Articles Archive for the ‘Tax’ Category

1000L – Everything You Need To Know About Your Tax Code 2014/2015

Friday, April 11th, 2014

Are you one of the millions of people whose tax code for 2014/2015 is 1000L? If you pay your tax through PAYE and you receive the full tax free Personal Allowance, this may well be your tax code for the 2014/2015 tax year. 1000L is also the ‘emergency tax code’ for the 2014/2015 tax year. Keep reading to find out everything you need to know about the 1000L tax code.

The 1000 in your tax code

Your Personal Allowance is the amount of money you’re allowed to earn each year before you pay tax.  On April 6, 2014 the Personal Allowance increased from £9,440 to £10,000. This means that most people can earn £10,000 before they start to pay any income tax.

The number in your tax code helps you to work out what your Personal Allowance is. You simply multiply the number on your tax code by 10.

In the 2014/2015 tax year, many people will have the tax code 1000L. This means you can earn £10,000 – the basic Personal Allowance – before you have to pay any income tax.

‘L’ tax codes

If your tax code features numbers and then the letter ‘L’ it means that you are eligible for the basic Personal Allowance (£10,000) in the 2014/2015 tax year. Your tax code may be 1000L.

If your tax code ends in the letter ‘P’ it means that you are between the age of 65 and 74 and you are eligible for the full Personal Allowance (tax code 1000P). If your tax code ends in ‘Y’ it means that you are over the age of 75 and you are eligible for the full Personal Allowance (tax code 1000Y).

Why 1000L may be your ‘emergency’ tax code

If HMRC doesn’t have sufficient information about your income, they may issue your employer or pension provider with an ‘emergency tax code’.  An emergency tax code is used on a temporary basis while HMRC establish what your correct tax code should be.

If you have an emergency tax code it will ensure that you receive the basic tax free Personal Allowance (£10,000 in tax year 2014/2015).  However, it doesn’t take any other allowances into account.

The emergency tax code is set each year by HMRC and is a number followed by the letter ‘L’.  In the 2014/2015 tax year, the emergency tax code is 1000L.

However, if you have the 1000L tax code it doesn’t mean you are on an emergency tax code. For example, if you are eligible for the basic Personal Allowance and have no deductions you may have the same tax code.

Tax Code 1000L

Posted in Emergency Tax, Tax, Tax Codes | No Comments »

52 Ways To Save Tax

Tuesday, April 1st, 2014

Here’s your first part of a brand new series outlining 52 ways in which you can save tax. For the first part we look at a problem that results in millions of people paying too much tax: being on the wrong tax code.

1. Get Your Tax Code Right

Tax Codes phone tax formIf you pay any income tax via the Pay as You Earn (PAYE) system then you will have a tax code. Your tax code tells your employer or pension provider how much income tax to deduct from your earnings.

HMRC issues your tax code based on information they have about your taxable income and allowances. So, if the information they have is wrong, you could be paying too much tax.

Getting the right tax code could save you a fortune in tax. Keep reading to find out more.

How to save tax by getting your Tax Code right

In many cases your tax code will be based on information HMRC has about the previous tax year. For example, if you had untaxed income such as rental income or a second job HMRC will try and collect the tax due on these earnings through your tax code.

However, if your income from such sources has fallen, HMRC may still be basing the tax you pay on the figures from the previous tax year. This means you could be paying too much income tax.

To make sure you pay the right amount of tax you should tell HMRC if you:

  • get married or form a civil partnership
  • start receiving a second or third income
  • Start receiving taxable benefits such as private medical insurance or a company car
  • Become or stop being self employed

You should also let HMRC know if other income that you get – such as savings or rental income – increases or reduces.

If you pay tax through PAYE but don’t normally complete a tax return you should contact HMRC with details of the changes to your income. HMRC may be able to change your tax code so that you pay the right amount of tax. If they do this you will receive a PAYE Coding Notice explaining the changes to your code.

However in some cases HMRC may ask you to complete a tax return and pay any extra tax through Self Assessment. HMRC will write and let you know if they need you to complete a tax return.

If your taxable income has gone down you may be due a refund.

Posted in Tax, Tax Codes, Tax Rebate | No Comments »

5 little things that could get you a big tax rebate

Friday, February 21st, 2014

Making even a small mistake on your tax return can cost you a fortune. Failing to claim reliefs or expenses can lead to you paying more tax than you need to and if you haven’t spotted these errors you could end up making the same mistakes year after year.

If you haven’t checked the following five items correctly, you could be due a tax rebate. Keep reading to find out more.

Your tax code

One of the most common reasons that you will pay too much tax is if you have the wrong tax code. This can often happen if you have changed jobs, if you have more than one job or if you pay tax on other income through PAYE. And, if you have company benefits it can also result in the wrong tax code.

If other income that has been taxed through PAYE has changed you should let HMRC know as you may have been paying too much tax. And, always provide your P45 to your new employer as quickly as you can to avoid ending up on an emergency tax rate.

Your pension contributions

Pension contributions attract tax relief. This means that either your pension fund is boosted or your tax bill is reduced.

It is important that you properly report every pension payment to HMRC. If you pay your contributions through PAYE then your tax may be correct, However, if you are self employed or you pay into a private pension you should keep HMRC informed of all your contributions.

Your expenses

If you incur expenses as part of your work then you should declare these. If you don’t, you may end up paying too much tax and you could be due a tax rebate.

This is especially true if you are self-employed. Make sure that you record and claim all expenses incurred in your line of work including tools, supplies and travel expenses incurred as part of your business.

Remember that you can only claim expenses which were incurred wholly or mainly during the course of carrying out your business.

Your donations to charity

The UK’s Gift Aid scheme boosts your charitable donations by 25 per cent.

For example, if you donate £50 to a charity, then the charity gets £62.50 – equivalent to your £50 plus £12.50 of Gift Aid. And, if you are a higher-rate taxpayer, you can reclaim a tax rebate of a fifth (20 per cent) of the total gift, which comes to £12.50 in this example.

Remember to declare all your charitable donations to HMRC, especially those made outside of Gift Aid.

Your previous tax returns

If you haven’t checked your previous tax returns correctly or you have made mistakes you could be continuing to make the same errors year after year.

It is worth looking over your previous tax returns to see if there are any mistakes that may result in a tax rebate. There is a standard limit of four years from the end of the tax year for making claims for repayments of tax.

Posted in Emergency Tax, Tax, Tax Rebate, Tax Return | No Comments »

5 Dumb Reasons Why People Don’t Claim Their Tax Rebate

Sunday, January 26th, 2014

Have you paid too much tax? If so, you may be eligible to claim a tax rebate (or ‘tax refund’) which may be worth hundreds or even thousands of pounds.

However, millions of pounds of tax rebates go unclaimed each year for a range of reasons. We’ve put together a guide to five of the most common reasons why people are missing out on reclaiming thousands of pounds of their own cash. Keep reading to make sure you avoid these mistakes.

It is too much hassle

Most people assume that claiming back tax will be a lot of hassle. However, the process is actually more straightforward than you may think. If you think you have paid too much tax you simply have to telephone HMRC or send them a letter explaining why you think you have overpaid.

If you don’t want to deal with HMRC yourself, there are a range of expert ‘tax rebate’ services who will process your claim on your behalf. Sites such as Tax Fix can help you to reclaim your overpaid tax and take the hassle out of your claim.

It is too late

Don’t assume that it is too late to make your tax rebate claim. You normally have up to four years to make a claim for overpaid tax.

If you’re a self assessment taxpayer you have until 5 April 2014 to make a claim for tax you overpaid in the tax year 2009/10. You can claim overpaid tax from the 2010/11 tax year until 5 April 2015.

If you’re a PAYE taxpayer the deadline to make your tax rebate claim for the 2009/10 tax year is 5 April 2014. If you want to claim for the 2010/11 tax year you have until 5 April 2015.

Tax rebates are just for foreigners

Many UK residents are under the mistaken impression that tax rebates are only for foreigners who work in the UK for a short time.

In reality, anyone who has worked in the UK could be due a tax rebate. There are lots of reasons that you may have paid too much tax, and we’ll outline some of these next.

I don’t think I am eligible

Don’t assume that you have paid the right amount of tax or that you aren’t eligible for a tax rebate. There are lots of reasons why you may have paid too much tax. These include:

  • You had more than one job
  • You were on an emergency tax code for part of the tax year
  • You only worked for part of the tax year
  • Your employer used the wrong tax code
  • You are a student and didn’t complete the P38S form
  • Other income taxed through your tax code has reduced since you told HMRC about it

I don’t have the right forms

Many people try to apply for a rebate and give up when they find that they don’t have a P60 or P45.

However, it is possible to obtain duplicates of these forms and other information you need to make your claim. Again, a tax rebate claims service can give you advice and help you in this regard.

Posted in Emergency Tax, Leaving the UK, Tax, Tax Codes, Tax Rebate, Tax Return | No Comments »

Leaving the UK in 2014? Don’t forget to claim your tax rebate

Sunday, December 15th, 2013

Are you are planning on leaving the UK in 2014? Perhaps you are taking up employment in another country? Maybe you’re emigrating with your family? Or, your job in the UK may have ended and you’re moving elsewhere?

If you’re planning on leaving the UK in 2014 then you may be due a tax rebate. While many thousands of people every year leave the UK without checking whether they are entitled to a tax rebate many other claim back hundreds or even thousands of pounds in overpaid tax.

Our guide looks at when you become non-UK resident for income tax and how you go about claiming a tax refund when you live the UK.

Why you might be due a tax rebate

If you are leaving the UK in 2014 the chances are that it will be part way through a tax year. If your employment ends during a tax year then you can quite often be due a tax rebate.

This is because your personal allowance – the amount you can earn before you start to pay income tax – is generally split into equal monthly instalments. So, when you leave the UK you would be due back any unused part of your personal allowance in that tax year.

When are you non-resident for UK Income Tax?

You will be treated as non-resident from the day after you leave the UK if you can show that:

  • you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
  • your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years

What to do when you are leaving the UK

You must tell HMRC if you’re leaving the UK to live or work abroad or if you’re returning home or moving to another country after a period of living and working in the UK.

Normally, one of two things will happen:

  • You will be asked to complete a tax return
  • You will have to complete form P85 ‘Leaving the UK – getting your tax right’

HMRC will use the information on either your tax return or the P85 form to send you any tax refund you’re owed and work out if you’ll become non-resident. It’s important that you enclose the original parts 2 and 3 of form P45 if you have one as HMRC will not be able to make any tax refund you are owed without them.

If you’re leaving the UK to work full-time abroad for a UK based employer for at least a complete tax year, you’ll need to fill in a tax return as well as a form P85.

Tax Fix can help you discover whether you’re due a tax rebate when you leave the UK. Get in touch with us today to find out how we can help.

Posted in Leaving the UK, Tax, Tax Rebate | No Comments »

Why you might be due a tax rebate in 2014

Thursday, November 21st, 2013

Have you paid more income tax than you should have? If so, you may be able to claim a tax rebate or tax refund.

Perhaps you have stopped working for part of the tax year? Did you have a second job that wasn’t taxed correctly? Or, maybe you had the wrong tax code? Whatever the reason, you may be able to claim a tax rebate from HMRC.

Here, we look at three common reasons that you may be due a tax rebate in 2014. Keep reading to find out more.

You have paid too much tax through your job

There are lots of reasons that you may have paid too much tax on your employed earnings. These include:

  • If you had more than one job at the same time
  • Your employer was using the wrong tax code
  • You changed jobs during the tax year
  • You are a student who only worked in the holidays
  • Other income that is taxed through your tax code has reduced
  • You didn’t work for part of the year
  • You went from being employed to self-employed

In many of these cases you may have paid too much tax. You can claim a tax refund if you’ve overpaid in the current tax year or any of the previous four tax years.

You stopped working during the tax year

A tax year runs from 6 April to 5 April. If you stop working part way through a tax year, you might have paid too much tax for that year.

If you retired during the tax year, went self-employed, went back to being a student, were made redundant or you were only employed for part of the year then you may well have paid too much tax. This often happens if you were paying tax through Pay as you Earn (PAYE).

Whether you were employed or self-employed before you stopped work, if you’ve paid too much tax you’ll be able to claim a refund of the amount that you’ve overpaid.

You made a mistake on your tax return

If you have made an error on your tax return then you may have ended up paying too much tax. So, the first thing you should do is to correct your tax return.

If you make a mistake on your tax return, you’ve normally got 12 months from 31 January after the end of the tax year to correct or amend it. For example, if you send your 2012/13 online tax return by 31 January 2014, you have until 31 January 2015 to amend it.

If you submitted your tax return online then it is easy to amend it online. You log into your Self Assessment online account, head to the ‘at a glance’ page and choose the option to amend your return.

If you submitted a paper tax return you should write to HMRC and attach the specific pages that you wish to change. Mark these ‘amendment’ at the top of the first page.

If you owe more tax or have to pay a penalty as a result of the mistake, HMRC will tell you how much you need to pay and when and how to pay it. If you’re think you’re due a refund you can tell HMRC how you’d like to receive it.

Posted in Tax, Tax Rebate, Tax Return | No Comments »

What you do and don’t pay VAT on

Monday, October 21st, 2013

Value Added Tax (VAT) is a tax that all of us pay. It is a tax on consumer spending and it is automatically added to goods and services that you buy. And, you pay VAT on a wide range of items from clothes to restaurant meals.

VAT is currently charged at a rate of 20 per cent and is expected to raise the staggering sum of £100 billion for the Treasury in 2013. But, what do you pay VAT on? What goods and services are exempt from VAT? And what attracts the reduced rate of VAT? Keep reading for the answers to all these questions – and we also look at why you’ll pay VAT on crisps but not tortilla chips.

What you do pay VAT on

VAT is charged on a huge range of items – from clothes and cars to big ticket electrical items. Most goods and services in the UK attract VAT at the standard rate – currently 20 per cent. Most of the time, VAT is included in the price of an item in a shop. For example, a pair of shoes priced in a major retailer at £50 will include VAT of 20% (£10).

What you don’t pay VAT on

There are a range of items are zero-rated for VAT or are exempt from the tax. This means that you don’t have to pay VAT on them. Items that are zero-rated for VAT include:

• Books, magazines and newspapers
• The water supplied to your home
• Medical treatment and health care
• Printed music
• Bingo
• Baby wear
• Lotteries
• Children’s clothing and footwear
• Postage stamps
• Goods donated and sold in charity shops
• Betting/gaming
• Burial or cremation costs

The reduced VAT rate

VAT was introduced as a tax on ‘luxuries’ however many of the items now subject to the tax are viewed by most people as essentials. However, some items attract VAT at a considerably reduced rate of 5 per cent. You will pay 5% VAT on:

• Domestic gas and electricity and heating oil/solid fuel for domestic use
• Items to help you to stop smoking such as nicotine patches
• Children’s car seats
• Women’s sanitary products
• Heating oil and fuel
• Mobility aids for the elderly

 

Paying VAT on food

Food and drink for human consumption is, in general, zero-rated. However, you do pay standard rate VAT (20%) on a range of items including alcoholic drinks, confectionery, crisps and savoury snacks, hot food, sports drinks, supplies of food made in the course of catering including hot takeaways, ice cream, soft drinks and mineral water.

There are also a number of odd discrepancies where you can pay VAT on some types of food but not others. For example, you will pay VAT on shelled nuts but nuts in their shells are VAT free.

 

Foods that you do pay VAT on… …and foods that you don’t pay VAT on
Wholly or partly chocolate covered biscuits Chocolate chip biscuits
Sorbet Cream gateaux and mousse
Chocolate bar Chocolate spread
Flavourings for milk shake Milkshake
Arctic roll Jaffa cakes
Potato crisps Tortilla or corn chips
Roasted/salted nuts without shells Roasted/salted nuts in shells (monkey nuts, pistachios)
Cold take-away food Hot take-away food
Luxury biscuits Cakes

Posted in Tax, VAT | No Comments »

Are you paying the right amount of tax on your rental income?

Friday, September 20th, 2013

If you are a landlord and own a rental property, you probably have to pay tax on your rental income. However, a new campaign by HM Revenue and Customs is targeting up to 1.5 million landlords who may have failed to pay or underpaid the tax that they owe.

HMRC estimates that landlords are underpaying by around £500 million each year. So, we look at when you have to pay income tax and what the repercussions are if you don’t pay the tax that you owe.

How to work out if you should pay tax on your rental income

Many landlords earn significant income from rental property, particularly if their homes are in London or the South East. The graph below shows the average rental income in the UK regions and even in the areas that generate the least rental income landlords can expect to earn in excess of £6,000 a year from rental income.

 Average monthly rents in UK

If you earn rental income then the tax you will pay is worked out as follows:

1. Add up all the rental income you receive from your rental property/properties

2. Add up all your allowable tax expenses (as detailed below)

3. Take your allowable expenses from your income

Your allowable tax expenses include mortgage interest payments, lettings agent’s fees, buildings insurance, repairs and maintenance to the property, ground rent and service charges.

If you are an employee on PAYE and your net profit from property is under £2,500, you do not have to complete a self-assessment tax return.  Your tax code can be altered to claim the tax you owe.  You will have to complete HMRC form P810 every year.

If you are not on PAYE, or it your net profit from property is above £2,500, you will have to complete a self-assessment tax return.  If your net profit from property is under £77,000 you can group all the income and expenses as one figure on your tax return.

If your total income from UK property is over £77,000 (20012/13) or more in a tax year you must declare it on the property pages of your Self Assessment tax return and show your expenses separately.

HMRC targeting landlords who haven’t paid the right tax

If you have not paid tax on your rental income then you may be able to take advantage of an 18 month tax amnesty. HMRC have announced that penalties on unpaid tax will be reduced for those landlords that come forward and have warned that anyone who fails to pay tax could face criminal proceedings.

Marian Wilson, head of HMRC Campaigns, said: “All rent from letting out a residential property or holiday home has to be declared for income tax purposes. Telling us is simple and straightforward.

“We appreciate some people will have made honest mistakes, and some may not be fully aware that the rent from a property is taxable, and that is why it always makes sense to talk to us so we can help. It is always cheaper to come forward voluntarily and pay the tax you owe, rather than wait for HMRC to come calling.

“The message for all landlords owing tax is simple – it is better to come to us before we come to you.”

Posted in Property Tax, Tax, Tax Codes, Tax Return | No Comments »

Revealed: The 10 countries with the highest tax rates

Tuesday, August 13th, 2013

If you pay the highest income tax rate in the UK – 45 per cent – you might think that you are paying one of the highest income tax rates in the world. However, you may be surprised to learn that the residents of 19 countries actually pay a higher ‘marginal’ rate of tax than you.

So, we’ve put together a guide to the ten countries in the world that levy the highest marginal income tax rate. We also look at those countries with the lowest rates. Keep reading to find out more.

 The top ten countries with the highest marginal tax rates

One of the most commonly used tools for comparing taxation levels across different countries is the ‘marginal’ tax rate. This is simply the rate on the highest income tax bracket. For example, the UK’s marginal tax rate is 45 per cent and is the highest rate at which income tax is levied in this country.

Aruba

The ten countries that charge the highest marginal income tax rate (2012  figures) are:

1. Aruba – 59%

2. Sweden – 56.6%

3. Denmark – 55.4%

4= Netherlands – 52%

4= Spain – 52%

6= Austria – 50%

6= Belgium – 50%

6= Japan – 50%

6= Senegal – 50%

10. Finland – 49%

In 2012, Aruba had the world’s highest top marginal rate, 59%, followed by Sweden, 56.6%, and Denmark, 55.4%. The UK was 19th on the list at 45%.

Other major countries have marginal tax rates lower than the UK. The marginal tax rate in the USA is 35% while it is 43% in Italy, 40% in South Africa and just 27.5% in Brazil.

At the other end of the spectrum, besides a handful of countries that do not have personal income taxes, Macedonia, Bulgaria, Albania and Bosnia-Herzegovina all showed the lowest top marginal rate. In these countries the highest rate of income tax is just 10% while it is 12% in Belarus, 13% in Russia and 15% in Hong Kong, Serbia and Lithuania.

What is the marginal tax rate where you live? Do you think the UK’s highest rate of tax is fair compared to other countries? And what do you think about the rates in Aruba, Sweden and Denmark? Share your thoughts below.

 

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Some Ways To Pay Less Tax On Your Savings

Monday, August 12th, 2013

Taxes are a fact of life. But, while you may not be able to avoid paying tax on your income, your shopping or your property, you may be able to earn tax-free interest on your savings.

If you’re a basic rate taxpayer, you’re probably paying 20 per cent tax on your savings interest. And, if you are a higher earner you may be losing 40 or 50 per cent of your savings returns to tax. If you want to ensure you’re getting the very best return on your savings it is vital that they are tax-efficient. Our guide gives you three great tips to paying less tax on your savings.

Maximise your ISA contributions

On 6 April 1999, the government introduced the Individual Savings Account (ISA). This type of account lets you save a certain amount of money each year and you’ll pay no tax on your returns.

In the 2012/13 tax year, the individual ISA allowance is £11,280. You can save up to £5,640 as cash and the remainder in stocks and shares. And, crucially, any money that you place in an ISA will earn gross rather than net interest. This ensures you don’t lose 20 per cent (or 40/50 per cent if you are a higher rate taxpayer) of your interest in tax.

From April 2013 the individual ISA limit rises to £5,760.

There are hundreds of ISAs available and, even if you don’t have the maximum to save, they are a great way of sheltering your savings from tax. Always consider using your ISA allowance before you put your savings elsewhere.

Register for gross interest if you’re not a taxpayer

If you’re not a UK taxpayer, you shouldn’t be paying tax on your savings interest. So, if you earn less than the threshold for paying tax – around £155 per week for under 65s – you should receive ‘gross’ rather than ‘net’ interest.

To do this, you need to speak to your bank or building society and complete a R85 form. This will register you for gross interest and ensure no tax is taken off before you receive your interest.

Take advantage of your partner or child’s tax status

If you have a partner than pays a lower rate of tax then you – perhaps they are a non-taxpayer – you could save your money in your partner’s name in order to benefit from paying less tax.

For example, you may be a higher-rate taxpayer and pay 40 per cent of your savings interest in tax. If your partner is a basic-rate taxpayer and only pays 20 per cent, you can save your money in your partner’s name and only pay 20 per cent tax.

Bear in mind that if you do this your savings will be in your partner’s sole name. Make sure you understand the implications of this before you decide on this course of action.

Another way to reduce the tax you pay on your savings is to open an account in your child’s name. If they earn less than the tax-free allowance then you can build up their savings without any tax being deducted. As above, your child will need to sign a R85 form (or you will need to sign it on their behalf).

You should remember that such an account has to be opened only with the express purpose of saving for your child. There are also restrictions on how much you can gift to your child without paying tax.

Posted in Savings, Tax | No Comments »

Do you pay more of your income in tax than ever before?

Wednesday, July 17th, 2013

At what point in your life were you paying the highest proportion of your income in tax? In the 1970s? The 1980s? In a recession? Or now?

Since the 1960s, the Office of National Statistics has analysed how much of your income you are paying in taxes. And, this analysis is not just looking at your income tax. Research has considered the impact of both direct taxes and indirect taxes on household incomes.

  • Direct taxes include: Income tax, National Insurance contributions, Capital Gains tax, Inheritance tax
  • Indirect taxes include VAT, fuel duty, tax on alcohol and tobacco, Stamp Duty

The graph below shows the ‘effective’ tax rate over the last 50 years. The ‘effective’ tax rate is the total amount paid by households in both direct and indirect taxes as a percentage of their gross income.
Effective tax rate

In 1961, after accounting for inflation, the average household paid approximately £4,000 in direct and indirect taxes, compared with £12,900 in 2011/12.

Why you’ve paid a different proportion of your income in tax since the 1960s

Since the 1970s, the general pattern of change in headline rates of tax has been for reductions in income tax, and increasing Employee’s National Insurance contributions and VAT. However, many other factors, including the income levels at which income tax and National Insurance contributions are levied, as well as changing working patterns, household compositions and demographics, have also had substantial influence on how these taxes have affected average household incomes.

The effective tax rate grew during the 1960s and 1970s from 28.4 per cent in 1961 to a peak of 39.4 per cent in 1983. However, since then the trend has been downward, reaching a low of 32.8 per cent in 2009/10, before increasing slightly over the last two years to 34.6 per cent. This means that the average household in the UK now pays just over a third of their gross income in direct and indirect taxes.

These figures do, however, hide another important fact: namely that the richest and poorest households in the UK are paying almost exactly the same proportion of their gross income in taxes. The most recent figures reveal that the poorest households pay 36.6 per cent of their income in taxes compared to the richest households who pay 35.5 per cent.

So, if you have been paying taxes for years then you were contributing a higher percentage of your income in 1983 than at any other time. But, the figure is gradually creeping up again. So, is the amount of tax you pay fair? Should richer households pay a higher proportion of their income in taxes than poorer households? Please share your thoughts below.

Posted in National Insurance, Tax, Tax Return, VAT | No Comments »

How many people pay the same tax as you?

Thursday, June 13th, 2013

iStock_000013013928SmallWhat rate of income tax do you pay?

Are you a low earner who pays no tax as you earn less than the Personal Allowance? Are you one of the majority who pay the basic rate of tax? Or, have the Chancellor’s recent tax changes pulled you into the higher or additional rate tax band?

Here, we look at the tax bands for 2013/14 and we reveal how many UK taxpayers are in the same income tax band as you.

The tax bands for 2013/14

The tax rate that you pay depends on your income. The rates for 2013/4 are:

  • £0 to £9,440 – 0%
  • £9,441 to 41,450 – 20%
  • £41,451 to £150,000 – 40%
  • £150,000 and over – 45%

So, if you earned £50,000 you would pay o% tax on the first £9,440, 20% on the next £32,010 and 40% on the remaining £8,549.

Next, we look at the number of UK taxpayers in each tax band.

How many people are in the same tax band as you?

Over recent years, the number of people paying the higher rate of tax has risen significantly. The Guardian reports that in 1991/92, 24.1 million people paid basic rate tax and 1.6 million paid higher rate, but in 2012/13, 25 million paid basic rate tax and 3.86 million paid higher rate.

In October 2012, the Institute of Fiscal Studies published its survey of the UK tax system. It found that:

“Of a UK adult population of around 51.4 million, it is estimated that there
will be 29.7 million taxpayers in 2012–13. Around 3.8 million of these will
pay tax at the higher rate, providing 36.5% of total income tax revenue,
and 307,000 taxpayers will pay tax at the additional rate, providing 24.6%
of total income tax revenue.”

Online Graphing
Chart

And, the number of people in the higher rate tax band is set to increase significantly. It is estimated that an extra 400,000 people will become higher rate taxpayers in the current (2013/14) tax year, bringing the total to a record of 4.3 million people. And, the Institute for Fiscal Studies estimates that the figure could go as high as 5 million over the next three years.

What tax band are you in? Are you expecting to fall into a different band in the next few years? Share your thoughts below.

Posted in Tax, Tax Codes | No Comments »

How Much Can You Earn Without Paying Taxes 2013?

Friday, May 17th, 2013

How much can you earn without paying taxes in 2013? It’s a question that millions of taxpayers are asking, and so we have put together a guide to the changes to your Personal Allowance in 2013/14.

We also look at changes to other allowances and examine how much you’ll be able to earn before you start paying tax in 2013/14.  Keep reading to learn more.

Your tax free income in 2013-14

Your Personal Allowance is the amount of income you are allowed to earn each year before you start to pay tax.  The vast majority of taxpayers are eligible for the basic Personal Allowance.  The chart below shows the basic Personal Allowance in the tax year 2012/13, the 2013/14 tax year and the increase between the two years:

Age 2012/13 Change 2013/14
Born after 5/4/1948 £8,105 +£1,335 £9,440
Born between 6/4/1938 and 5/4/1948 £10,500 +0 £10,500
Born before 6/4/1938 £10,660 +0 £10,660

This means that if you were born after 5 April 1948 and you’re eligible for the full Personal Allowance in 2013/14, you can earn £9,440 of income before you’ll start to pay tax.

Other allowances in 2013/14

If you are married and living together, were married before 5 December 2005, and at least one spouse was born before 6 April 1935, the husband can claim Married Couple’s Allowance.

If you are married or in a civil partnership and living together and at least one spouse or partner was born before 6 April 1935, the person with the higher income can claim Married Couple’s Allowance.

HMRC reduce your tax bill by ten per cent of the Married Couple’s Allowance to which you’re entitled. The actual amount depends on the relevant person’s income.

  2012/13 Change 2013/14
Allowance £7,705 +£210 £7,915
Minimum amount £2,960 +£80 £3,040

If you’re certified blind and are on a local authority register of blind persons, or if you live in Scotland or Northern Ireland and you are unable to perform any work for which eyesight is essential, you can claim Blind Person’s Allowance.

Blind Person’s Allowance is rising by £60 in 2013/14 from £2,100 to £2,160.

The tax you will pay on the rest of your income

If you earn less than the allowances above then you’ll generally pay no tax on your income.  However, if you earn more than your total allowances then you’ll pay tax on your income above this amount at the following levels:

Tax band 2012/13 2013/14
20% – basic rate £0 -£34,370 £0 – £32,010
40% – higher rate £34,371 to £150,000 £32,011 to £150,000
45% – additional rate N/a Over £150,000
50% – additional rate Over £150,000 N/a

You will notice that the point at which you start to pay the higher rate of Income Tax will decrease to £32,010 in 2013/14.

In addition, the additional rate of tax has fallen from 50% to 45%. This means that you will pay a rate of 45% on your taxable earnings over £150,000.

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Should MPs have to publish their tax returns?

Tuesday, April 16th, 2013

 

After the MP’s expenses scandal, many people called for politicians to publish their tax return in order that the public can see that they are paying a fair amount of tax. However, while the Prime Minister, David Cameron, has indicated he would be happy for MPs to be forced to publish their tax affairs, nothing has been done.

The French President has recently moved to require ministers in France to publish details of their financial affairs. So, is it time that British politicians released their tax details?

French President insists that ministers release tax affairs into public domain

Francois Hollande, the French President, has moved to require ministers to publicise their tax details after a recent scandal. The President acted after tax fraud charges were laid against the former budget minister Jérôme Cahuzac, the man charged with fighting tax evasion.

Cahuzac admitted having a secret Swiss bank account and so ministers will now be required to publish their financial details. The Guardian reports that ‘some cabinet ministers have already made public their extraordinary personal wealth.’

With French ministers about to publish their tax affairs, should British MPs follow suit?

Backlash from Cabinet ministers means it is unlikely we’ll see their tax details

Asked about the French President’s move, the prime minister’s spokesman said: “The prime minister’s view on whether he would be content to publish his arrangements and those of other ministers is that he would be relaxed about that.

“His view is unchanged. He would be relaxed about doing so.”

Last spring, Cameron’s aides said he would look at publishing his returns and those of three of the most senior MPs – the foreign secretary, William Hague, the chancellor, George Osborne, and the deputy prime minister, Nick Clegg.

In April 2012, George Osborne told the Daily Telegraph: “My own personal principle has been, make the rules in general more transparent. And, of course, comply with those rules.

“We are very happy to consider publishing tax returns for people seeking the highest offices in the land. Of course, they do it in America.”

The main argument against publishing MPs tax returns is that it would breach taxpayer confidentiality. The Guardian reports that ‘it had originally been suggested that all cabinet ministers would be required to publish, but a backlash from middle-ranking cabinet ministers ensued.’

Mr Osborne admitted to the Telegraph: “You have to think through the advantages and disadvantages. We have got to think through the issue of taxpayer confidentiality, which is a very important principle in Britain.”

The Chancellor has also recently denied that he is an additional rate taxpayer and so would have personally benefited from the recent cut in the top rate of tax from 50p to 45p.

He said: “On the last tax return that I filled in [covering the 2010-11 tax year], I was not a 50p taxpayer … And, no doubt, next time I fill in a tax return, I will be asked the question, and will give you a straightforward answer then.”

What do you think? Should MPs be obliged to publish their tax returns? Or, should they benefit from the same confidentiality and privacy as any other taxpayer? Please share your comments below.

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The New Tax Code for 2013/2014

Monday, March 11th, 2013

Over the last few weeks you have probably received your PAYE Coding Notice. This tells you what your tax code will be for the new tax year and how this has been worked out.

For most people, their tax code will change in 2013/2014. But, why does your tax code change? How is it worked out? And what do you have to do about it? Keep reading to find out.

Why do I need a new tax code?

Most people’s tax code changes every year. This is normally because the amount of money you are allowed to earn before you start paying tax – your ‘allowances’ – change on an annual basis.

For example, the basic Personal Allowance in the 2013/14 tax year is rising from £8,205 to £9,440 as part of the government’s commitment to help low income families.

Your new tax code will ensure that you pay the right amount if tax on your income. It also makes sure that your tax payments are spread out over the course of the tax year.

Each time your tax code changes, HMRC send this code to your employer or pension provider. This ensures that the right amount of tax is taken off.

How is this tax code worked out?

1. Work out your allowances

Most people are entitled to the basic Personal Allowance. In the 2013-14 tax year, this is £9,440. It means you can earn £9,440 in the tax year before you start to pay any tax.

If you were born before 6 April 1948 or you are registered blind, you may be entitled to additional allowances.

2. Work out your deductions

Your deductions are any income which you have not paid tax on. This may include company perks, untaxed savings interest or earnings from a second job.

3. Take one from the other

To work out your tax code you take away your deductions from your allowances. So, if you were entitled to the basic Personal Allowance and had no deductions, you would be able to earn £9,440 in the 2013/14 tax year (£9,440 minus £0) before you had to pay any tax.

4. Divide by 10 and add the appropriate letter

Once you have worked out the amount you can earn before you start paying tax, you divide this number by 10. In this case, this would be 944. You then add the appropriate tax code letter for your circumstances.

If you are entitled to the basic Personal Allowance, the letter is ‘L’. So, in this case, your tax code would be 944L.

If you are over a certain age, have more than one job or earn a high amount, your tax code may include a different letter.

What do I have to do when I receive my tax code?

Nothing, unless you think that your tax code is wrong. If this is the case, you should contact HMRC. Make sure you have your National Insurance number and income details to hand.

tax-fix-05

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Tax Code 944L

Monday, February 18th, 2013

Do you have the tax code 944L? If so, you’re not alone. 944L is one of the most common tax codes in the 2013-14 tax year and will apply to you if you receive the full Personal Allowance. It may also apply to you if you’re on an emergency tax code.

Keep reading to find out everything you need to know about tax code 944L – the new tax code for 2013/14.

Tax code 944L

Does your tax code feature numbers and the letter ‘L’? If so, it means that you are eligible for the basic Personal Allowance in the 2013-14 tax year.

Your Personal Allowance is the amount of money you’re allowed to earn each year before you pay tax.  In the 2013/14 tax year the Personal Allowance increases from £8,105 to £9,440 as part of the government’s pledge to increase the Personal Allowance to £10,000.

This means that you are able to earn £9,440 before you start paying income tax.

If your tax code ends in the letter ‘P’ it means that you are aged 65 to 74 and eligible for the full Personal Allowance (£10,500 in the 2013/14 tax year). If your tax code ends in ‘Y’ it means that you are aged 75 or over and eligible for the full Personal Allowance (£10,660 in the 2013/14 tax year).

How you work out your tax code

Working out your tax code is a four step process:

  • Add up all your tax allowances – this will include your Personal Allowance and any other allowances you are eligible for (for example age related allowances or Blind Person’s Allowance)
  • Add up your deductions (all the income you have not paid tax on) – this can include income from a second job, savings interest or company benefits
  • Subtract your deductions from your allowances
  • Divide this number by ten and add the letter which fits your personal circumstances

For example, in the 2013/14 tax year you may qualify for the basic Personal Allowance and have no deductions. This means your tax code would be 944L.

Your tax code means that the amount of tax free earnings you are entitled to is spread equally throughout the year.  This results in you receiving roughly the same amount of take home pay (or pension) every week/month.

Emergency tax code 944L

Sometimes, HMRC will issue you with an emergency tax code. This happens when they don’t have enough information about you to send your pension provider or employer your correct tax code.

An emergency tax code will ensure that you receive the basic tax free Personal Allowance.  However, it doesn’t take any other allowances into account.

The emergency tax code changes each year and is a number followed by the letter ‘L’.  In the 2013/14 tax year, the emergency tax code is 944L

Bear in mind that if you do have the tax code 944L it doesn’t necessarily mean that you are on an ‘emergency’ tax code.  While the emergency tax code for 2013-14 is 944L, if you have this code it doesn’t automatically mean that you’re on an emergency code.

Posted in Emergency Tax, Tax | 38 Comments »

3 Ways To Pay Less Tax On Your Savings

Wednesday, January 23rd, 2013

Taxes are a fact of life. But, while you may not be able to avoid paying tax on your income, your shopping or your property, you may be able to earn tax-free interest on your savings.

If you’re a basic rate taxpayer, you’re probably paying 20 per cent tax on your savings interest. And, if you are a higher earner you may be losing 40 or 50 per cent of your savings returns to tax. If you want to ensure you’re getting the very best return on your savings it is vital that they are tax-efficient. Our guide gives you three great tips to paying less tax on your savings.

Maximise your ISA contributions

On 6 April 1999, the government introduced the Individual Savings Account (ISA). This type of account lets you save a certain amount of money each year and you’ll pay no tax on your returns.

In the 2012/13 tax year, the individual ISA allowance is £11,280. You can save up to £5,640 as cash and the remainder in stocks and shares. And, crucially, any money that you place in an ISA will earn gross rather than net interest. This ensures you don’t lose 20 per cent (or 40/50 per cent if you are a higher rate taxpayer) of your interest in tax.

From April 2013 the individual ISA limit rises to £5,760.

There are hundreds of ISAs available and, even if you don’t have the maximum to save, they are a great way of sheltering your savings from tax. Always consider using your ISA allowance before you put your savings elsewhere.

Register for gross interest if you’re not a taxpayer

If you’re not a UK taxpayer, you shouldn’t be paying tax on your savings interest. So, if you earn less than the threshold for paying tax – around £155 per week for under 65s – you should receive ‘gross’ rather than ‘net’ interest.

To do this, you need to speak to your bank or building society and complete a R85 form. This will register you for gross interest and ensure no tax is taken off before you receive your interest.

Take advantage of your partner or child’s tax status

If you have a partner than pays a lower rate of tax then you – perhaps they are a non-taxpayer – you could save your money in your partner’s name in order to benefit from paying less tax.

For example, you may be a higher-rate taxpayer and pay 40 per cent of your savings interest in tax. If your partner is a basic-rate taxpayer and only pays 20 per cent, you can save your money in your partner’s name and only pay 20 per cent tax.

Bear in mind that if you do this your savings will be in your partner’s sole name. Make sure you understand the implications of this before you decide on this course of action.

Another way to reduce the tax you pay on your savings is to open an account in your child’s name. If they earn less than the tax-free allowance then you can build up their savings without any tax being deducted. As above, your child will need to sign a R85 form (or you will need to sign it on their behalf).

You should remember that such an account has to be opened only with the express purpose of saving for your child. There are also restrictions on how much you can gift to your child without paying tax.

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The Top 5 Ways Your Tax Will Change in 2013

Monday, December 24th, 2012

If you’re a UK taxpayer, you can expect to see your tax bill change in 2013. Changes to your personal allowance, child benefit and the rates of income tax all come into force in 2013, altering the amount of tax paid by millions of people.

If you want to know how your tax will change in 2013, keep reading.

Your personal allowance will go up

One of the Government’s main commitments has been to ensure that no-one pays tax on the first £10,000 of their income. To do this, they have gradually been increasing your Personal Allowance – the amount of money you are able to earn before you start paying tax.

From April 6, 2013, if you are aged under 65, your personal allowance will be set at £9,205. This represents a £1,100 rise on the previous tax year. It means that you don’t pay any tax on the first £9,205 of your income.

The top tax rate will fall

For the 2013/14 tax year, the three main rates of income tax will be:

  • The basic rate of 20 per cent (no change)
  • The higher rate of 40 per cent (no change)
  • The additional rate of 45 per cent (reduced from 50 per cent in 2012/13)

This means that if you pay the additional rate of tax, you will see the rate of tax you pay fall from 50 per cent to 45 per cent from April 6, 2013.

You won’t get an age related increase to your personal allowance

From 2013/14, your age-related personal allowances will not be increased. You will only be eligible for an age-related personal allowance if:

  • You were born on or before 5 April 1948 (for the £10,500 allowance)
  • You were born on or before 5 April 1938 (for the £10,660 allowance)

If you were born on or after 6 April 1948, you will be entitled to the personal allowance of £9,205 for 2013/14.

You’ll start paying higher rate tax sooner

In the 2011/12 tax year the basic rate limit was reduced by £2,400 to £35,000. This meant that the higher rate of tax (40 per cent) was applicable to taxable income over £35,000.

 

For the 2012/13 tax year, the basic rate limit was further reduced by £630. And, in 2013/14, the basic rate limit will be reduced by £2,125 to £32,245.

This means that you start paying the higher rate of tax (40 per cent) on any taxable income you earn over £32,245.

You may start paying tax on your Child Benefit

Is you or your partner’s individual adjusted net income over £50,000 per year, and do you receive child benefit? If the answer to both these questions is ‘yes’, from 2013 you will have to declare this Child Benefit. For most people this will be done through filling in a Self Assessment tax return.

This change comes into force on 7 January 2013.

Alternatively, you can tell the Child Benefit Office that you want to stop receiving Child Benefit payments. In this case you won’t be liable for the new tax charge.

Posted in Tax, Tax Credits, Tax Return | 2 Comments »

Child Benefit and the competence of government

Tuesday, December 11th, 2012

Child Benefit FormLast Wednesday, George Osborne, the Chancellor of the Exchequer, presented his “Autumn Statement” to parliament. He is probably quite pleased with its reception, blaming the Eurozone and managing to get one over Ed Balls in one day. This is much better than the reception he got last year when he introduced the idea that Child Benefit would be withdrawn where one parent is on higher rate tax.

Now this was particularly stupid because it broke two cardinal rules of taxation – first that an individual’s tax affairs are private and second that you shouldn’t be taxed on money you haven’t received. It was also discriminatory because the benefit is usually paid to the mother on behalf of the child and was a small cushion of comfort to her – womens’ groups have understandably complained.

Consider the case of an estranged or divorced couple with a child where the lower earner (the mother, say) is on basic rate but the other is on higher rate. This means that Child Benefit would be withdrawn but either that the mother would be aware of this and therefore of the father’s income bracket or, if the benefit was in fact paid to the mother, the clawback would be applied to the father when he had not received the money. It is not difficult to construct all sorts of scenarios where bitterness and accusation would make a bad situation worse because money is a common conflict in such situations.

This is of course apart from the iniquity that two parents just below the high rate threshold would still receive Child Benefit but if one parent only worked and earned just £1 over the threshold, there would be a substantial loss of income to the family unit. Some commentators consider it to be illegal under European law where one parent was a migrant worker, a view rejected by the Treasury but then it would, wouldn’t it?

We know a number of people with 4 children and with such a brood it is entirely likely that one of the parents is in fact at home full time. I think in all these cases the earning parent will be on higher rate tax – they would probably need to be – and losing their Child Benefit would have been massive taxation.

Child in a tunnelIn the event, Osborne relented a little by changing the levels in the budget so that Child Benefit would be withdrawn progressively where one parent had income between £50k and £60k rather than a cliff-edge when the parent tripped over the higher rate tax threshold. In this income range, there is an effective tax rate not of 42% (the standard higher rate plus the NI) but, for families with 4 children, of 73.5%. Do the sums if you don’t believe me.

For different numbers of children, families will be taxed at the following marginal rates (including 2% National Insurance applicable to higher rate taxpayers) if one parent earns between £50k and £60k:

 

Number of children 1 2 3 4 5 6 7 8 9 10
Marginal tax rate % 52.6 59.5 66.5 73.5 80.4 87.4 94.4 101.3 108.3 115.3

Yes, those careless enough to have 8 or more children will be taxed at over 100% – they will take home less for every extra pound they earn! Now I don’t know how many families this is and it is impossible to extract immediately from the Office of  National Statistics website. But even with 2 children the marginal tax rate is 60% and remember the stink about 83% tax in the 1970s? Some members of the coalition are being sniffy about President Hollande’s 75% top rate in France. Do I smell the whiff of hypocrisy?

Now to the implementation. Child Benefit is due to be changed with effect from January 7th 2013 and forms have been sent in October to all claimants. If neither parent earns more than £50k, then there should be nothing to do – ignore the form completely. If one parent earns more than £60k and does not want to fill out a Self-Assessment form, the clear option is to own up and stop receiving the benefit.

If one parent earns between £50k and £60k and wants to continue to receive Child Benefit, they will need to register for Self Assessment – there is a warning of penalties if you don’t, although it is not clear what they wil be. And the opportunity to fill in the Self Assessment on paper has been missed so everyone will have to do it online – it was due by 6th October.

But who should register? The form, sent to the claimant, says “You will have to register for Self Assessment”. But logically it should be the one earning more than £50k. Should it be both? What if either earnings vary? What if the claimant does not know how much the other parent earns? What if earnings go down? What if both parents earn between £50k and £60k? How does HMRC calculate the clawback? It seems to me that the only option is to continue to receive it and everyone fill in Self Assessment forms to ensure you don’t lose out. Hang the cost, complication to HMRC, pointless paperwork, clawback and so on. What a way to run a country!

In a nutshell, it is a mess. It was messily thought out and messily implemented. Did no-one in the Treasury do some simple sums? Did Osborne, in his anxiety to slash every possible cost without thinking, not give it a moment’s thought? Did he ignore warnings from officials? Was he quaffing at Chequers? Or what? You can see why he gets called our part-time or work-experience Chancellor, can’t you? It’s clearly not good enough.

We grumble and moan about taxes but no-one really minds taxation that pays for services but it has to be fair, seen to be fair and efficiently administered. The withdrawl of Child Benefit meets none of these and will be resented for a long time. This will haunt George Osborne while many multinationals pay next to no Corporation Tax and avoid paying UK VAT on goods traded online in the UK by locating themselves elsewhere.

Osborne should have thought a bit more.

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Where Does Your Tax Go?

Monday, November 26th, 2012

We all know how the Government takes our tax. Much of the tax we pay is on our income, either deducted through the Pay as you Earn (PAYE) system or through Self Assessment. The amount of tax we pay depends on our income and the tax allowances that we are entitled to.

But, where does the tax we pay actually go?

Using a tool developed by the tax transparency group Where Does My Money Go? we’ve worked out where your tax goes. We’ve assumed an annual salary of £40,270 although the tool assumes a 40 per cent rate of tax paid on all salaries. In reality, of course, you will pay different levels of tax depending on your income, spending and personal situation.

The chart below shows the daily tax contribution to each of the areas. In this example you pay £3.58 per day in tax for running government, £2.64 for defence and £7.93 per day for health.


The biggest portion of your tax payment – around one third – goes towards ‘helping others’. In our example, of your daily tax payment £14.71 to this area, £5.67 goes towards helping people in their old age, £2.33 towards helping people with sickness or a disability and £0.38 to help the unemployed.

The second largest area is health – around 18 per cent of your daily tax payment – with around one in eight of your tax pound going towards education.

At the other end of the scale, just 1.6 per cent of your tax goes towards the environment. In this example, 14p goes towards waste, 3p into environmental protection and 2p towards tackling pollution. This is compared to the £2.23 a day that goes to the military, the 34p a day that goes towards prisons and the 71p a day that it takes to run top-level government.

Are you happy with where your tax goes? Share your thoughts in the comments below.

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How much tax should I pay on….

Saturday, November 10th, 2012

We have created a quick reference table so that you can easily work out how much tax you should be paying on your salary in the 2012/2013 tax year. If you have any questions please leave them in the comments section below.

 


Annual Income

Tax

National Insurance

Take Home Pay

£10000

£379

£270

£9351

£12000

£779

£510

£10711

£14000

£1179

£750

£12071

£16000

£1579

£990

£13431

£18000

£1979

£1230

£14790

£20000

£2379

£1470

£16151

£22000

£2779

£1710

£17511

£24000

£3179

£1950

£18871

£26000

£3579

£2190

£20231

£28000

£3979

£2430

£21591

£30000

£4379

£2670

£22951

£32000

£4779

£2910

£24311

£34000

£5179

£3150

£25671

£36000

£5579

£3390

£27031

£38000

£5979

£3360

£28391

£40000

£6379

£3870

£29751

£42000

£6779

£4110

£31111

£44000

£7484

£4217

£32299

£46000

£8284

£4257

£33459

£48000

£9084

£4297

£34619

£50000

£9884

£4337

£35778

£52000

£10684

£4337

£36939

£54000

£11484

£4417

£38099

£56000

£12284

£4457

£39259

£58000

£13840

£4497

£40419

£60000

£13884

£4537

£41579

£62000

£14684

£4577

£42739

£64000

£15484

£4617

£43899

£66000

£16284

£4657

£45059

£68000

£17084

£4697

£46219

£70000

£17884

£4737

£47379

£72000

£18884

£4777

£48539

£74000

£19484

£4817

£49699

£76000

£20284

£4857

£50859

£78000

£21084

£4897

£52019

£80000

£21884

£4937

£53179

£82000

£22684

£4977

£54339

£84000

£23484

£5017

£55499

£86000

£24284

£5057

£56659

£88000

£25084

£5097

£57819

£90000

£25884

£5137

£58979

£92000

£26684

£5177

£60139

£94000

£27484

£5217

£61299

£96000

£28284

£5257

£62459

£98000

£29084

£5297

£63619

£100000

£29884

£5337

£64779


If you want to work out how much tax you should be paying on an amount that is not listed in the table above then use our free tax calculator. If you have any questions, please ask them in the comments below and we will do our best to answer them.

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What You Need To Know About the 2012 Tax Deadline

Tuesday, October 23rd, 2012

If you submit your tax return on paper, the deadline for receipt of your return is looming. Paper based tax returns have to be with HM Revenue and Customs (HMRC) by 31st October or you could face heavy fines and penalties.

With around one in five self assessment taxpayers sending a paper based tax return, it’s important that you understand the importance of the deadline and the consequences if you miss it. Our guide explains all.

What happens if you don’t meet the 31st October tax deadline

The Financial Times reports that ‘an estimated 2m people out of the 10m who file in a tax return must meet the October 31 deadline because they submit their return on paper’.

If your paper return arrives after 31st October, you could face a £100 fine. Anita Monteith, tax faculty manager at ICAEW, the accountancy body, said: “Under strict new rules introduced last year, if your tax return is late, you’ll have to pay a fixed penalty, even if you have no tax to pay. What’s more, you will be hit with further interest charges if you fail to pay what you do owe on time.”

If you are worried that you won’t get your paper tax return in on time, you do have another option. You can choose to use HMRC’s web-based service and send your return online by January 31st instead.

However, Andrew Penman, head of PKF’s London private clients practice, says if you miss the October 31 deadline, or are concerned that you’re not going to make it in time, “it is usually better not to send a paper tax return at all and instead submit your return online by the end of January”.

He adds: “Don’t be tempted to send in a paper return late. Once a paper return has been submitted, it will be regarded as your return for the year and any subsequent electronic return you make for that year will be treated as an amendment to the original paper return.”

So, if you don’t think you will meet the 31st October deadline, you may decide to submit your return online instead. Keep reading to learn more about how to do this.

What to do if you decide to file online instead of sending a paper tax return

If you have submitted your tax return online in previous years then you will already have a user identification code for the HMRC system that you can use this time. However, if this is your first time filing online then you will have to go to the HMRC website and register.

It is wise to register for the online system early as it can take a week or two to receive your registration details for the HMRC website.

And, while the deadline is 31st January 2013, it is often advisable not to leave your tax return to the last minute. The Daily Telegraph reports that in 2011, ‘around 572,455 people left it until the last day to submit their form and avoid a £100 fine, making January 31 the busiest day of the year for using the online system.’

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Warning: Will You Miss The 2012 Tax Return Deadline?

Thursday, October 4th, 2012

Do you want to submit your 2012 tax return by post? If so, the deadline for paper-based tax returns is getting closer. While more and more people are submitting their tax return online, millions of UK taxpayers still send a paper based tax return to HMRC.

The deadline for a paper tax return is 31st October 2012. Keep reading to find out how many people now submit their tax return online and what your options are.

How do Brits submit their tax returns?

Official figures from HM Revenue & Customs (HMRC) in 2012 showed that a record 9.45 million taxpayers met the deadline for submission of their tax returns. Over 90 per cent of taxpayers filed their self assessment forms before the deadline – a rise of 4 per cent on the previous year.

And, a record number of people submitted their tax return online in 2011. The chart below shows how Brits submitted their tax returns for the 2011/12 tax year:


David Gauke, Exchequer Secretary to the Treasury, said: “I’m delighted so many people filed their tax returns online this year. The record number proves that it’s quick, easy and secure to do.

“HMRC has always been clear that they want returns not penalties, so it is good news that over 90 per cent of all returns were submitted on time.”

Do you need to complete a tax return?

HMRC will have contacted you earlier this year if you need to complete a tax return. You will most commonly need to do so if you’re self employed or you have various sources of income.

If you haven’t received a tax return and think you should have, you should contact HMRC as soon as possible. Similarly, if you have been asked to complete a tax return and you don’t think you need to, get in touch with them.

If you have previously sent your tax return on paper, you’ll receive a paper tax return. However, this doesn’t mean you have to submit a paper return this year. Submitting your tax return online has various benefits – including allowing you extra time to submit your return. Keep reading to learn more.

The 2012 tax return deadlines

If you want to submit a paper based tax return, it must be received at HMRC by midnight on 31st October 2012.

The only exception to this is if you received the letter telling you to send a tax return after 31st July 2012. If this is the case you have three months from the date that you received that letter.

If you miss the deadline for sending in your paper based tax return, you can still submit your return online. The deadline for submitting your tax return online is 31st January 2013 and so you still have three months in which to submit your tax return.

Get your paper tax return done now

If you are planning to submit a paper based tax return then it is vital that you complete the form and send it to HMRC by 31st October 2012. If you miss the 31st October deadline then you will have no choice but to submit your tax return electronically.

Posted in Tax, Tax Return | 2 Comments »

What Countries Have The Highest Tax Rates?

Tuesday, August 28th, 2012

Do you live in a country that has one of the world’s highest tax rates?

Your ‘marginal’ tax rate is the rate of tax you pay on the last pound, dollar or euro that you earn. Most countries in the world have progressive tax systems, meaning that you pay higher rates of income tax on higher earnings.

For example, in the UK, the current income tax bands (2012/3) are:

£0 – £8,105 – 0%
£8,106 – £42,475 – 20%
£42,475 – £158,105 – 40%
Over £158,106 – 50%

So, the highest tax rate in the UK is currently 50 per cent. But, what are the highest tax rates around the world? Which countries have the highest top tax rates, and which have the lowest?

Our interactive map shows the top tax rates of many of the world’s major nations. Hover over the country for more information.

Where do you live? Is your country’s top rate of tax higher or lower than average? Let us know in the comments below.

Posted in special, Tax | 1 Comment »

How Much Tax Should I Pay in 2012?

Tuesday, May 22nd, 2012

If you’re interested in finding out how much tax you should be paying in 2012, you’ve come to the right place.  In our easy to understand guide, we look at the tax allowances and tax rates for 2012 to help you work out what tax you should be paying.  Keep reading to learn more.

Income Tax allowances in 2012

Your Personal Allowance is the amount of income you are allowed to earn each year before you start paying tax.  The vast majority of taxpayers are eligible for the basic Personal Allowance.

In the tax year 2012/13, the basic Personal Allowance for people under the age of 65 is £8,105.  This means that you don’t pay any tax on the first £8,105 of your taxable income.

If you’re aged 65-74, your basic Personal Allowance is £10,500.  It is £10,660 if you’re aged 75 or over.

If you are married and living together, were married before 5 December 2005 and at least one spouse was born before 6 April 1935, you can claim Married Couple’s Allowance.  And, if you’re certified blind and are on a local authority register of blind persons you can claim Blind Person’s Allowance.  These are in addition to your Personal Allowance.

Income Tax rates in 2012

There are several different tax bands and rates depending on your income.  The question “How much tax should I pay in 2012?” will therefore depend very much on your specific personal circumstances such as the tax allowances that you are eligible for and where your income comes from.

Typically, you’ll pay the following tax in 2012:

  • 0% on the first £8,105 that you earn (this is your Personal Allowance)
  • 20% on the next £34,370 that you earn
  • 40% on the next £115,630 that you earn
  • 50% on anything over this

How to work out what tax you pay

In order to work out exactly what tax you will pay in 2012, you need to know your taxable income and your tax allowances.  Your PAYE Coding Notice should explain your tax allowances.  In order to work out your taxable income, remember to include both your salary/earnings and any other income such as investment or rental income.

An example

The example below assumes that you earn £20,000 and that you’re eligible for the basic Personal Allowance.

If you’re eligible for the basic Personal Allowance you won’t pay any tax on the first £8,105 of your earnings.  You’ll then pay 20% tax on the remainder.

This would be 20% of £11,895 (£20,000 minus £8,105) = £2,379.  You’d pay £2,379 income tax – around 12% of your income.

Another example

In this example, we’ll assume that you owe tax from a previous tax year and so your Personal Allowance is just £5,500.  We’ll also assume your taxable income is £45,000 in 2012.

Here, you’d pay no tax on the first £5,500 of your earnings.

You would then pay 20% tax on the next £34,370 of your earnings.  This would be £6,874.

You’d then pay 40% tax on the remainder of your earnings (£45,000 minus £5,500 minus £34,370 = £5,130).  This would be £2,052 (40% of £5,130).

Your total tax bill would be £6,874 plus £2,052 = £8,926 – around 20% of your earnings.

Posted in Tax | 8 Comments »

The 2012 Tax Changes Come Into Force

Saturday, April 7th, 2012

It’s the start of a new tax year in the UK.  This means that there are various important changes to income taxes which are almost certain to affect you.  Whether you’re employed, self employed or a pensioner, the tax changes in 2012 will probably affect what tax you pay.  But what are the changes?

Keep reading to learn more about the tax changes that will affect you in 2012.

How much can you earn before paying tax in 2012?

Your Personal Allowance is the amount of money that you’re allowed to earn before you start to pay tax.  You may also be eligible for additional allowances such as a Married Couples Allowance or Blind Person’s Allowance.  From 6 April 2012, the tax-free allowances that most people in the UK benefit from are changing.

The changes can be summarised as:

  • Personal Allowance for people up to age 65 – In 2012 this rises to £8,105 (from £7,475).  This means you can earn up to £8,105 before you start to pay tax in 2012/13
  • Personal Allowance for people aged 65 -74 – In 2012 this rises to £10,500 (from £9,940).  This means you can earn up to £10,500 before you start to pay tax in 2012/13
  • Personal Allowance for people aged 75 and over – In 2012 this rises to £10,660 (from £10,090).  This means you can earn up to £10,660 before you start to pay tax in 2012/13
  • Married Couple’s Allowance – In 2012 this rises to £7,405 (from £7,295)
  • Blind Person’s Allowance – In 20120 this rises to £2,100 (from £1,980)

These changes to allowances are likely to affect your tax code for the tax year 2012/13 (the tax year which runs from 6 April 2012 to 5 April 2013).  The standard tax code for someone under the age of 65 with a full Personal Allowance and no other allowances/deductions will be 810L (it was 747L in tax year 2011/12).

Change to the rate at which you start paying the higher rate of tax

From 6 April 2012 there is also a change to the point at which you start paying the higher rate of tax (40%).

The point at which you will pay the higher rate of Income Tax has decreased by £630 from £35,000 to £34,370 in 2012/13.  This is to balance the £630 increase in the personal allowance for people aged under 65.  This means that you’ll pay 40% tax on any taxable income you earn over £34,370.

Tax Credits changes 2012

As well as changes to tax allowances and the rate at which you start to pay higher rate income tax, there are also significant changes to tax credits in 2012.

The two main changes to tax credits are:

  • a reduction in the income limit for child tax credit, from about £40,000 to about £26,000 for a family with one child
  • an increase in the number of hours couples with children have to work to be eligible for working tax credit.  You’ll now have to work 24 hours per week rather than 16 hours

Posted in Tax, Tax Credits, Tax Return | 2 Comments »

How Much Can You Earn Without Paying Taxes 2012?

Monday, March 26th, 2012

If you’re looking for an answer to the question ‘how much can you earn without paying taxes in 2012?’ then you’ve come to the right place.  In our guide, we look at the changes to your Personal Allowance in 2012/13.

We also look at changes to other allowances and examine how much tax-free income you’ll be able to earn in 2012/13.  Keep reading to learn more.

Your tax free income in 2012/13

Your Personal Allowance is the amount of income you are allowed to earn each year before you start to pay tax.  The vast majority of taxpayers are eligible for the basic Personal Allowance.  The chart below shows the basic Personal Allowance in the tax year 2011/12, the 2012/13 tax year and the increase between the two years:

Age 2011/12 Change 2012/13
Up to age 65 £7,475 +£630 £8,105
Age 65-74 £9,940 +£560 £10,500
Age 75 and over £10,090 +£570 £10,660

 

This means that if you’re under the age of 65 and you’re eligible for the full Personal Allowance in 2012/13, you can earn £8,105 of income before you’ll start to pay tax.

Other allowances in 2012/13

If you are married and living together, were married before 5 December 2005 and at least one spouse was born before 6 April 1935, the husband can claim Married Couple’s Allowance.

If you are married or in a civil partnership and living together and at least one spouse or partner was born before 6 April 1935, the person with the higher income can claim Married Couple’s Allowance.

HMRC reduce your tax bill by ten per cent of the Married Couple’s Allowance to which you’re entitled. The actual amount depends on the relevant person’s income.

  2011/12 Change 2012/13
Allowance £7,295 +£410 £7,405
Minimum amount £2,800 +£160 £2,960

 

If you’re certified blind and are on a local authority register of blind persons, or if you live in Scotland or Northern Ireland and you are unable to perform any work for which eyesight is essential, you can claim Blind Person’s Allowance.

Blind Person’s Allowance is rising by £120 in 2012/13 from £1,980 to £2,100.

What tax you do pay on the rest of your income

If you earn less than your allowances then you’ll generally pay no tax on your income.  However, if you earn more than your total allowances then you’ll pay tax on your income above this amount at the following levels:

Tax band 2011/12 2012/13
20% – basic rate £0 -£35,000 £0 – £34,370
40% – higher rate £35,001 to £150,000 £34,371 to £150,000
50% – additional rate Over £150,000 Over £150,000

 

You will notice that the point at which you start to pay the higher rate of Income Tax will decrease by £630 to £34,370 in 2012/13.  This is to balance the £630 increase in the personal allowance for people aged under 65.

Posted in Tax, Tax Return | 74 Comments »

What You Should Know About The 40 Tax Bracket

Tuesday, March 13th, 2012

Do you pay 40% tax?  Even if you don’t do so now, there’s a strong chance that you will in the next few years.  2011 predictions from the Institute for Fiscal Studies suggest that up to 3.5 million more UK taxpayers will be paying 40% income tax by 2015.  Is this likely to affect you?

Increasing numbers of people are now in the 40% tax bracket and so are paying 40p in every £1 they earn over a certain amount.  Keep reading to find out everything you need to know about the 40% tax bracket.

Why are more people paying 40% tax?

There is one main reason that more people are paying 40% tax.  As the Chancellor, George Osborne, increases the tax free allowances – the amount you can earn without paying tax – to help low earners, he has been steadily reducing the threshold for paying 40% tax.  The idea is that higher earners pay more tax in order to ease the pain on people on low incomes.

Paul Johnson from the Institute of Fiscal Studies explains: “The only way of doing that in an affordable fashion is to bring more people into the higher-rate band and that actually carries on a trend which has been going for a very long time.

“It’s not so long ago that only about one in 20 taxpayers were paying the higher rate. We think that within three or four years that’s going to be one in four or one in five, so this is a very, very big change.

“In order to prevent higher-rate taxpayers from gaining, they [the Government] have reduced the point at which you start to pay higher rate tax, thereby bringing an extra three-quarters of a million people into higher rate tax.”

When you pay the 40% tax bracket

As we saw above, the point at which you start paying 40% tax in the UK has been gradually decreasing over the last few years.  The basic rate of tax has been applicable to:

  • The first £37,400 of your taxable income in tax year 2010/11
  • The first £35,000 of your taxable income in tax year 2011/12
  • The first £34,370 of your taxable income in tax year 2012/13

You will pay 40% tax on any taxable earnings above these amounts.

Don’t forget that your taxable income is the income left over after all your allowances and deductions have been taken into account.  For example, if you’re eligible for the full basic Personal Allowance in the 2011/12 tax year (£7,475) and you earn £40,000, you won’t pay any tax at 40%.  This is because your taxable income is only £32,525 – lower than the 40% tax threshold.

Remember also that you don’t pay 40% income tax on all your income if you earn more than the threshold.  You pay basic rate (20%) tax on part of your earnings and 40% tax on the amount above the threshold.

For example, if you earn £50,000 and are eligible for the basic Personal Allowance in the 2012/13 tax year, your tax would be £9,884, worked out as:

  • £8,105 at 0% (your Personal Allowance)
  • £34,370 at 20% (basic rate) = £6,874
  • £7,525 at 40% (higher rate) = £3,010

Posted in Tax | 5 Comments »

How To Claim Tax Back in the UK

Wednesday, February 22nd, 2012

Do you need to claim tax back? Perhaps you’ve paid too much tax on your income. Or, you may not have claimed all the reliefs or deductions you’re eligible for on your tax return?

Whatever your situation, you can often claim overpaid tax back. However, the way that you do this depends on how you’ve overpaid. Our guide explains how to claim tax back if you’ve overpaid through your job, your pension or your tax return.

How to claim tax back that you’ve paid through your job

You might have paid too much tax through your job in a number of circumstances, such as:

  • You had an emergency tax code for a while
  • You’ve changed job during a tax year
  • You have more than one job
  • You only worked for part of the tax year

To claim tax back for the 2010/11 and 2009/10 tax years as an employee, you should tell HMRC why you think you’ve paid too much tax. If they don’t already have everything they need to check your claim they’ll tell you what information they need.

Any refund due for this year will be included with your wages. HMRC will send you any refund due for last year.

If you’re claiming for previous tax years, you should write to HMRC and include any relevant documents about your earnings during the tax year for which you’re claiming, such as your P60 or P45.

HMRC will look into your query, work out how much they owe you and send you a refund in the post.

Correcting your tax return and claiming tax back

If you make a mistake on your tax return you normally have 12 months from the 31st January after the end of the tax year to correct it. For example, for your 2010-11 tax return you have until 31 January 2013 to make an amendment.

If you sent a paper tax return, you should write to HMRC and attach the tax return pages that you want to change, clearly marked ‘amendment’. Don’t complete a whole new tax return.

If you sent your tax return online you can make the amendment online.

If you think a refund is due you should tell HMRC how you’d like to receive it. You can receive a repayment direct to your bank or building society account. Alternatively, you can choose to receive your refund by cheque, although this will take longer.

How to claim tax back that you’ve paid through your pension

If you’re receiving your taxable pension income through the PAYE system and you find an error within the current tax year, you should contact HMRC. They will send a revised PAYE Coding Notice to your pension provider who will adjust your tax code to alter any further payments for that year.

Your overpayment will be corrected automatically by your pension provider who will refund the tax in your next payment.

If you want to make a claim for the tax year 2010/11 you should write to HMRC. They may already have everything they need to check your claim but, If not, they’ll tell you what information they need.

Posted in Tax, Tax Rebate, Tax Return | 16 Comments »

What To Do If You Get a P800 Tax Calculation

Monday, February 13th, 2012

Have you received a P800 Tax Calculation?

Since July 2011, HM Revenue and Customs (HMRC) have been sending out P800 Tax Calculation documents relating to the 2010/11 tax year.  You’ll typically get a P800 if you have paid too much or too little tax during the tax year.

Keep reading to find out what you should do if you’ve received a P800 form.

What is a P800 Tax Calculation?

At the end of each tax year, employers and pension providers send details of your salary, pension and the amount of tax that you have paid to HMRC.  HMRC use this information to check that you’ve paid the correct amount of tax.

Most people pay the correct amount of tax through the Pay As You Earn (PAYE) system.  If you have paid the right amount, you won’t receive a P800 Tax Calculation and you should not be concerned.

However, it is possible that you will pay too much or too little tax during the year.  For example, your circumstances may have changed during the year or you may have started a new or second job.

HMRC prioritise people who paid too much tax during the previous tax year in order that they get their money back quickly.  If you have paid too much tax a cheque will automatically be sent to you within 14 working days of the date on your P800 Tax Calculation.

HMRC then send our P800 tax calculations to people who haven’t paid enough tax.

What you need to do with your P800 Tax Calculation

If you receive a P800 Tax Calculation, it’s important that you check it to make sure you agree with the information.  The calculation will show:

  • your total taxable income
  • the allowances that are due to you
  • the amount of tax paid for each of the relevant tax years
  • the amount of over or underpaid tax

If you agree with the tax calculation you do not need to do anything except keep the P800 form safe.

If you don’t agree with the P800 Tax Calculation, you can write to HMRC at the address shown on your calculation or you can telephone HMRC on 0845 3000 627.

What happens if you’ve paid too little tax

If you haven’t paid enough tax, HMRC will usually automatically collect any underpayment through your tax code over the next tax year, starting in April 2012.

If paying the amount over a year would cause you some financial difficulty, you should contact HMRC on Tel 0845 3000 627 to discuss your payment options.  You may be able to spread the payments over two or three years.

If you owe £3,000 or more in tax, HMRC will contact you about how to pay.

Be careful of scams

If you receive an e-mail about your tax calculation asking you to disclose personal details, it is very likely to be fraudulent.  Never respond to such e-mails or provide any bank or personal details.

Posted in Tax, Tax Rebate, Tax Return | 17 Comments »

Understanding your 2012-2013 PAYE Coding Notice

Tuesday, January 10th, 2012

If you pay your tax through the Pay as you Earn (PAYE) system, over the next few weeks you will receive your PAYE Coding Notice for the 2012/2013 tax year.

Your PAYE Coding Notice tells you what your tax code should be and how it is worked out.  It also tells your employer or pension provider how much tax-free income you are entitled to and how much tax they should deduct.

Our guide will help you understand your 2012 – 2013 coding notice.  Keep reading to learn more.

Tax allowances/reliefs that increase your tax-free income

There are two main parts to your PAYE Coding Notice.

Firstly, there are tax allowances and reliefs that increase the amount of tax-free income that you are entitled to earn.  These include:

  • Tax-free allowances such as your Personal Allowance (the basic Personal Allowance for the 2012/13 tax year is £8,105)
  • Other allowances and reliefs that you are entitled to, including Married Couple’s Allowance and any professional allowances/subscriptions

If these are the only entries on your PAYE Coding Notice, they are deducted from your taxable income (such as income from employment, pensions and rent) and you pay tax on what’s left.

Items that reduce your tax-free income

Your PAYE Coding Notice may also include negative amounts which reduce the amount of tax-free income that you are entitled to earn.  These include:

  • Unpaid income tax that you owe from a previous tax year
  • Any taxable income that you receive without tax being deducted (for example company benefits such as medical insurance or a company car)
  • State benefits or any pensions that you receive without tax having been deducted

Effect of deductions from allowances

One your deductions are taken away from your tax free allowances there are three possible outcomes:

  • The items that reduce your tax-free amount are less than your allowances – this means that whatever amount is left is the amount of tax-free pay you are entitled to in the 2012/13 tax year
  • The items that reduce your tax-free amount are equal to your allowances – this means you will pay tax on all your taxable income
  • The items that reduce your tax-free amount are greater than your allowances – this means you will owe tax on the difference between the two.  The amount will be added to your overall taxable income and you will pay tax on the total over the whole tax year

Common tax codes in 2012/13

If you receive the basic Personal Allowance in the 2012/13 tax year and you have no deductions, your tax code is likely to be 810L.

This is worked out by dividing your Personal Allowance (£8,105) by ten and then adding the letter ‘L’.

If your PAYE Coding Notice is wrong

When you receive your PAYE Coding Notice over the next few weeks, if your circumstances have changed or there is incorrect information then you should contact HM Revenue and Customs (HMRC).

If the figures on your Coding Notice are incorrect, you could end up paying the wrong amount of tax.

Posted in Tax, Tax Rebate | 41 Comments »

What Everyone Should Know About the 2012 Tax Deadline

Wednesday, January 4th, 2012

Do you have to complete a Self Assessment tax return?

If so, the deadline for completing your tax return is fast approaching.  If you didn’t submit a paper tax return (for which the deadline was 31st October 2011) then you have to submit your tax return for the 2010/11 tax year online by 31 January 2012.

Do I have to submit a tax return?

If you earn a regular salary from your employer and don’t have income from any other sources then the chances are you won’t have to submit a tax return.  You will pay your tax through the PAYE system.

If you are a higher-rate taxpayer, you are self-employed, you have some self employed income or you have income from more than one source you will probably need to file an online tax return.

If you have to complete a tax return you should probably have received a letter from HM Revenue and Customs (HMRC) in mid 2011.  If you think you should complete a tax return and haven’t been notified you should contact HMRC as soon as possible.

What is the 2012 tax return deadline?

The deadline for your paper based tax return passed on 31 October 2011.

So, if you want to submit your tax return on time you will have to file it online.  The deadline is midnight on 31 January 2012.

The Daily Telegraph advises: “If you haven’t filed online previously, you need to register and request a secure password, which will be sent through the post. This can take up to two weeks, so you need to get cracking soon.”

The newspaper also says: “Remember that HMRC’s website – and their phone help lines – can get very busy as the January 31 deadline approaches, so it pays not to leave it to the last minute.”

Don’t forget that as well as having to submit your tax return by 31 January 2012, you will also have to pay any tax that you owe by this deadline.

What tax return am I submitting?

The tax return that you have to submit by the January deadline is for the 2010/2011 tax year.  This ran from 6 April 2010 to 5 April 2011 and should include any income you earned during that tax year.

What will I need to submit my tax return?

If you have to submit a tax return online you will need various items of documentation.

You will need your P60 for any employed income, your self employed earnings, pension statements, bank and savings account statements showing any interest and details of any property income.

You will also need proof of any other earnings such as share dividends, other taxable benefits etc.

What are the penalties for missing the 2012 tax return deadline?

If you miss the deadline you will automatically face a penalty of £100 (even if you have no tax to pay).

You will then face a penalty of £10 for every subsequent day that your tax return is late up to a maximum of 90 days (£900).  There are then further penalties if you still haven’t submitted your 2011 tax return.

Posted in Tax, Tax Return | 5 Comments »

4 Tax New Year’s Resolutions You Should Make

Monday, December 26th, 2011

Millions of people make New Year’s resolutions every January.  Many of us aim to take more exercise or to lose weight but millions also resolve to change their financial behaviour in the coming year.

In 2010, The Observer reported that ‘more than half of us are planning new year’s resolutions, according to research from GoCompare.com.  And alongside losing weight and taking more exercise, fixing our finances is top of the list.’

While saving money and spending less are two great ways to help get your finances in order, ensuring you are on top of your tax is also a great way to keep control of your cash.  Keep reading for four tax New Year’s resolutions you should make in 2012.

Register for online tax returns

If you have to complete a Self Assessment tax return then you should consider registering for HM Revenue and Customs’ (HMRC) online service.  This is the alternative to submitting your tax return on a paper form.

There are lots of benefits to submitting your tax return online.  The main one is that you get an additional three months to submit your return: 31 January instead of 31 October.  In addition, you will receive an instant acknowledgement, your tax return will be processed more quickly and your tax is worked out for you as you are completing the return.

Open a savings account for your tax money

If you face a tax bill at the end of the year, it is a good idea to build up a cash lump sum throughout the year.  This ensures that you have the capital available to pay your tax bill and that you’re not left in a position where you can’t afford to pay what you owe.

It’s a good idea to open a high interest savings account – perhaps even a tax-free Individual Savings Account (ISA) – where you can save up smaller amounts as you earn money throughout the tax year.  You’ll benefit from a good rate of interest and be able to save up enough to pay your tax bill when you receive the payment demand.

Check you have the right accountant

When was the last time you thought about changing your accountant?  If your accountant does a great job for you at a competitive rate then you may be happy with them.

However, if you’re not 100% satisfied with your accountant, why not consider switching?  There are thousands of accountants in the UK that specialise in different business areas and charge different rates.  You may get a better service, more specialist knowledge or a lower bill if you switch to another accountant.

Improve your tax knowledge

Tax is a difficult subject.  With so many rules, regulations and requirements it can be tough to get your head round everything you need to know.

However, there is a lot that you can learn about the tax rules that affect you and your business.  Only by understanding the system can you maximise your deductions and reduce the amount of tax that you pay.

Sites such as Tax Fix have a wealth of resources designed to help you understand your tax better.

Posted in Tax, Tax Rebate, Tax Return | 3 Comments »

Pre completed tax return forms and online accounts planned as HMRC consults on new systems

Monday, December 5th, 2011

HM Revenue and Customs (HMRC) has been strongly criticised over recent years for tax code problems, poor service and a failure to modernise the tax system in the UK.

Now, however, HMRC is attempting to drag the tax system into the 21st century by launching a consultation on the online elements of its modernisation.  HMRC wants to improve the personal tax system by improving access to information online and to make some of the online functions more straightforward and user-friendly.

Keep reading to learn more about what is planned and how it could affect you.

Three main improvements suggested in consultation paper

HMRC’s new consultation document was published in November 2011.  The Guardian reports that the paper ‘is part of the effort to create a simpler and more transparent personal tax and welfare system’.

The new online tax functions are being designed in line with a new real time information system at HMRC which will also be used for the new ‘universal credits’ system being considered by the Department for Work and Pensions.

The consultation paper is seeking public feedback on three main areas:

  • Self assessment – pre-completing tax returns for self assessment. The consultation asks what the most important areas are to pre-fill and whether there would be any benefits and risks to this system
  • Introducing ‘online accounts’ for individual Pay as you Earn (PAYE) taxpayers. This is designed to improve a person’s understanding of how their income is taxed but there are concerns about how many people would use such a system
  • Pre-completed tax statements for those who do not submit a self assessment tax return. The consultation wants to know whether these would be useful and, if so, what information should be included

Exchequer secretary David Gauke told the Guardian: “We plan to lift the lid on tax so that people understand how much they are paying, what their overall tax rate is, and what they should be paying, in the same way that the government has lifted the lid on what they are paying for.”

The consultation will remain open until 24 February 2012.

Would you use an online tax system? Would it be helpful for part of your Self Assessment to be pre-completed? Let us know in the comments below.

Posted in Tax, Tax Return | 2 Comments »

How Much Is Emergency Tax in 2011?

Monday, November 28th, 2011

Are you on an emergency tax code?

If your employer doesn’t know enough about your income or tax details then you may be put onto an ‘emergency tax code’.  This ensures you pay some tax although it doesn’t take into account your specific tax reliefs and allowances.

But what is an emergency tax code?  When might you end up on an emergency tax code?  And how much is emergency tax in 2011?  Keep reading to find out.

What is an emergency tax code?

You will be put on an emergency tax code by employer if HMRC does not have enough information about your income to enable them to send your employer (and you) your correct tax code.

An emergency tax code ensures that you receive the basic Personal Allowance (and therefore some tax-free pay) but it doesn’t take into account any other tax allowances or tax reliefs you may be entitled to.

When might I be put on an emergency tax code?

You might be put on an emergency tax code if:

  • You were self employed and have now started a new job
  • You have started a new job but you don’t have your P45 from your previous employer
  • Your tax code has changed during the year (for example if you have stated to receive company benefits)
  • You have started your first job since the start of the tax year

How much is emergency tax 2011/2012?

The emergency tax code is set each year and changes on an annual basis as the Personal Allowance changes.  It is a number followed by the letter ‘L’.

The number represents the basic Personal Allowance divided by ten.  In the 2011/12 tax year, the basic Personal Allowance is £7,475 and so the emergency code for 2011-12 is therefore 747L.  This means that you can earn up to £7,475 in the current tax year before you start paying income tax.

Coincidentally, 747L is also the tax code for someone who is entitled to just the basic Personal Allowance in 2011/12.  If your tax code is 747L it doesn’t automatically mean you are on an emergency tax code.

Getting the right tax code

It is advisable for you to provide any information requested by your employer or HMRC as soon as possible so you can get onto the correct tax code as quickly as you can.  If you don’t you could end up paying too much or too little tax.

Once HMRC has details of your previous income and the tax you have paid for the tax year, they will send you and your employer your correct tax code. Your employer will deduct the correct tax in future and refund any overpaid tax.

If you have been on an emergency tax code you may well have paid too much tax.  If you think you’ve paid too much tax you should claim a refund by contacting HM Revenue and Customs. You’ll need to provide them with your P60 form.

Posted in Emergency Tax, Tax, Tax Rebate | 4 Comments »

Completing a Self Assessment Tax Return for 2011? What You Should Know

Monday, November 14th, 2011

Do you have to submit your own Self Assessment Tax Return for 2011?

If you’re self assessing for the first time or if you’re newly self employed, completing your tax return may seem like a daunting task.   And, the deadline for sending your return to HM Revenue and Customs (HMRC) is getting ever nearer.

So, if you have to send in your self assessment tax return for 2011, keep reading for four vital things that you should know.

If you missed the 31st October 2011 deadline you now have to submit online

There are two ways to submit your Self Assessment tax return.  You can either complete a paper based form or submit your tax return online.

However, the deadline for paper based tax returns is 31st October following the end of the tax year.  So, the deadline for sending in a paper tax return for the 2011/12 tax year was 31st October 2011.

The deadline for submitting your Self Assessment Tax Return 2011 is 31st January 2012

If you have missed the deadline for sending in a paper tax return then you have to complete your tax return online.  You get extra time to submit your Self Assessment via the web and so you have until 31st January 2012 to submit your 2010/11 tax return using the internet.

In order to send your tax return online you will have to register for this service.  This is a two stage process where you register for online government services and then activate your account when you receive your Activation Code from the Government Gateway.

In order to register to send your Self Assessment tax return 2011 online, you will need your Unique Taxpayer Reference (UTR) number and your National Insurance number.

The penalties for missing the tax return deadline are significant

If you fail to submit your 2010/11 tax return before the deadline of 31st January 2012 then you will face a penalty from HMRC.

If you are even a day late in submitting your 2011 Self Assessment Tax Return then you will face a fixed penalty of £100.  If your tax return is up to three months late then you will pay a penalty of £10 for each day that it is late (up to a maximum of £900) in addition to the £100 fixed penalty.

And, if your tax return is even later then the penalties you will face will increase.

Your deadline for paying any tax owed in 2010/11 is 31st January 2012

As well as submitting your tax return by the deadline, you must also pay any tax that you owe by the 31st January following the end of the tax year.

So, any tax you owe as a result of your 2010/11 self assessment tax return must be paid by 31st January 2012.  This is the case whether you submitted a paper or online tax return.

You will have to pay any tax you owe for the previous tax year plus the first of two ‘payments on account’ which go towards your next tax bill.

Posted in Tax, Tax Return | 7 Comments »

What Should My 2011 Tax Code Be?

Monday, November 7th, 2011

Do you know what your tax code is?

Your tax code generally changes every year and is used by your employer or pension provider to work out the amount of tax that they should deduct from your pay or pension.

The process for working out everyone’s individual tax code is the same and so our guide looks at how you can work out your tax code for 2011 and where you can find it.

Where you will find your tax code

Every year, you should receive a PAYE Coding Notice from HM Revenue and Customs (HMRC).  This document outlines your tax allowances and your deductions and explains how your tax code has been worked out.

Your PAYE Coding Notice also tells your employer or pension provider how much tax-free income you can earn in the current tax year.

You are likely to have received your current PAYE Coding Notice in spring 2011.

How your tax code is worked out

There are four steps involved in working out what your tax code for 2011 should be.

Firstly, your tax allowances are added up.  Your tax allowances are the amounts you can earn without paying tax such as your main Personal Allowance which, in the tax year 2011/12, is £7,475.  In addition, if you are eligible to claim other allowances such as Blind Person’s or Married Couple’s Allowance these will be included in your total tax allowances.

Then, any income that you haven’t already paid tax on is added up.  This might include company benefits, savings income or earnings from a second job.  These are called your ‘deductions’.

Your deductions are then taken away from your allowances.  The amount that is left is the amount of tax-free income you can earn in the current tax year.

In most cases, the amount of tax-free income you can earn is then divided by ten and added to a letter that fits your circumstances.

Worked example

Let’s say that you’re eligible for the full Personal Allowance (£7,475 in 2011/12) and you have no other allowances.  You have £500 of income that you have not paid tax on.

Your total tax allowances would be £7,475.  Your total deductions would be £500.

The amount of money you could earn before you paid any tax would therefore be £6,975 (£7,475 minus £500).  Your tax code would be 697L.

Posted in Tax, Tax Return | 2 Comments »

4 Things You Should Know About Your Self Assessment Tax Return 2011

Monday, October 24th, 2011

If you’re self employed or you have income from a variety of sources then you may well have to complete a Self Assessment tax return every year.

Our guide looks at four important things you should know about your Self Assessment tax return 2011.

Different methods of submission

There are two ways that you can complete your self assessment tax return.  You can either send a paper based tax return or you can fill it online.

Increasing numbers of people are using HM Revenue and Customs’ (HMRC) online service as there are several benefits to completing your 2011 tax return online:

  • You have longer to file your return (the deadline is 31 January rather than 31 October)
  • The online system automatically calculates any tax payable
  • Online returns are processed more quickly
  • You will get an acknowledgement that HMRC have received your tax return (you do not receive such an acknowledgement if you submit a paper based tax return)

To submit your tax return online you have to register for the service using the HMRC website.

Three common errors to avoid

Whichever type of tax return you decide to submit, there are some common mistakes that you should avoid:

  • Failing to sign and date your paper based return
  • Using a previous year’s paper based tax return and simply changing the dates
  • Not filling in all additional and supplementary pages (see below)

Make sure you complete all the necessary pages

When completing your tax return, it is important that you make sure to complete all the relevant pages.  Your tax return contains a number of ‘core’ pages and a number of supplementary pages.  Supplementary pages include:

  • Income from property
  • Income from pensions
  • Capital gains

If you plan to submit your tax return online, you should select the supplementary pages that you need when you head onto the HMRC website to complete your return.  For paper based returns, you can download most of the supplementary pages that you may need from the HMRC website.

When completing your tax return, make sure that you have all the relevant records and paperwork to support your return.  You have to provide exact figures to HMRC (approximations are not good enough).

Don’t send your tax return late

If you are completing a paper based tax return, the deadline for it to reach HMRC is midnight on the 31st October after the end of the tax year.  If you received your notice to file a return late, you have three months after the date of issue of the notice to complete your tax return.

If you are using the HMRC website to submit your tax return electronically, you get an extra three months.  You have to submit your tax return by midnight on the 31st January following the end of the tax year.

There is an automatic £100 penalty if you miss this deadline and there may be further penalties depending on how late your tax return is submitted.

Posted in Tax, Tax Return | 2 Comments »

How Much Can I Earn Before Paying Tax in 2011?

Monday, October 3rd, 2011

Most people in the UK are entitled to earn some income every year before they have to pay tax.  This is called your Personal Allowance.  Depending on your circumstances you may also be able to claim some other tax allowances.

Our guide looks at how much you can earn before paying tax in 2011.  We also look at how much you can earn before you pay any National Insurance contributions.

How much can I earn before paying tax 2011?

The amount of your tax free Personal Allowance depends on your age and your total income in the last tax year.

The basic personal allowance for people aged under 65 and who earn under £100,000 in the 2011/12 tax year is £7,475.  This means you can earn £7,475 before you pay tax.

If you are aged 65 to 74 and you earn under £24,000 your Personal Allowance is £9,940.

If you are aged 75 or over and you earn under £24,000 your Personal Allowance is £10,090.

If your income is over the limit (either £100,000 or £24,000 depending on your age) your Personal Allowance is reduced by half of the amount – £1 for every £2 – you have over that limit.

Other allowances that might increase the amount you can earn before paying tax in 2011

If you’re certified blind and are on a local authority register of blind persons you can claim Blind Person’s Allowance.  Blind Person’s Allowance for the tax year 2011/12 is £1,980.  This means that if you also qualify for the full Personal Allowance, you can earn £9,455 in the 2011/12 tax year before you pay tax.

If you are married or in a civil partnership and living together, you are a taxpayer and at least one spouse or partner was born before 6 April 1935 then you can claim Married Couple’s Allowance. In the 2011/12 tax year the maximum amount of Married Couple’s Allowance is £7,295 and the minimum amount is £2,800.

You receive ten per cent of the allowance amount – which means your annual tax saving is at least £280 and could be up to £729.50. The actual amount depends on your income.

How much can I earn before paying National Insurance contributions in 2011?

If you’re employed you pay Class 1 National Insurance contributions (NICs).  In the 2011/12 tax year you won’t pay any NICs if you earn less than £139 per week.

If your average earnings are over £139 per week you won’t necessarily pay NICs every week.  You only pay NICs in the weeks where your earnings exceed £139.

If you’re self-employed you pay Class 2 and Class 4 National Insurance contributions.  IN the 2011/12 tax year you won’t pay any Class 4 NICs if your profits are under £7,225.  In addition, you may not pay any Class 2 NICs (normally a flat rate of £2.50 per week) if your profits are expected to be under £5,315.

Posted in National Insurance, Tax, Tax Rebate, Tax Return | 6 Comments »

Finding Your Important Tax Information

Monday, September 26th, 2011

When submitting your tax return, starting a new job or enquiring about your tax and other benefits you’re likely to need certain pieces of information.  These may include your National Insurance number, your Unique Taxpayer Reference (UTR) number or your tax code.

If you’ve mislaid any of this information, our guide will help you find it.

Finding your National Insurance Number

If you can’t remember your National Insurance number or you’ve lost your National Insurance number card, you may be able to find it on some of your official paperwork.  You can often find your National Insurance number on:

  • Your payslip
  • A copy of your Self Assessment tax return
  • Your P60 (end of year tax statement)

If you still can’t find your National Insurance number, you can ask HM Revenue and Customs (HMRC) to confirm it to you.  You can do this by calling the National Insurance Registrations Helpline (on 0845 915 7006) or completing and returning a CA5403 form.

HMRC will confirm your National Insurance number by post.

Finding your Tax Code

If you’re employed or between jobs, you’ll find your tax code on your P45 (the statement of earnings/tax you receive when you leave an employer).  You will also find your tax code on your ‘PAYE Coding Notice’, usually sent to you by HMRC before the start of each tax year.

If you’ve lost your P45 and want to find out your tax code you should contact HMRC and give them your National Insurance number and tax reference number (see below).

If you’re starting your first job, your employer will ask you for the relevant information to allocate a tax code and work out the tax due on your wages.  HMRC will then process the information passed on from your employer and, where necessary, revise or issue you with a tax code.

If you get a company or personal pension, you’ll find your tax code on your PAYE Coding Notice.  You’ll also find your tax code on notices and payslips from your pension provider.

Finding your Unique Taxpayer Reference (UTR) Number

Your UTR number is a unique number provided by HMRC so that you can complete your tax return.  It has ten digits (for example, 15863 35637) and it is used by HMRC to identify you.

If you can’t remember what your UTR number is, you can normally find it on:

  • Your tax return – your UTR number should be on your tax return
  • Your ‘Welcome to Self Assessment’ letter (SA250). This letter also explains how your UTR number is used
  • Your ‘Notice to File a Tax Return’ – if you submit your tax return online, you should receive a reminder that your self assessment tax return is due.  Your UTR number will be found on this Notice to File document
  • Your ‘Statement of Account’ – your UTR will also appear on your HMRC statement

You will often also find your UTR number on other formal correspondence that you receive from HMRC such as a payment reminder.

Posted in National Insurance, P60/P45 Questions, Tax, Tax Return | 6 Comments »

How Your Savings Are Taxed

Tuesday, September 13th, 2011

When you receive interest on your savings, it is normally paid to you net of tax at the basic rate (20 per cent).  So, if you’re on a low income you may be able to claim this tax back.  Conversely, if you’re a higher/additional rate taxpayer then you may have to pay some additional tax.

Our guide looks at how your savings are taxed.

How your savings income is taxed

The income you receive from your savings is added to your other income.  You then pay tax after your tax-free allowances – for example Personal Allowance – have been taken into account.  This works as follows (for the 2011/12 tax year):

  • Taxable savings income that falls within the £2,560 starting rate for savings Income Tax band is taxed at 10 per cent (but only if the rate band has not been used up by other income as savings income is taxed last)
  • Taxable savings income (included with your other income) between the £2,560 starting rate for savings Income Tax band and the upper £35,000 basic rate band is taxed at 20 per cent
  • Taxable savings income (included with any other income) between the £35,000 higher rate Income Tax band and the £150,000 additional rate band, is taxed at 40 per cent
  • Taxable savings income (included with any other income) over the £150,000 Income Tax band, is taxed at 50 per cent

Generally, your savings interest will be paid after 20 per cent tax has been deducted.  This shows on your statement or in your passbook as ‘net interest’.

If the entry says ‘gross interest’ then no tax has been taken off.

Reclaiming tax if you’re a non-taxpayer

If your income means you don’t have to pay tax you can register for gross interest.  You do this by completing an R85 form (called ‘Getting your interest without tax taken off’).  If you’ve already paid tax you will be able to claim it back.

Reclaiming tax if your non savings income is under £2,560

If your non-savings income is less than the starting rate for savings limit (£2,560 in tax year 2011/12) or if savings and investments are your only source of income – your savings income is taxable at a rate of 10 per cent up to the £2,560 limit.

As your interest will have been taxed at 20 per cent you will be able to claim part of the tax back.

Paying tax if you are a basic rate taxpayer

If you pay basic rate tax at 20 per cent, you will have paid the correct amount of tax on your savings income.

Paying additional tax if you’re a higher rate taxpayer

If you pay the higher rate of tax you will have to tell HMRC about your savings income.  You normally do this by Self Assessment or by completing a P810 form so HMRC know exactly what savings income you receive.

You will have to pay the additional tax on your savings interest.

Paying additional tax if you’re an additional rate taxpayer

Additional rate taxpayers complete a Self Assessment form.  So, you should declare all your savings income on this form in order that HMRC can claim the additional tax due on this interest.

Posted in Tax, Tax Return | 2 Comments »

How Much Tax Do I Pay?

Wednesday, August 31st, 2011

As Benjamin Franklin once famously remarked: “In this world nothing can be said to be certain, except death and taxes.”  We pay tax on everything from our income to our home and our groceries and so our guide looks at how much tax you can expect to pay.

Income Tax

There are several different tax bands and rates depending on your income.  The question “How much tax do I pay?” will therefore depend very much on your specific personal circumstances such as the tax allowances that you are eligible for and where your income comes from.

Typically, you’ll pay the following tax in the 2011/12 tax year:

  • 0% on the first £7,475 that you earn (this is your Personal Allowance)
  • 20% on the next £37,400 that you earn
  • 40% on the next £112,600 that you earn
  • 50% on anything over this

National Insurance Contributions

The amount of National Insurance contributions that you pay will depend on whether you are employed or self employed.

If you’re employed you pay Class 1 National Insurance contributions at the following rates:

  • if you earn more than £139 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £139 and £817
  • if you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817

If you’re self-employed you pay Class 2 and Class 4 National Insurance contributions at the following rates:

  • Class 2 National Insurance contributions are paid at a flat rate of £2.50 a week
  • Class 4 National Insurance contributions – you pay 9 per cent on any profits between £7,225 and £42,475, and a further 2 per cent on profits over that amount

VAT

Value Added Tax (VAT) is a tax that you pay when you buy certain goods or services.  Most goods and services in the UK are subject to VAT and the tax is payable at one of three rates:

  • Standard rate (20%) – Most goods and services attract VAT at this rate
  • Reduced rate (5%) – On certain goods such as children’s car seats and gas and electricity for your home
  • Zero rate (0%) – There are some goods on which you don’t pay any VAT such as most foodstuffs, books, children’s clothes, magazines and newspapers

Other Taxes

As well as these three main taxes there are other taxes that you may pay.  Again, the rates vary depending on your specific circumstances.

The main other taxes are:

  • Inheritance Tax (IHT) – Payable if your estate (including any assets held in trust and gifts made within seven years of death) is valued over the current Inheritance Tax threshold (£325,000 in 2011-12).  The tax is payable at 40%
  • Capital Gains Tax (CGT) – Payable on capital gains’ (any profit that you make when you sell or give away an asset if it has increased in value.  The tax is payable at 10%,18% or 28% depending on your circumstances
  • Road Tax – Payable if you want to take a vehicle on a public road.  The rate varies from £0 to over £1,000
  • Council Tax – Payable based on the value of your home.  The rate payable is determined by your local authority

Posted in Car Tax, National Insurance, Tax | 11 Comments »

Tax on Selling a Property

Friday, August 26th, 2011

If you want to sell a property that isn’t your main home then you may have to pay some tax on it. Our guide looks at when you do and do not have to pay tax when you sell a house or flat.

Selling your own home

You do not have to pay any tax when you sell your own home, providing:

  • The property was your only home whilst you owned it (ignoring the last three years of ownership)
  • You bought it primarily to use as your own home
  • You used it as your home during the time you owned it and used it only as a home for yourself, your family and up to one lodger
  • The garden/grounds do not exceed 5,000 square metres including the site of the house

If you are married or in a civil partnership (and not separated) you and your spouse or civil partner can have only one such main residence between you.

Selling a property that isn’t your main home

If you sell a property for more than you paid for it then you will normally have a ‘chargeable gain’ and you may have to pay tax.

However, in the 2011/12 tax year, the first £10,600 of your total taxable gains are tax free.

Factors that you should take into account when working out the tax payable include:

  • You can deduct some of the costs of buying, selling and improving the property when working out your ‘chargeable gain’ (profit)
  • You can transfer property to your spouse or civil partner without paying Capital Gains Tax (if you are living together)
  • Any loss made on the property could be offset against other chargeable gains you make

You should also bear in mind that if you give property or sell it cheaply to your children or to others, you may be liable to pay Capital Gains Tax.

What paperwork you should keep

HM Revenue & Customs (HMRC) recommends that you keep the following information/documents:

  • Copies of valuations to calculate gains/losses
  • Contracts for sale and purchase
  • Evidence of the costs of purchase, sale or improvements to the property

Posted in Property Tax, Tax | 5 Comments »

4 Reasons You Could Be Able To Claim A Tax Refund

Monday, August 22nd, 2011

Have you made a claim for a tax refund?  Or, has HM Revenue and Customs has received new information about your income or your entitlement to tax allowances that suggests you may be entitled to an income tax refund?

Here are four common reasons that you could be eligible for a repayment of tax.

You were only employed for part of the tax year

Often, your tax is worked out assuming that you earn the same amount of money for the entire tax year.  In order that your take home pay remains broadly the same every week or month, the tax free allowances are spread out throughout the entire tax year.

If you therefore only work for part of a tax year, you could find that too much tax was deducted during the time you were working.  This is because your tax code assumed that your allowances were spread equally throughout the year.

Your tax return was wrong

If you have made a mistake on your Self Assessment tax return or think you have paid too much tax, you may be able to claim it back.

If you make a mistake on your tax return you have normally got 12 months from 31 January after the end of the tax year to correct it. For example, for the 2010/11 tax return you have until 31 January 2013 to make an amendment.

If you want to correct a mistake after 12 months you have to write to HMRC and tell them about the mistake instead of amending your tax return.

Your other income changes

If you are employed and you pay your tax through the Pay as you Earn (PAYE) scheme, your tax code is likely to take into account any other income that you receive.  This could include savings interest or income from a rental property.

If this income reduces during the tax year and you don’t let HMRC know, you could well ending up paying too much tax and have to claim a refund at the end of the tax year.

Your tax code is wrong

If your income changes during a tax year, you take on a second job or earn some additional income or the amount of untaxed income you receive changes, you could find yourself on the wrong tax code.

If you don’t let HMRC know about these changes your incorrect tax code may mean that you pay more tax than you should.  You may therefore be eligible for a refund at the end of the tax year.

Posted in Tax, Tax Rebate, Tax Return | 6 Comments »

How Much Is My Car Tax?

Thursday, August 18th, 2011

If you have a car that you use on a public road in the UK, you are obliged by law to buy road tax and to display a tax disc.

In the past, the cost of car tax was the same for everyone.  However, recent changes mean that there are now several different car tax bands depending on the age of your car and on its carbon dioxide (CO2) emissions.  Our guide answers your question ‘how much is my car tax?’

Cost of car tax if your car was registered before 1 March 2001

If your car was registered before 1 March 2001 there are two car tax bands depending on the engine size of your car.

If your engine size is less than 1549 cc you’ll pay £130 for 12 months tax and £71.50 for 6 months.  If it’s over 1549cc you’ll pay £215 for 12 months and £118.25 for 6 months tax.

Cost of car tax if your car was registered on or after 1 March 2001

Car tax rates for vehicles registered on or after 1 March 2001 are split into 13 bands depending on the CO2 emissions of your car.  The lower the CO2 emissions, the lower the car tax that you pay.

You can find out the CO2 emissions of your car by checking your registration certificate (V5C) or by entering the make/model and registration number of your car into the online ‘vehicle enquiry’ section on DVLA’s Electronic Vehicle Licensing website.

The information below shows the costs of car tax depending on your band and whether you want 6 or 12 months tax.

  • Band A (up to 100 g/km) – No car tax payable
  • Band B (101 to 110 g/km) – £20 car tax per year (no 6 month option)
  • Band C (111 to 120 g/km) – £30 car tax per year (no 6 month option)
  • Band D (121 to 130 g/km) – £95 car tax per year or £52.25 for 6 months
  • Band E (131 to 140 g/km) – £115 car tax per year or £63.25 for 6 months
  • Band F (141 to 150 g/km) – £130 car tax per year or £71.50 for 6 months
  • Band G (151 to 165 g/km) – £165 car tax per year or £90.75 for 6 months
  • Band H (166 to 175 g/km) – £190 car tax per year or £104.50 for 6 months
  • Band I (176 to 185 g/km) – £210 car tax per year or £115.50 for 6 months
  • Band J (186 to 200 g/km) – £245 car tax per year or £134.75 for 6 months
  • Band K (201 to 225 g/km) – £260 car tax per year or £143 for 6 months
  • Band L (226 to 255 g/km) – £445 car tax per year or £244.75 for 6 months
  • Band M (over 255 g/km) – £460 car tax per year or £253 for 6 months

Cars first registered after 1 April 2010

Brand new cars registered after 1 April 2010 with CO2 emissions of over 130 g/km attract a different rate of car tax in the first year.  For example, the tax on a brand new car with CO2 emissions of 190 g/km would be £445 in the first year, compared to £245 if the car was several years old.

Posted in Car Tax, Tax | 15 Comments »

How much can you earn before paying tax in 2011?

Monday, August 15th, 2011

Each year, almost everyone in the UK is entitled to earn a certain amount of money before you start paying tax.  This is called your Personal Allowance.

The amount generally changes every year and so here is our guide to how much you can earn before paying tax in 2011.

Personal Allowance

The amount of your personal allowance depends on your age and your total income in the tax year (including pensions, interest, rental income etc).

If you are under the age of 65 and you earn less than £100,000 per year, the Personal Allowance is £7,475.  This means that you can earn up to this amount before you start to pay tax.

If you are aged between 65 and 74 the Personal Allowance is £9,940 and if you are 75 or over it is £10,090.  If you are over 65 and earn £24,000 or more your Personal Allowance will be reduced by £1 for every £2 you earn over £24,000.

If you already pay tax through your job or pension, or if you complete a Self Assessment tax return, you should receive a Personal Allowance automatically.

Most people in the UK are entitled to the full Personal Allowance.  However, if you have underpaid tax in previous tax years or you have other jobs, income or benefits to take into account your Personal Allowance may be reduced to take these into account.

Blind Persons Allowance

Blind Persons Allowance is available to you if you are certified blind and are on a local authority register of blind persons.  The allowance for the 2011/12 tax year is £1,980 and this is in addition to any Personal Allowance you receive.

Married Couples Allowance

You can claim Married Couple’s Allowance if you’re married or in a civil partnership, you’re a taxpayer and you or your spouse or civil partner were born before 6 April 1935.

In the 2011/12 tax year, the minimum amount is £2,800 and the maximum amount of Married Couple’s Allowance is £7,295.  You receive 10 per cent of the allowance amount – which means your tax saving is at least £280 and up to £729.50. The actual amount depends on your income.

Posted in Tax, Tax Return | 37 Comments »

How To Pay Your Self Assessment Tax Bill

Wednesday, August 10th, 2011

Once you have submitted your Self Assessment tax return you then have to arrange to pay any tax that you owe.  HM Revenue and Customs (HMRC) accept various methods of payment and these are the most common and popular ways that you can pay your tax bill.

Paying your tax by Direct Debit

You can arrange to set up a Direct Debit to pay your tax bill online if you are registered for the Self Assessment Online service.  Setting up a Direct Debit means that your tax will be collected in a single payment on 31 January and on 31 July.

HMRC will only ever collect the amount you ask them to by Direct Debit.

Paying your tax online by credit and debit card

If you have a UK debit or credit card, you can pay your Self Assessment tax online using the BillPay service.  Credit cards incur a non-refundable transaction fee of 1.4 per cent.

To make a payment you will need your debit or credit card details and your self assessment reference number.  This is shown on the payslip HMRC sends you.

A BillPay payment takes three bank working days to reach HMRC.

Paying your tax by telephone or internet banking

You can use your bank or building society internet or telephone banking service to pay your tax bill. You will need the HMRC bank account details (find these online) and your Self Assessment reference number.

If you pay using any of these methods, your bank will transfer your money direct to HMRC’s bank account.  It normally takes three working days for the payment to reach HMRC although it may be longer.  You should check with your bank or building society.

Paying your tax at a Post Office

You can make a Self Assessment payment at the Post Office by cheque, cash or debit card without charge.  You should take your HMRC payslip with you and make any cheques payable to ‘Post Office Ltd’.

You should allow at least three bank working days for your payment to reach HMRC.

Paying your tax by post

If you want to pay your tax by post you should make your cheque payable to ‘HM Revenue & Customs only’ and then write your Self Assessment reference number.

You should send the unfolded payslip and cheque to HMRC and leave at least three working days for your payment to arrive.

Posted in Tax, Tax Return | 3 Comments »

How Much Is Tax?

Thursday, August 4th, 2011

You pay tax on everything from your income to your groceries.  However, everyone in the UK pays a slightly different amount of tax.

So, our guide looks at the three main types of tax that you pay and what the current tax rates are.

Income Tax

There are four rates of income tax in the UK: 0%, 20%, 40% and 50%.

The amount of tax that you pay depends on the personal allowances that you receive and the amount that you earn.

The vast majority of taxpayers are allowed to earn a certain amount each tax year without paying any tax (your ‘personal allowance’.  In the 2011/12 tax year, this amount is £7,475.  However, you may also receive other allowances based on your age, if you are married or if you are registered blind.

You then pay 20% tax on the next £35,000 of your earnings over your personal allowance, 40% of the next £150,000 and 50% of any amount above this.

National Insurance contributions

The amount of National Insurance contributions you pay depend on your earnings and whether you are employed or self-employed.

Employed

If you earn under £139 per week, you won’t pay any National Insurance contributions.  If you earn more than £139 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £139 and £817.  If you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817.

Self-employed

If you’re self-employed you pay Class 2 and Class 4 National Insurance contributions.

You pay class 2 National Insurance contributions at a flat rate of £2.50 a week (unless your profits are expected to be under £5,315 when you may not have to pay any contributions).

Class 4 National Insurance contributions are 9 per cent on profits between £7,225 and £42,475, and a further 2 per cent on profits over that amount.

Value Added Tax (VAT)

VAT (Value Added Tax) is a tax that you pay when you buy goods and services in the European Union, including the UK.

There are three main rates of VAT in the UK: 0%, 5% and 20%.

There are some items on which you pay 0% VAT, such as most food items, children’s clothes and books, magazines and newspapers.

A VAT rate of 5% is charged on some items such as home gas and electricity and car seats.

Most items that you buy will have VAT at 20%.

Posted in National Insurance, Tax, VAT | 2 Comments »

How To Claim Petrol Expenses

Monday, August 1st, 2011

Do you use your own vehicle for work purposes?

If so, it may be possible for you to claim petrol expenses.  Whether you are employed or self employed, you can often claim the cost of using your own car for work.

Our guide looks at how you claim petrol expenses if you are employed or self employed.

Claiming petrol expenses if you’re employed

If you use your own car, van or motorcycle for work, you can claim ‘mileage allowance relief’ on the miles that you travel.  However, you can’t claim all the mileage that relates to your work.  For example, you can’t claim the mileage between your home and your normal place of work and you can’t claim petrol expenses for any private mileage that you do.

However, you may be able to claim mileage if you use your own car to visit clients or you use your own van for collections and deliveries.

To work out the petrol expenses you can claim, you need to work out your total business mileage in your own vehicle.  If you use different vehicles (a car and a van, for example) you should total up the miles you have done in each vehicle.

You then need to find the ‘approved mileage rates’ from the HMRC website.  As of 2011/12, the rates are:

  • Car – 45p/mile for first 10,000 miles then 25p/mile thereafter
  • Motorcycle – 24p/mile
  • Bicycle 20p/mile

You then multiply your business miles by the approved mileage rate to work out the total ‘approved amount’.  Once you have done this, you should deduct the petrol expenses that you have already received from your employer.

If you’ve been paid less than the ‘approved amount’ you can claim mileage allowance relief on the difference.  If your employer has paid you more than the ’approved amount’ you may have to pay some tax.

Claiming petrol expenses if you’re self employed

If you are self-employed and use your own vehicle for work purposes, you may be able to claim petrol expenses as an allowable business cost.

You can use the same mileage rates as above.  You multiply your total business mileage by the mileage rate.

For example, if you had done 2,000 business miles in a car, you could claim £900 (2,000 x £0.45).

There is a maximum amount of tax relief that you are able to claim in one tax year, even if your travel expenses exceed this amount.  The annual limits are on the HMRC website.

You should ensure that you keep careful records of your business mileage as HMRC may want to see proof of the miles that you have done.

Posted in Tax | 4 Comments »

How To Get A Copy Of Your P60

Friday, July 29th, 2011

One of the most important tax forms that you will need is your P60.  Your P60 summarises your pay and the tax that you have paid in a particular tax year.

Our guide looks at what your P60 is for, when you should receive one and how to get a copy of your P60.

What is your P60 and when do you receive it?

Your P60 is a form which shows your total earnings from a job or pension in the previous tax year.  It also shows how much tax you have paid.  If you have several jobs or pensions then you should receive a P60 for each of them.

You should receive a P60 at the end of every tax year – usually around April or May.  You are entitled by law to receive a P60 from your employer if you are still working for them at the 5th April.  Ask your employer to provide you with a P60 if you haven’t received one.

What you need your P60 for

There are various reasons that you may need a P60:

  • To apply or renew tax credits
  • To claim a tax rebate
  • To complete your self assessment tax return

Many banks and building societies also request your P60 when deciding whether to agree a loan or mortgage application.

Paper and electronic P60s

From the 2010/11 tax year your employers can provide your P60 on paper or electronically.  You will have to give your consent to your employer to receive an electronic version as you must have the ability to securely view and print a copy.

Getting a copy of your P60

If you have lost your P60, you should first approach your employer to ask them if they can provide you with a copy.

Employers are obliged to keep records of pay for three years and so they should be able to provide you with a copy of your P60 for the last three years.  The P60 will be clearly marked as ‘duplicate’.

HM Revenue and Customs (HMRC) cannot provide a duplicate of your P60.

If you need a copy of your P60 from more than three years ago, it is unlikely that you will be able to get one.  Your employer may be able to provide you with a ‘statement of earnings’ on company headed paper which should act as a replacement for a P60.

Alternatively, you should contact your Tax Office.  Your tax office will be able to provide you with alternative, official information regarding the amount of tax that you paid.

Posted in P60/P45 Questions, Tax | 42 Comments »

What percentage of tax do I pay?

Monday, July 25th, 2011

What income tax rate do you pay?

As the name suggests, income tax is a tax on your income.  However, not everyone pays income tax and not all income is taxable.  And, different rates of tax apply depending on the amount of money that you earn.

Our guide looks at the different tax rates in the UK and answers the question ‘what percentage of tax do I pay?’

When you pay 0% tax

Almost everyone in the UK who is resident for tax purposes is allowed to earn a certain amount each year without paying any tax.  This is called your’ personal allowance’.

In the current tax year (2011/12), the basic Personal Allowance – or tax-free amount – is £7,475.

This means that you will pay 0% tax on the first £7,475 of your earnings.

If you’re aged 65 or over, registered blind or married (assuming one of you was born before 6 April 1935) then you may also be able to claim additional allowances.  This will increase the amount of income that you can earn before you start paying tax.

When you pay 20% tax

You only pay income tax on taxable income that’s above your tax-free allowances.  So, if your total earnings are less than your personal allowance, you’ll pay no tax.  If you earn more than your personal allowance (for most people this will be £7,475) then you will pay some tax on your earnings above this amount.

The ‘basic rate’ of tax in the UK is 20%.

You pay 20% tax on the first £35,000 of your taxable income.

When you pay 40% tax

If you earn more than your personal allowance plus the limit for the ‘basic rate’ of tax then you will begin to pay ‘higher rate’ tax on any earnings over this amount.

For example, if you earn £50,000 in tax year 2011/12 and you have the basic personal allowance, your tax rates will be:

  • £0 – £7,475 – 0% (your personal allowance)
  • £7,475 – £42,475 – 20% (‘basic rate’ – on the first £35,000 of your taxable income)
  • £42,475 – £50,000 – 40% (‘higher rate’ – on your taxable income over £35,000)

When you pay 50% tax

If you are a high earner, then part of your income may be taxed at the ‘additional rate’ of 50%.  50% tax is charged on any taxable earnings over £150,000.

Other rates

Bear in mind that other rates of tax apply to different types of income.  For example, savings interest and dividends are taxed at different rates.

A worked example

You are 35 years old, have £25,000 of taxable earnings a year and you are eligible for the full personal allowance.  The percentage of tax you pay is:

  • £0 – £7,475 – Nil
  • £7,475 – £25,000 – 20% (equivalent to 20% of £17,525 = £3,505)

Posted in Tax, Tax Return | 2 Comments »

Income tax in UK ‘may have to rise by 12p in the pound’

Friday, July 15th, 2011

A new report has found that the income tax rates in the UK may have to rise by a staggering 12 pence in the pound over the next few decades in order to keep Britain’s public finances at a sustainable level.

The UK’s debt is currently at more than 60 per cent of national income, compared to the 40 per cent level that is considered ‘safe’ for a solvent economy.  Spending cuts in excess of the Government’s current plans and tax rises are seen as the only way to cope with the aftermath of the global financial crisis and the challenges of an aging population.

Income tax needs to rise by 12p in the pound to plug hole in finances

The report from the Office of Budget Responsibility (OBR) – an independent think tank set up by Chancellor George Osborne – has painted a nightmare picture for the UK economy.

An aging population in the UK is pushing up the costs of pension and healthcare, meaning that in fifty years time over a quarter of the UK population will be over the age of 65.  The cost of pensions and healthcare will rise to £80 billion by the year 2061 meaning that unless the NHS becomes significantly more efficient, the Government will have to raise an additional £57 billion every year in taxes.

As a 1p rise in income tax raises £4.6 billion, taxes would have to rise by 12p to bring down the UK’s debt to the levels last seen before the recession.

Robert Chote, head of the OBR, said: “The Government is likely to have to tax more or spend less elsewhere to keep the public finances on a sustainable path.”

In the short term, an income tax rise of 5p is considered the minimum amount that would be necessary to get the UK economy back on an even keel.  The OBR report said: ‘Under our central projections, the Government would need to implement a permanent tax increase or spending cut of 1.5 per cent of GDP (£22billion in today’s terms) in 2016/17 to get debt back to 40 per cent.’

The Daily Mail reports that ‘if ministers decide to put up taxes, this would equate to an increase of almost 5p on the basic and higher rate of income tax.’

Part of the problem over the next few decades will be caused by a reduction in some of the other tax revenues that the Government enjoys.  The OBR report pointed to the declining revenues from fuel duty as cars become more fuel efficient whilst tax revenues from tobacco shrink as less and less people smoke.

Posted in Tax, Tax Return | No Comments »

How Much Is Council Tax?

Tuesday, July 12th, 2011

Council Tax applies to all domestic properties whether you own or rent your home.  Whether you live in a house, flat, mobile home, houseboat or bungalow, you will be required to pay Council Tax.

Council Tax is paid to your local council and goes towards funding local services such as police, libraries, refuse collection and the fire service.

In order to work out how much Council Tax you will pay, you will need to follow a three step process.  Our guide explains how you can work out what Council Tax you will pay.

Step One – Work out which valuation band you’re in

The main factor that determines the Council Tax that you will pay is the valuation of your home.  In England there are eight Council Tax valuation bands based on the value of your home on 1 April 1991.  Your Council Tax is not based on the current value of your home but on the value on this date.

In Wales, your home is put in one of nine valuation band based on the value in 2003.  There are also different valuation bands in Scotland.

The current valuation bands in England are:

  • Valuation band A – up to £40,000
  • Valuation band B – over £40,000 and up to £52,000
  • Valuation band C – over £52,000 and up to £68,000
  • Valuation band D – over £68,000 and up to £88,000
  • Valuation band E – over £88,000 and up to £120,000
  • Valuation band F – over £120,000 and up to £160,000
  • Valuation band G – over £160,000 and up to £320,000
  • Valuation band H – over £320,000

Step Two – Find out what your council charges for your band

Once you have established which valuation band your home is in, you can then approach your local council to establish their Council Tax rate for that band.

Each council decides on its own charging structure and the amount of Council Tax that you will pay will vary from council to council.

Step Three – Work out if you’re entitled to any exemptions

Once you have established what you will be charged for your home by your local council, you can then look at whether any discounts or exemptions to your Council Tax can be applied.

While a ‘full’ Council Tax bill is based on two or more adults living in a household, what you will pay depends on your personal circumstances.

For example, if you are the only adult living in your household you are entitled to a 25 per cent reduction on your Council Tax.  In addition, homes which are occupied only by students in full time education are generally completely exempt from paying any Council Tax at all.

There are a number of reasons why you may be eligible for a discount and you can contact your local council to find out more about these.

Posted in Property Tax, Tax | No Comments »

Your P45, P46 and P60 Explained

Friday, July 8th, 2011

Your P45, P46 and P60 are the three most common tax forms you are likely to encounter.  Every employee is entitled to a P45 and P60 by law while you may also be asked to complete a P46 form when you start work with a new employer.

Our guide explains these common tax forms.

Your P45

You receive a P45 from your employer when you stop working for them.  It shows how much you have earned and how much tax you have paid in the current tax year.

A P45 form includes information such as:

  • Your tax code and National Insurance number
  • The amount you earned in the current tax year
  • How much tax your employer has deducted in the current tax year
  • The date you stopped work for that company

A P45 has four parts.  These are Part 1, Part 1A, Part 2 and Part 3.

Part 1 is sent to HM Revenue and Customs.  You receive the other three parts.  Part 1A is kept for your own records and parts 2 and 3 are given to your new employer (when you start a new job) or to the Jobcentre (if you are claiming Jobseeker’s Allowance).

Your P46

If you are starting your first job or if you are taking on a further job in addition to your present employment, you may not have a P45 form.  In this case, your new employer may ask you to complete a P46.

A P46 form includes information such as:

  • Whether you have another job
  • Whether this is your first job
  • Whether you have been claiming benefits such as Jobseeker’s Allowance

In order that your new employer can work out what tax code to apply – and therefore how much tax to deduct – it’s important that you complete a P46 form as soon as you can.

Your P60

At the end of every tax year you should receive a P60 form.  It is a summary of your pay in the previous tax year and any tax that has been deducted. It is a legal requirement that your employer provides you with a P60 if you were working for them at the end of the tax year (5th April).

You will need your P60 if:

  • You want to claim back any overpaid tax
  • You have to complete a Self Assessment tax return
  • You want to apply for tax credits

While most people receive a paper version of their P60, a company is now allowed to send an electronic version if you have given your consent to receive it in this format.  You must have access to secure facilities in order that you can look at your P60 and print a copy for your records.

Posted in P60/P45 Questions, Tax, Tax Return | 11 Comments »

How Much Tax Should I Pay?

Wednesday, June 29th, 2011

As Benjamin Franklin once famously remarked, “in this world nothing can be said to be certain, except death and taxes.”

All of us pay some sort of taxes whether it is on our income, our home or the goods and services that we buy.  Our guide looks at the main income taxes in the UK and how much tax you should pay.

Income Tax

The amount of income tax that you pay depends on two factors: the amount that you earn and the amount of ‘tax allowances’ that you are entitled to claim.  Everyone in the UK is entitled to claim their personal allowance – the amount you can earn before you start paying tax – and there are also other allowances for married couples and people who are registered blind.

In simple terms, in the tax year 2011/12 you should pay no income tax if you earn less than £7,475 (the amount of the personal allowance).

You will then pay 20 per cent tax on the next £35,000 that you earn, 40 per cent tax on the next £115,000 after that and 50 per cent on any further earnings.

For example, if you earned £15,000 in the tax year 2011/12 and you had the basic personal allowance, you would pay tax as follows:

  • £0 – £7,475 – No tax (this is your personal allowance)
  • £7,475 – £15,000 (equivalent to taxable income of £7,525) taxed at 20 per cent = £1,505 tax

If you earned £60,000 a year and had the basic personal allowance, you would pay tax as follows:

  • £0 – £7,475 – No tax (this is your personal allowance)
  • £7,475 – £42,475 (equivalent to taxable income of £35,000) – 20 per cent – £7,000
  • £42,476 – £60,000 (equivalent to taxable income of £17,524) – 40 per cent – £7,010

Here, your total tax bill would be £14,010.

National Insurance Contributions

As well as paying income tax on your earnings you will also pay National Insurance Contributions (NICs).  The amount of NICs that you pay depends on whether you are employed or self employed.

If you’re employed, you’ll pay the following NICs in the tax year 2011/12:

  • Earnings of £0 – £139 per week – Nil
  • Earnings of £139 to £817 per week – 12 per cent
  • Earnings above £817 per week – 2 per cent

If you’re self employed, you’ll pay the following Class 4 NICs in the tax year 2011/12:

  • Annual profits under £7,225 – Nil
  • Annual profits of £7,225 to £42,475 – 9 per cent
  • Annual profits above £42,475 – 2 per cent

In addition, if your profits are over £5,315 you will pay Class 2 National Insurance contributions of £2.50 per week.

Posted in Tax, Tax Return | 11 Comments »

Tax Allowances for 2011/12

Tuesday, June 21st, 2011

Each Budget, the Chancellor of the Exchequer makes changes to the tax free allowances of every taxpayer in the UK.  The tax allowances changed again at the start of the 2011/12 tax year and every taxpayer should know exactly what allowances they have.

Our guide outlines the main tax allowances for the 2011/12 tax year.

Personal Allowance

Each taxpayer in the UK has a personal allowance.  This is the amount of money that you’re entitled to earn each tax year before you pay any tax.  It generally rises every year although there was a significant rise in the personal allowance for the tax year 2011/12.

If you are over the age of 65 you may receive an additional personal allowance.

The three levels of Personal Allowance in the 2011/12 tax year are:

  • Basic – £7,475 (with an income limit of £100,000) – up from £6,475 in tax year 2010/11
  • Age 65-74 – £9,940 (with an income limit of £24,000) – up from £9,490 in tax year 2010/11
  • Age 75 and over – £10,090 (with an income limit of £24,000) – up from £9,640 in tax year 2010/11

If you become 65 or 75 during the year to 5 April 2012, you are entitled to the full allowance for that age group.

If you are aged 65 and over and your income is between £24,000 and £100,000, your age-related Personal Allowance is reduced by half of the amount – £1 for every £2 – you have over the £24,000 limit, until the basic allowance is reached.  For example, if you’re 68 and have income of £25,000 – £1,000 over the limit – your age-related Personal Allowance is reduced by £500 to £9,440.

From the tax year 2010-11, if your income is over £100,000, your Personal Allowance is reduced by half of the amount – £1 for every £2 – you have over that limit.  If your income is large enough, your Personal Allowance will be reduced to nil.

Blind Persons allowance

If you are registered blind with your local authority, your Blind Person’s Allowance is added onto your Personal Allowance to work out the amount that you can earn without paying tax.

In the 2011/12 tax year, Blind Person’s Allowance for the tax year is £1,980 irrespective of your age or income.

So, if you are under 65 and claim both allowances, you can earn £9,455 (£7,475 Personal Allowance plus £1,980 Blind Person’s Allowance) before you pay any tax.

Married Couples Allowance

You can claim Married Couple’s Allowance if you’re a taxpayer, you’re married or in a civil partnership and you or your spouse or civil partner were born before 6 April 1935.

The maximum amount of Married Couple’s Allowance for the 2011/12 tax year is £7,295 and the minimum amount is £2,800.

You receive 10 per cent of the allowance amount – which means your tax saving (based on a full year’s eligibility) is at least £280 and up to £729.50. The actual amount depends on your personal income.

Posted in Tax, Tax Return | No Comments »

Brits paying some of the world’s highest income tax rates

Tuesday, June 14th, 2011

New research this week has found that Britain is charging some of the highest tax rates in the world for its richest and poorest workers.  Out of twenty major economies, Britain is ranked seventh for the amount of tax it takes from its very highest and very lowest earners.

Experts are concerned that high tax rates in the UK are driving away high earners to other countries where the tax rates are much lower.

British government takes more tax than many other nations

The research published in the Daily Telegraph found that Brits earning over £122,000 a year take home just 60.9 per cent of their pay after paying tax.  In Russia they would keep 87 per cent and in Egypt 80.4 per cent, whilst earnings in Dubai are tax free.

Britain is ranked seventh highest in terms of the tax it takes from its workers.  Italy has the highest tax rates for the wealthy as workers earning £122,000 keep just 54.1 per cent of their earnings.  High earners in the Netherlands keep 54.7 per cent of their pay whilst in Ireland and Germany they would take home just 56 per cent.

Francesca Lagerberg, head of tax at accountants Grant Thornton, said: “This provides evidence of the detrimental effect of high tax rates on high earners.  For Britain to be competitive, action is needed to discourage a brain drain.”

Mark Giddens, a partner at UHY Hacker Young, agrees: “The 50 per cent tax rate on people earning more than £150,000 a year, combined with increases in national insurance, has undoubtedly made the UK less attractive to high earners.  Many of these people will be highly skilled and they are usually very mobile.”

He added: “What is surprising to us is the wide difference between countries in terms of tax burden placed on high earners.

“With the exception of Israel, the countries which tax high earners the most are EU members. The countries with the lightest tax burden on high earners – with the exception of Japan and the United States – are emerging economies.”

Britain also taxing low earners more heavily than other nations

The figures from accountants UHY also found that Britain takes more tax from its lowest earners than thirteen other major countries.  People earning under £15,242 in the UK keep just 83.2 per cent of their earnings compared to 95.7 per cent in Ireland and just over 90 per cent in the USA and Japan.

The research found that only Mexico, Estonia, France, Germany, Italy and India deduct more tax and national insurance contributions from their lowest paid workers than Britain.  German workers get to keep 72.6 per cent of their income whilst low paid French workers keep 75 per cent.

Posted in Tax | 1 Comment »