One of the few remaining options to carry back tax allowable payments to a previous tax year is the facility to set off certain charitable donations made after 5 April 2017, to the tax year 2016-17.
Allowable donations have the effect of extending the amount of income you can earn at the basic rate of income tax – the donations extend the basic rate tax band. This can be a useful planning device if say your income for 2016-17 included a one-off boost that meant you paid higher rate tax (40%), but your income for 2017-18 would only be taxed at basic rate (20%). By carrying back any charitable donations made after 5 April 2017, you would decrease your higher rate tax liability for 2016-17.
You automatically qualify for basic rate income tax relief on your gift aid donations, you effectively pay a net of tax figure to the charity and they reclaim the deemed basic rate tax from HMRC. Accordingly, this carry back option will have no impact on your tax liabilities if you are a basic rate tax payer in both years. The carry back will also have no effect on the charities’ finances.
Taxpayers need to be careful when considering their options as you can only qualify for relief if your tax payments in a year equal or exceed the deemed basic rate tax credits deducted from your donations. HMRC notes confirm:
But for Gift Aid, you can also claim tax relief on donations you make in the current tax year (up to the date you send your return) if you either:
- want tax relief sooner
- won’t pay higher rate tax in current year, but you did in the previous year
You can’t do this if:
- you miss the [filing] deadline (31 January  if you file online [for 2016-17])
- your donations don’t qualify for Gift Aid - your donations from both tax years together must not be more than 4 times what you paid in tax in the previous year.
If you feel that you may benefit from this strategy we would be delighted to check out the numbers for you.