Lump sums, redundancy & 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.
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 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 will make sure no inaccuracies are in place when sending your tax return to the Hmrc.