim the tax relief on them.

n Restructure your business With the new lower threshold for higher rate tax and the falling corporation tax rates, many people in business are likely to consider restructuring. This may include bringing other family members into a partnership, or using the popular incorporation route.

A further option is to introduce a company as a member of a partnership.

Restructuring could not only save tax, but also increase the state pension entitlement.

Ultimately, it is up to you. Accept paying more tax or do something about it. The choice is yours.

n Contact: Critchleys, 01865 261100.

Web: www.critchleys.co.uk