Taxfile tells you about Pension Credits

Pension Credit is a tax-free payment for people aged 60 or over living in Great Britain, giving them extra money each week.
In order to get Pension Credit you do not need to have paid National Insurance Contributions(NIC's).
Pension Credit is made up two elements:

• Guarantee Credit element which might be paid to people over 60 and adds up to their weekly income guaranteeing a certain minimum level.

• Savings Credit element, which is an extra amount for people aged 65 or over who have some savings for their retirement. The savings Credit will add up to their Guarantee Credit.

If you live your husband,wife or civil partner than you will need to add up your income in order to have Pension Credit calculated.
You are likely to be entitled to Pension Credit if your weekly income is less than £124.05 if you are single and £189.35 if you have a partner.

You may still be able to get Pension Credit if your weekly income is more than these amounts if, for example, you or your partner:
• have a severe disability
• look after a person who is severely disabled
• have certain housing costs – for example, mortgage interest payments

Also, if you or your partner are 65 or over you may be rewarded for saving for your retirement, up to:
• £19.71 if you are single
• £26.13 a week if you have a partner

You can get Pension Credit even if you live with your grown-up family, you own your own home or you get financial support from friends, family or charity.
You can apply for Pension Credit by freephone by calling the Pension Credit application line 0800 99 1234 or follow the link for the application form .
You can only apply if you are 60 or over or if you are turning 60 in four months time.

If you need further help, Taxfile's tax accountants in South London and Exeter would be more than happy to guide you through your application.

Revenue Determinations

Under Self Assessment, taxpayers are required to file their tax return by a certain filing date. If they fail to do so they face the risk of having the HMRC determine their tax liability by raising a so called Revenue Determination.
The Revenue Determination is meant to encourage the taxpayer to send in his/her return to the HMRC by estimating the taxpayer's tax liability.
Once a Revenue Determination charge has been added to the taxpayer's Self-Assessment record a notice known as 'Determination of tax due' will be issued to the taxpayer and his/her agent.

A Revenue Determination will automatically involve any payments on account for the following tax year. Also, where Revenue Determination and any overdue payment on account remains unpaid, interest and surcharge will be added to the taxpayer's record.

There is no right of appeal against a Revenue Determination but the submission of the completed tax return will take the place of the Determination and the determined amount of tax will be automatically amended to the return amount. Any related interest, surcharge and payments on account will also be automatically amended.

A Revenue Determination must always be raised for an amount equal to or greater than the previous or last year's liability, and include where necessary an appropriate percentage addition to the previous year figure.
Very important to know is that Determinations can only be raised within 5 years from the filing date.
Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the filing date for the year of assessment in question (or one year after the determination was issued, if later). After five years things become a little bit more difficult as a certain concept may need to be applied, that of equitable liability.
In order to avoid having to deal with a Revenue Determinations, self-assessment taxpayers need to make sure that they are familiar with the filing deadlines and seek help from tax companies like Taxfile when sending their tax return , especially now with a new 31st October paper return deadline in place.

Non-taxable payments and benefits

Under general tax law, expenses payments and benefits made to certain directors and employees are taxable earnings (better known as remuneration).
As it is the case with most rules, there are exceptions where benefits or payments to an employee are not normally taxed:
• Annual parties or similar functions provided that the cost incurred by the employer for every employee is less than £150.
• Living accommodation related to the work.
• Equipment provided for disabled employees like a wheelchair or hearing aid and their private use
• The provision of goodwill entertainment for an employee.
• Late night taxis where an employee is provided with a taxi paid for by his employer for a journey from work to home.
• Work-related training expenses
• Long service and suggestion scheme awards provided that the cost to the employer does not exceed £50 per year of service for the employee.
• Meals and food vouchers where the vouchers are non-transferable, they are used
for meals only and the value of vouchers issued to employees does not exceed 15p for each working day.
• Mobile phones unless the calls paid by the employer can be converted into money by the employee.
• Parking spaces
• Removals expenses and benefits which exempts from tax the first £8,000 of removal expenses.
• Re-training expenses and courses for an employee who is about to leave or has left within the
previous year.
• Pensions on retirement or death
• Sports facilities generally available to the employer’s employees and members of their families
and households but not to the public.
• Medical treatment abroad
For more information on each of the non-taxable payments and benefits mentioned above just follow the HMRC link.
Alternatively, you can contact Taxfile's tax accountants in South London and Exeter for any query that you might have.

Use of Home as Office

If you are self-employed, there is a type of relief called use of home as office that can be offset against your tax liability.
If you run your business partially from home you can could set a proportion of your home running costs against income tax.What sounds like a very easy task for any tax accountant has proven to be quite difficult as the HM Revenue & Customs can easily argue the figures as there are no clear rules that can be applied.
Among the expenses allowed in this category we can mention the following: Council Tax, Mortgage interest, Rent, Repairs and maintenance, Cleaning, Heat, light and power, Telephone, Broadband, Metered water charges.
The factors to be taken into account when apportioning an expense include according to HMRC:
•the area used for business purposes,
•the usage in connection with electricity,gas or water and
•the time used for business purposes compared to other use.
By following this link you can see some examples provided by HMRC related to ways of approaching the use of home as office.
This is what the courts have approved in terms of apportioning expenditure for home as office:
"… it is possible to apportion the use and cost of a room on a time basis, and to allow the expense of the room during the hours in which it is used exclusively for business purposes, in the same way as it is possible to calculate the business expenses of a car which is sometimes used for business purposes exclusively and sometimes used for pleasure." (Templeman J in Caillebotte v Quinn [1975] )
Very important is to retain good records to evidence whatever claim you make for using your home as office in case the taxman argues your figures. For more help in understanding tax reliefs for self-employed, Taxfile in South London and Exeter is here to help.

Savings Income and Tax

Savings income is added to your other income and taxed . Banks and building societies are required by law to deduct income tax at 20% from interest before they pay it to you. They pay this to HM Revenue & Customs. This is confirmed by the entry 'net interest' on your bank or building society statement.
If you're a higher rate (40%) taxpayer you owe tax on the difference. If you have a low income you may be able to claim tax back.
If you are a basic rate taxpayer you do not have to take any action as no extra tax is due and 20% tax has already been deducted at source by the bank or building society.
If you are a higher rate taxpayer than you have to let the Tax Office know what interest you have received so they can collect the extra tax either by asking you to fill in a tax return( if you are self-employed and normally have file self assessment) or adjust your tax code if you are employed or you receive pension. Then they will also send you a form called Tax Review P810 in order to check your level of savings income and then a change your code if necessary.
Your interest is taxable in the tax year that it is paid to you, or credited to your account, even if part of it has accrued in the previous tax year. So you do not have to include any interest earned this year when working out your taxable income if it hasn't been paid yet.Your bank/building society may send you a 'Certificate of Tax Deducted' or a statement containing this information after the end of each tax year.
Also, if you have a joint account with a husband, wife or civil partner you should declare half of the income as yours. The second half should count towards their income.
On some types of savings income you do not have to pay any tax. Among them, we can mention the following:
• Cash mini ISA;
• all prizes received from Premium Bonds;
• interest received from Fixed Interest Savings Certificates;
• interest from Index Linked Savings Certificates;
• interest, including bonuses, received from Children's Bonus Bonds.
Also the interest paid by HMRC on over-payments of tax (so called repayment supplement ) is non-taxable.
If you are not due to pay any tax you can register your bank or building society account to receive your interest without tax taken off. You do this by completing form R85 and giving it to your bank or building society.
If you need to know more about the interest on savings and whether it is taxable or not, Taxfile's tax accountants are here to help.

Data Protection Act and HMRC

As a tax agent you might have found it quite difficult trying to deal with subcontractors' tax returns (those working in the Construction Industry Scheme) for the year ending on the 5th April 2008. The main reason behind this situation is the struggle of gathering all the relevant data in order to submit an accurate, complete and compliant tax return to HM Revenue & Customs.
In the past years we used to be able to ask the tax office for a so called ''captured voucher list'' for our subcontractor clients quite easily. We cannot say this is happening this year, now when the construction scheme has changed and we need their help even more. According to the HMRC, excessive demands were placed before on their resources when requests were made for payment details for scores of subcontractors at a time.
Their refusal of giving away information is normally stated in a letter and we can quote:
''Under Section 12(B) 1 Taxes Management Act 1970 your client must keep all records they need to enable to make a correct and complete tax return.They may receive a penalty of up to £3000 for each failure to keep or to preserve adequate records they need for future reference.[...] If they have lost any of their deduction statements given to them by the contractor(s) or they think they were not given a deduction statement(s), your client must in the first instance go back to the contractor concerned and ask for either a duplicate, or the missing deduction statement.''
That said, unless we can provide evidence that contact has been made to the contractor(s) concerned the HMRC will not be able to release any information. The evidence in question can be either a letter from the contractor(s) confirming why that they are unable to provide the documentation or a letter with the name of the contractor(s) and the dates the client worked for him/them.
As we needed to know more about this subject, we asked one of our legal associates to do some research on this matter. Under Data Protection Law 1998 s.63(1) it is required by all Government departments to reveal information held by them on our clients. However s.29 of the Act states that the right to disclosure of personal data and to have copies of it does not apply to to data collected for the assessment or collection of any taxes:
''Personal data processed for any of the following purposes[...](c) the assessment or collection of any tax or duty or of any imposition of a similar nature are exempt from the first data protection principle.'' It looks as if there is a clear statutory right for hmrc to refuse to reveal the information requested.
However, there is nothing in the Taxes Management Act 1970 requiring the client to go back to the contractor for a duplicate copy of the missing document(s) in the first place. As there is no policy stating that that the client or agent should first contact the contractor, it appears as if the policy has no status in law.
Taxfile's tax accountants in South London and Exeter would like to know your opinion on this matter. Have you found it difficult this year to deal with your subcontractors' tax return? Have you gathered all your data from the contractors or you managed to get some help from HMRC? Write your comments, your opinion matters to us.

Capital Gains Tax (CGT)-2008 Budget

The 2007 Pre-Budget report issued in October 2007 announced major changes to the way in which Capital Gains Tax will be calculated for disposals after 5th April 2008.
Among the most important changes related to CGT we can mention:

•removal of the link to income tax rates and bands, meaning that various rules providing for the interaction of income tax and CGT rules are no longer required.

•introduction of a single rate of CGT of 18%, replacing the current rules that charge CGT at income tax rates as though the gains were additional income. The flat 18% rate applies irrespective of the type of asset disposed of and the period for which it has been held by the taxpayer.There is one important exception for certain types of business gains that may attract the new Entrepreneurs' relief. This relief is based on taxing the first £1 million of the gains at 10 %, but even this is achieved by reducing the amount of the relivable gain (by 4/9ths), so that the resultant chargeable gain can still be taxed at 18%!
•abolition of taper relief which normally has the effect of reducing the effective rate at which CGT is paid. It operates by reducing the amount of a gain which is charged to CGT, the amount of the reduction being determined by whether the disposed asset on whose disposal the gain was a "business" or a "non-business" asset, and the length of time that the asset had been owned before the disposal. and

•abolition of indexation allowance for non-corporate tax payers (currently frozen at April 1998) that normally compensates for the effect of inflation by reference to increases in the retail prices index;

•The abolition of the kink test for CGT purposes which means that in future the ''gains accruing on all disposals of assets owned at 31 March 1982 will be based on their market value at that date, so effectively "rebasing" all allowable expenditure to 31 March 1982''(HMRC).

• great simplification of the computation of chargeable gains due to the abolition of indexation allowance and taper relief.
As a large number of entrepreneurs and business owners aim to dispose of their businesses/companies for substantially more than £1 million, they are the biggest losers of the CGT reforms since their CGT rates will generally be much higher than 10%. (Before the 6th April 2008 CGT rate was often below 10% due to the benefit of indexation relief.)
Taxfile's tax accountants in Exeter and South London can help you make the most of every opportunity to minimize your tax liability, making sure you are paying the right amount of tax and all this for at very reasonable rates.

Lump sums,redundancy and compensation payments

When dealing with lump sums, redundancy and compensation payments great care needs to be exercised. The reason behind this is that this type of income will not necessarily be taxed as normal employment income.
Up to the first £30,000 of any compensation payment can be paid to you without deduction of tax if it is made in connection with the termination of your employment. This also applies to statutory redundancy payments. This tax exemption applies whether the payment is made as a result of an unfair dismissal claim or for breach of contract.
In order to qualify for compensation for loss of office relief, strict criteria must be met.
For instance, if your contract of employment gave you a right to compensation on ceasing to be employed or payment in lieu of notice (i.e. the employer pays in lieu of notice instead of the employee working the notice period), then the lump sum you receive will be taxable under PAYE scheme, regardless of the amount.
Also, even if the contract says nothing about pay in lieu of notice but there is an expectation of payment because it has been routinely paid to others, that constitutes an implied contractual term and the payment will still be liable to tax and NICs.
HMRC often challenges this aspect, trying to prove that the payments were contractual in nature therefore they need to be fully taxed.
Very important to remember is that the limit of £30,000 relief relates to each employment but employments with employers under common control only count once. If a payment was received in the previous fiscal year for the same employment but the relief was not used, than the balance can be claimed against any relevant payments in a subsequent year.
Some employees with redundancy payments that exceed £30,000 choose to pay some or all of the excess into their approved occupational pension scheme. As long as the payment is within the scheme's rules, it has no liability for tax or NICs.
As different rules apply to different lump sum payments connected with an employment it is very important to seek advice from professionals like Taxfile's tax accountants in South London and Exeter. They will make sure that your circumstances have been carefully considered before submitting your tax return to HMRC.

More surprises in store from the Taxman

People who run their business from home could find a big surprise in store for them from April next year. As the government is trying to increase the hmrc' s power, the taxman will be allowed to turn up on the taxpayer's doorstep, unannounced demanding to inspect his or her records, assets and premises.
These new powers will give the Revenue the right to visit business premises to demand access to records without warning. That could include your home if that is where you work.
Nonetheless taxpayers could turn the taxman away at the door. However, they could be punished if they do, as the government is threatening to introduce tough new penalties for interrupting such an inspection.
The reason behind all this is that the HMRC has been set tough targets to bring in more tax in a shorter period of time.
Among other proposals,it is worth mentioning the new powers to enable the taxman to obtain information more easily from third parties such as banks and building societies.
Also under the new rules, taxpayers could be fined for carelessness even if their accountant made the mistake. However, if the taxpayer can provide evidence that he or she took reasonable care to ensure that the return was accurate, such as checking it before submission, the penalty could be cancelled.
Finally, another important proposal is that taxpayers will be able to pay their bill by credit card from April 2009.
If you need to know more about the Taxman's new powers, Taxfile's tax accountants in Exeter(Devon) and Tulse Hill (South London) would be more then happy to offer you a free consultation.

Darling's Increase in Personal Allowance

The Chancellor Alistair Darling has announced an increase in the personal tax allowance of £600 and an adjustment to the higher rate threshold (the total of the personal allowance and basic rate limit).

According to the tax office we do not need to make any adjustments to our tax code numbers at the moment.The emergency code for new employees without a code number remains 543L.
This change is supposed to give 22 million people on low and middle incomes a gain of £120.
Alistair Darling explains this in saying that ''[the need of the increase in the personal allowance] represented the fairest and most effective way to help those who had lost out due to the abolition of the 10p starting rate announced by Gordon Brown last year in his final Budget as Chancellor''

From September, all basic rate taxpayers would get a one-off increase of £60, followed by a monthly increase of £10 for the rest of the year.

By giving £600 extra to the personal tax allowance, the government also reduces the threshold at which an individual starts to pay tax at the higher rate by £600. People used to pay basic rate tax on earnings up to £36,000 above their personal allowance but higher rate tax will now apply at £34,800 and as a result 150,000 people will become higher rate tax payers.
Still confused about all these changes in the tax system? Taxfile's tax accountants in South London and Exeter are here to help for any tax issues you might have. Visit their website or call them on 020 8761 8000 and find all the answers to your questions.

Non-residency Tax Issues

The United Kingdom (UK) charges tax on income arising in the UK, whether or not the person to whom it belongs is resident in the UK. United Kingdom also charges tax arising outside the UK which belongs to people resident in the UK.
If a person is resident in the UK he or she is taxed also on the gains made on the disposal of assets anywhere in the world.
To be regarded as resident in the UK you must normally be present in the country at some time in the tax year. You will always be resident if you are here for 183 days or more in the tax year. If you are here for less than 183 days, you may still be treated as resident for the year under other tests . For instance if you visit the UK regularly and after four tax years your visits during those years average 91 days or more a tax year. You are treated as resident from the fifth year.
If you are resident in the UK year after year, you are treated as ordinarily resident here. You may be resident but not ordinarily resident in the UK for a tax year if, for example, you normally live outside the UK but are in this country for 183 days or more in the year.
You will not be liable to tax on your British income if you live in a country that has a double taxation agreement with the United Kingdom.
Double taxation agreements are designed to protect against the risk of double taxation where the same income is taxable in two states. So, under such agreements, income is only taxed in the country where you live.
You are either resident or not resident in the UK for the whole of a tax year. However, by concession, the tax year is split in certain circumstances when you come to, or leave, the UK part way through a tax year. In order to find out whether or not you are entitled to split-year treatment you would need to answer a few questions.
Taxfile's tax experts in South London and Exeter would be able to help you establish your status in UK for tax purposes making sure you pay the right amount of tax.

New penalties for inaccuracies in returns

The new penalties are mainly introduced to penalise those who deliberately evade tax.
The penalties apply to inaccuracies in returns or other documents for VAT, Construction Industry Scheme (CIS), Income Tax, Corporation Tax (CT), Capital Gains Tax (CGT) and employers' PAYE (Pay As You Earn) and National Insurance Contributions (NICs).
Penalties are with effect from 1 April 2009.
Penalties for inaccuracies will be a percentage of the extra tax payable (or not repayable) as a result of correcting the inaccuracy. The percentage is based on a number of things including the behaviour that gave rise to the inaccuracy.
In summary, an inaccuracy made by a person in a document or return may be an inaccuracy made despite the person taking reasonable care in which case no penalty will be due.
Penalties for inaccuracies are designed to address the behaviour that led to the inaccuracy.
Penalties for deliberate inaccuracies are therefore higher than those for careless inaccuracies.
There are two deliberate categories within the legislation to reflect different degrees of seriousness. Higher penalties are charged where a person has taken active steps to cover up a deliberate inaccuracy.
Very important to remember is that there is no penalty where the taxpayer makes a mistake despite taking reasonable care.
If a document contains more than one inaccuracy, a penalty will be charged for each inaccuracy. Taxfile's tax agents in South London and Exeter will make sure no inaccuracies are in place when sending your tax return to the Hmrc.

Student Loan Deduction

Student Loans are considered to be a financial support package for students in higher education in the UK with the Government's help. They are available to help students meet their expenses while they are studying.
HM Revenue & Customs is responsible for collecting repayments of Student Loans in cases where the borrower is within the UK tax system and is no longer in higher education.
The loans are still administered by the Student Loans Company.
In most cases the employer collects Student Loan repayments by making deductions from the borrower’s pay .
The employer has the following responsibilities:
• making deductions of Student Loan repayments from thee the employee’s wages
•keeping records of the deductions made
•paying the deductions over to HM Revenue & Customs
•providing HM Revenue & Customs with details of the deductions at the year end
•giving the employee details of the deductions on their payslips
•identifying on form P45, when the employee leaves your employment, that they are liable to make Student Loan repayments.
There is an Annual Threshold, currently £15,000, below which Student Loan repayments are not due. Employers making Student Loan deductions apply a proportion of the threshold appropriate to the pay period in calculating the amount of Student Loan repayment to deduct.
The rate of deduction when calculating the amount of Student Loan deduction is 9%.
Deductions are made on a non-cumulative basis. In order to deduct the right amount from the employee's pay than the employer has to look up the Student Loan Deduction Tables on the HM Revenue & Customs website.
If you need to know more about the way Student Loans deductions work out, Taxfile's tax agents in South London and Exeter can help you get a better understanding of it.

Types of Cis cards in the Construction Industry Scheme

There are five types of registration cards and certificates used in the Construction Industry Scheme.
CIS 4(P) is the permanent registration card issued to most subcontractors. It entitles the holder to be paid with a deduction on account of tax and National Insurance contributions. It does not have an expiry date but it shows the photograph and signature of the authorised holder, along with their National Insurance number.
CIS 4(T) is the temporary registration card issued to subcontractors who do not hold or do not know their National Insurance number. It enables the holder to be paid with a deduction on account of tax and National Insurance contributions while they obtain a valid National Insurance number.
CIS 6 is the subcontractor certificate issued to individuals, partners in firms and directors of most companies that meet the required turnover, business and compliance requirements. The certificate shows the photograph and signature of the holder and entitles them to be paid gross.
CIS 5 is the subcontractor certificate issued to companies that can't be issued with a CIS 6. There is no photograph on the certificate but it bears the company secretary's signature. It entitles the subcontracting company to be paid gross.
CIS 5 (Partner) is the subcontractor certificate issued to one partner in business partnerships that can't be issued with a CIS 6. There is no photograph on the certificate but it bears the signature of the partner nominated to hold the certificate by the firm. It entitles the partnership to be paid gross.
Sometimes a subcontractor's payment status will change from payment under deduction to gross payment. If this happens, Tax Office will tell the subcontractor and any contractors who have verified or used the subcontractor in the current or previous two tax years. The revised payment status should then be applied to all subsequent payments to the subcontractor as soon as it is practical for the contractor to do so.
Subcontractors who meet certain qualifying conditions get the tax certificates and those who do not get the registration cards. Only a minority of subcontractors will qualify for a Tax Certificate which then entitles them to gross payments.
Only a minority of subcontractors qualify for a tax certificate entitling them to gross payments. To qualify you must pass three tests, the turnover test, the business test and the compliance test.
•The turnover test
To meet the turnover test as an individual you must show that for a continuous three year period you have had a net turnover of £30,000 a year or more.
•The business test
You need to be in a business that provides labour to carry out construction work, conduct your business primarily through a bank account and also keep proper business records.
•The compliance test
Tax affairs must be kept up-to date during the three years before application. You need to show you have paid all tax, including any PAYE and subcontractor deductions and submitted all tax returns on time.
If you qualify you should receive your certificate within 30 days of application; if not you will automatically be sent a registration card. If you do get a subcontractors tax certificate it will be one of three types either a CIS6, which is the most common type, a CIS5 which is issued to some companies because of their size, or a CIS5 (Partner) which is again issued to firms which have complex operations or geographical spread. Only the CIS6 show the authorised user’s photograph and signature.
If you need further information about types of registration cards and cis tax certificates, Taxfile's tax accountants in south London and Exeter can help you with your registration.

No April Showers for Landlords!

Landlords may benefit by having a Taxfile safety net.
Landlords and taxpayers with small amounts of freelance earnings could well expect to find a Tax inspector appearing unannounced at their Buy to Let property or small home business enterprise! Proposals included in last weeks finance bill and coming into force on April 1st 2009, will herald even more investigative powers for the Tax man. HMRC inspectors will have additional powers to investigate landlords and challenge them over perceived income errors on their tax returns, which could result in fines between 30%-100% of any extra tax due.

In a recent report, HMRC have identified 20% of Landlords (nearly 80,000), as having made errors on their Tax returns. But what is meant by an error? Taxpayers could be heavily penalised for just failing to understand the tax rules applied to rental income. For example, being late with the lettings business registration, or using inappropriate expenses and so on.

Any concerns or worries in this area can be directed to Taxfile who will be happy to offer help and advice. We strongly recommend landlords take advantage of our insurance cover against any tax investigation, this offers Landlords piece of mind and financial protection.

Taxfile welcome your call on 0208 7618000 to discuss your situation.

Good luck.

Land and Property Team at Taxfile

April's tax reforms

One of the most significant changes in the tax year 08/09 is the adjustment to income tax bands. The 10% band is being scrapped and the 22% band is being replaced by a 20% band. The income above £41,435 is taxed at 40 %.
There will also be changes to the amount of national insurance contributions we pay.
The upper earnings limit, up to which you pay the standard rate of 11%, is being increased from £670 a week to £770 . Any earnings above the limit are then taxed at 1%. This change will affect those with weekly earnings between £670 and £770, that previously used to pay 1% on these earnings and now they have to pay 11 %.

In terms of Capital Gains Tax(CGT), the top rate of 40% is being replaced by a flat rate of 18%. But this good news is balanced by the abolition of two tax reliefs: indexation relief and taper relief which would normally reduce the investor's gain and so minimize his or her tax.

Changes also affect non-domiciled residents. At the moment, non-UK residents who are working in this country pay tax here on their earnings in this country but not on any of their non-UK income. From today, non-domiciled residents who have lived in the UK for more than seven years will be taxed on their worldwide earnings, rather than just those in this country, or have to pay an annual charge of £30,000.

Ed Green, financial planning manager for Chartwell Private Client, warns: "On the face of it, this looks like good news as the basic rate of income tax is going down. But the reality is that the changes to your pocket will hardly make a difference. However, one area that should be of concern is for people with a personal pension. At present, tax-relief means that, for a basic-rate taxpayer, a contribution of 78p into a pension fund is made up to £1 – this will soon be only 97-and-a-half pence. The changes will also affect higher-rate taxpayers. Now is therefore a good time to put in a lump sum.[...]Another group that will be hit by the income tax changes are those on low incomes, currently paying only 10 per cent on pay above their £5,225 basic allowance. This benefits those on an income of up to £7,455.[...] Pensioners could also be particularly hard hit by the change as they will be forced to pay the higher 20 per cent rate of tax on pension income above the initial tax-free allowance, currently £7,550 for individuals aged 65 to 74 or £7,690 for those aged 75 or more. Previously they paid a tax rate of just 10 per cent for the following £2,230 of income above this allowance, but this will now only apply to savings income.(...) "(The Independent, Saturday, 8 March 2008 )

Tell us at Taxfile in what way you are being affected by these changes and whether it has a positive or a negative impact on you as a the taxpayer.

What are the tax credits?

Tax credits are payments the Government makes to you if you live in the UK and are in a paid work, responsible for children or both.
There are two types of tax credits: Working Tax Credit (WTC) and Child Tax Credits (CTC).
The CTC has the following parts:
• a family part
• a baby part
• a child part
• a disability part.
The WTC has in turn the following parts:
• basic part
• a couple part
• a lone parent's part
• a 30 hours a week part
• a disability part
• over 50 years old part.

If you are a student and do not have paid work you may still be able to claim if you look after a child.
If you are 16 or over and have a dependant child or are working and disabled you can still claim tax credits.
If you are 25 years old or over and you work at least 30 hours a week you can claim even if you have no children.
People who have children can claim WTC as well as CTC as long as they work at least 16 hours a week.
Rates and Thresholds for 2008-09 tax credits:

Working Tax Credit ( per year)
•Basic part:£1800
•Couple and lone parent part :£1770
•30 hour part: £735
•Disabled worker part:£2405
•Severe disability element: £1020
•50+ Return to work payment (16-29 hours) : £1235
•50+ Return to work payment (30+ hours) : £1840
There is a childcare element with the WTC.The maximum eligible cost for one child in 2008-09 tax year is £175 per week and for two to more children is £300 per week.

Child Tax Credit ( per year)
•Child Tax Credit Family part: £545
•Family element, baby addition: £545
•Child element : £2085
•Disabled child element : £2540
•Severely disabled child element :£1020

If you need to know more about tax credits, Taxfile's tax accountants can help you decide whether you are eligible or not to claim tax credits.

What is equitable liability?

Information about equitable liability was published in the Revenue's Tax Bulletin in August 1995.
Most people keep their tax affairs up to date and pay their tax in time time. However, where a taxpayer has not submitted his or her return, HM Revenue & Customs can determine the taxpayer's likely tax liability so that the tax can be pursued. There is no right of appeal against such determinations, and the tax determined is legally enforceable. Taxpayers can displace the determination with their own self assessment at any time up to the fifth anniversary of the filing date for the year of assessment in question (or one year after the determination was issued, if later).
If a taxpayer receives an assessment and does not think it is right, he or she can appeal against it and has thirty days from the date on which the notice of assessment was issued to do so. Inspectors will accept appeals once that time limit has passed if they are satisfied that there was a reasonable excuse for not making the appeal within the time limit and the application to admit the appeal late was made without unreasonable delay thereafter. If the Inspector does not think these requirements have been met, the application must be referred to the Appeal Commissioners for a decision. The Appeal Commissioners are completely independent of the Inland Revenue and their decision on this matter is final.
Otherwise, an assessment is final and conclusive and the Inland Revenue is able to take recovery proceedings -- through to bankruptcy if necessary -- for the full amount. There is no legal right to adjustment of the liability.
However, where the taxpayer has exhausted all other possible remedies, the Inland Revenue may, depending on the circumstances of the particular case, be prepared not to pursue its legal right to recovery for the full amount where it would be unconscionable to insist on collecting the full amount of tax assessed and legally due.
This practice is known as 'equitable liability'. The term 'equitable liability' reflects the original principle of fairness to other creditors.
The Inland Revenue may be prepared to consider applying 'equitable liability' where it is clearly demonstrated that:
• the liability assessed is greater than the amount which would have been charged had the returns, and necessary supporting documentation, been submitted at the proper time.
• acceptable evidence is provided of what the correct liability should have been.
In such cases the Inland Revenue may be prepared to accept a reduced sum based on the evidence provided, and not to pursue its right of recovery for the full amount.
The Inland Revenue would expect full payment to be made of the reduced sum. Furthermore, it would be most unusual for such treatment to be applied more than once in favour of the same taxpayer.
In determining the revised liability, the Inland Revenue will have regard to all the relevant circumstances of the case. Acceptable evidence of the reduced liability must be produced. It will not be sufficient to seek to replace the assessment merely with the taxpayer's or the accountant's estimate of the liability.
In order to make a claim for equitable liability you need a tax accountant like Taxfile in South London and Exeter to help you explain your circumstances and make sure the concept of equitable liability is applied and your tax affairs are dealt with in an equal and fair way.

What is the basic state pension?

The basic State Pension is money you may be able to get when you reach State Pension age. The amount you receive depends on the qualifying years you have built through your National Insurance contributions.

There are two circumstances to be considered:

If you reach State Pension age before 6 April 2010, you normally need to have 44 qualifying years to be entitled to the full basic State Pension if you are a man, or 39 qualifying years if you are a woman. In this case, to get any State Pension you need to meet two minimum conditions:

• you must have at least one qualifying year where you have paid or have been treated as having paid enough NI when you are in employment or voluntary Class 3 contributions.\you cannot get any basic state Pension based on NI credits alone.(You will normally get NI credits when you are ill, unemployed or getting Carer's Allowance)

• you must have at least 25% of the qualifying years needed for for a full basic state pension(11 years for a man and 10 years for s woman)to get any basic state Pension.

You will not be entitled to a refund of the NI contributions you have paid because those contributions pay towards other benefits like sickness, unemployment, and bereavement benefits.

If you reach State Pension age on or after 6 April 2010, the current contributions conditions are being replaced with new rules:

• the number of qualifying years needed to get a full basic State Pension will be reduced to 30 for women and men .

• you will no longer need to have 25% of the qualifying years needed for a full basic state Pension to get any basic State Pension.

• you will no longer have to have at least one qualifying year where you have paid NI contributions.

The minimum state pension amount is £21.83 a week and the maximum amount is £87.30 a week in 2007/08 tax year.

In order to make up for time when you did not pay NI , you may be able to pay NI Class 3. You have to pay the contributions within six years of the end of the tax year the payment is for.

If you are still confused about State Pension, Taxfile in South London and Exeter can help you get a better understanding of it, explaining you the importance of filling in a retirement pension forcast form called BR19 so you know exactly where you stand.

Dealing with someone's tax after they die

When somebody dies it is important to sort out their tax and National Insurance contributions as soon as possible. The 'personal representative' or the executor has to sort out the deceased person's tax affairs, as well as the rest of the estate.There may be either tax to pay or a rebate from the Tax Office.
If the deceased paid tax through Pay As You Earn (PAYE), their Tax Office will send the executor a form called R27 'Potential repayment to the estate' to complete.
If the deceased person was self-employed paying tax through self-assessment, the administrator can choose to fill in form R27 in full - or only in part and then complete a Self Assessment tax return immediately or at the end of the tax year.
The deceased person will get their full tax-free personal allowance for the year of their death. They will also get a full year's entitlement to any blind person's or married couple's allowance that was due to them for the full year.
If they did not receive enough income to use the whole of the blind person's or married couple's allowances, the personal representati