Darling’s Increase in Personal Allowance

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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

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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.

Student Loan Deduction

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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 can help you get a better understanding of it.

What are the tax credits?

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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.

Dealing with someone’s tax after they die

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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 representative can arrange for the unused allowances to be transferred to a surviving spouse or civil partner.
The personal representative may have to pay Capital Gains Tax (CGT) if profit is made from selling the property or possessions of the deceased. The executor is treated as acquiring the house at its market value at the time of death so CGT can only be payable if a profit is made after disposal and if it exceeds the ‘annual exempt amount’ (AEA).
You might find it very useful to ask a tax accountant for advice. Taxfile in South London can give you the best solutions when having to sort out a deceased person tax affairs.

Taxman’s new power

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Is the taxman going too far? This is the question we have to ask ourselves today. The taxman has been given the authority to bug people’s phones and read their emails and letters.

In order to reassure taxpayers, the Inland Revenue declared that these new powers will not be used in routine tax investigations. As noticed by Sunday Times ”one area where the new regulations could have an impact is against those who failed to come forward during HMRC’s partial amnesty for offshore account holders. […]HMRC offered a limited window of opportunity for taxpayers to disclose savings held in offshore accounts on which they had not paid tax.
About 45,000 people with bank accounts in tax havens such as the Cayman Islands and Isle of Man coughed up £400m by the November 26 deadline, but this may be only a fraction of the total held offshore. ”(Ali Hussain, Sunday Times, February 17, 2008)
Although the tax office has assured people that the powers will only be used in the most serious of cases, some experts have expressed concerns.

Mike Warburton of tax partners Grant Thornton said: “Once the new powers are available it will be very difficult to stop the taxman using them.”(Ali Hussain, Sunday Times, February 17,2008)

To surprise you even more, senior tax officials are being rewarded for failure as they are given record bonuses totalling more than £23 million this year despite the department continuing to lose £1 billion to fraud and error. This also came just three months after the department admitted it had lost computer discs containing the tax credit details of 25 million people.

In its defence, HMRC said that these payments were based on last year performances and those for the current financial year had not been set.

Taxile‘s tax accountants in South London would like to know your opinion in these matters, so write your personal comments on our blog. Are you for or against the way the tax office handles their tax investigations? Do you think of it as an intrusion in people’s life or is it in our best interest on the long run? Share today your thoughts with us,your opinion matters!

Capital Allowances

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As a business you can claim tax allowances, called capital allowances, on certain purchases or investments. This means you can deduct a proportion of these costs from your taxable profits and reduce your tax bill.
Capital allowances are available on plant and machinery, buildings – including converting space above commercial premises to flats for renting – and research and development.

Capital allowance on plant and machinery
You can claim capital allowances on:
• the cost of vans and cars
• machines
• scaffolding, ladders, tools, equipment
• computers and similar items you use in your business
• expenditure on plant and machinery
If you’re buying equipment, 25 % is the standard allowance for businesses each year. This will reduce to 20% from April 2008.
You can claim additional allowances in the first tax year after the expenditure was made. This is called first -year allowance. First-year allowances are a tax allowance you can claim on certain purchases or investments in the year you buy them.
Small businesses can claim first-year allowances of 50% for qualifying investments. Medium-sized businesses can claim 40%, and in certain circumstances both small and medium-sized businesses can claim allowances of 100 % (referred to by HMRC as Enhanced Capital Allowances for Energy-Saving Investments), in the year they make the purchase. However, for most plant and machinery, 25 % is the usual capital allowance. There are also allowances for investment in research and development.

Capital allowance on buildings
You can claim capital allowances on the cost of:
• constructing industrial or agricultural buildings, commercial buildings in enterprise zones, and certain types of hotel
• buying or constructing a building to use for a qualifying trade such as manufacturing or processing
• renovating or converting space above shops and other commercial premises to provide flats for rent – for example, money spent on building dividing walls or fitting a new kitchen
• converting or renovating unused business premises in a disadvantaged area on or after 11 April 2007
You cannot claim capital allowances on the cost of:
• houses, showrooms, offices and shops
• the land itself, such as buying the freehold of a property or acquiring a lease
• extensions, unless it provides access to qualifying flats
• developing adjacent land
• furnishing qualifying flats
The allowance for buying industrial and agricultural buildings is 4 %, in both the first and subsequent years. You can usually claim 100% of the cost of converting underused or vacant space above commercial property into flats or converting or renovating unused business premises in a disadvantaged area.
If you need to know more about capital allowances you can contact Taxfile‘s tax accountants in South London and they will make sure you make the best of your capital allowances in order to minimize your tax liability.

Overpayment of tax through PAYE

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PAYE (Pay As You Earn) is the system used by employers and pension providers to deduct tax from your wages or pension. If you think you’ve paid too much Tax through PAYE you can contact Taxfile‘s tax accountants in South London and they will clarify that for you.

HM Revenue & Customs (HMRC) gives you a tax code that shows your employer or pension provider how much tax to deduct from your wages or pension before you get paid. You’ll find your tax code on your P45 or your wages/pension payslip.

It is possible you might have overpaid tax in the following circumstances:
• you started a new job and had an emergency tax code for a while
• you were only employed for part of the year
• your employer was using a wrong tax code
• you’re a student who only worked at holiday times
• you had more than one job at the same time
• you stopped working and didn’t get any taxable earnings or benefits for the rest of the year
• your circumstances changed – for example you retired, were made redundant or became self-employed
• you have taken a pension in the form of a lump sum rather than a small monthly amount (this is known as ‘trivial commutation’), the rate of tax you pay on the lump sum could be higher than the basic rate of tax you pay over the year and could cause an overpayment.

Any overpaid tax from previous years will we calculated by the tax office and they will send you a refund in the post or through bank transfer.

What you need to bear in mind is that you can only reclaim overpaid taxes for up to a maximum of six years previous to the current tax year.

Penalties Reform – The Next Stage

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Hello self-employed taxpayers,

I hope you enjoyed your holidays. I’m sure it might be quite difficult for those of you who haven’t submitted your tax return yet with the the deadline coming soon.
Now, you might wonder what this Next Stage is all about!
Well, as part of ”The Review of Powers, Deterrents and Safeguards HMRC has been developing ideas and consulting on how to modernise and align civil financial penalties.[…]The first substantial measure,[…] was a single new penalty regime for incorrect returns for income tax, corporation tax, Pay As You Earn(PAYE), national insurance contributions (NICs) and value added tax(VAT)(the main taxes)”(HMRC and the Taxpayer, Modernising Powers, Deterrents and Safeguards, Penalties Reform:The Next Stage.Consultation Document 10 January 2008).
In other words, the Tax Office wants to make sure that people do pay the right amount of tax and at the right time. The payment of taxes together with the repayments and reliefs cannot be voluntary or arbitrary. They must be governed at all times by a framework of rules
and obligations. According to HMRC, these penalties should influence behaviour, should be effective and fair.
Penalties have been considered in the following categories:
•incorrect returns
•failure to notify a new taxable activity
•late filing and late payment
•record keeping and information powers failure
•other regulatory failures.

There will be no penalty where taxpayers make a mistake or misinterpret the law despite taking reasonable care in completing their returns.
To make sure your tax return is submitted correctly and in time visit Taxfile‘s tax accountants in South London and they will do it on your behalf.

Tax at Christmas time!

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A very Merry Christmas to one and all from Taxfile‘ s Tax Accountants.

Our gift to you all this year is a brand new, free of charge insurance cover.
This cover will provide you with protection against any possible Tax enquiry: In the unlikely event of a random investigation by the revenue, Taxfile have insured its customers against the associated costs incurred in defending such cases thus saving its clients hundreds of pounds. So avoid the stress and have piece of mind this Christmas and call into Taxfile this December.
By way of an extra incentive to think Tax returns before the end of December! Taxfile have also put together some great Christmas prizes.
Bring your details into us before the 31 December and you’ll have a free entry into our Christmas draw.

Prizes available are:

  • 1st Prize: A weekend for two at one of the Meridian Hotels
  • 2nd Prize: Half a case of champagne
  • 3rd Prize: A Marks and Spencer voucher worth £25.00

So let Taxfile take the pressure off, come in and see us before the 31st of December and ensure you have your return filed before the January 31st deadline.

Furthermore Taxfile have now established links with companies offering financial, legal and mortgage advice, further details on these services are outlined in our newsletter which will be arriving on your door step very shortly.

We look forward to seeing you soon.