Introduction »

A few essentials

Introduction

In the UK the greater bulk of income tax which flows into the Exchequer does so by deduction at source. The tax is taken from income before it is paid to the taxpayer and most of this happens by way of Pay-As-You-Earn (PAYE). This collection system will no doubt be familiar to almost everyone who is in employment and also to those who receive pensions.

Most other income tax collected at source comes from deductions made by banks or building societies from interest paid to savers. Many of us, including children, the retired and working people, will have savings accounts of one sort or another and many might also have shares from which income arises in the form of dividends. These too are treated as having suffered income tax at source.

As these circumstances cover the overwhelming majority of individuals, more than 80% of the population will have little or no regular contact with HM Revenue and Customs (HMRC), the organisation that administers and regulates all taxes in the UK.

Around 9 million taxpayers have something more than just a regular income taxed under PAYE and interest on savings. Instead they might have income from their own business or receive rent from a property. Alternatively, it may be that their income is significant enough to attract higher or additional rate tax so that the tax deducted at source on their savings income is insufficient. These taxpayers may be asked to complete a self assessment return each year and then they will have direct contact with HMRC.

Income tax is not the only means by which the government relieves us of our hard earned cash. You may own assets such as a precious antique, a second home or shares. If such an asset is sold, the chances are that a profit will arise and this may give rise to a liability to capital gains tax.

Details of any capital gains may have to be included on the self assessment return.

Inheritance tax may be payable on the assets that you give to others in your lifetime or leave behind when you die. At one time very few individuals had to worry about this tax. House price increases over the last two to three decades have changed this and many more estates have now become liable. The government has implemented some changes to try and address this issue but many people will still need to consider some planning to minimise this tax.

Many of those in business have to understand the principles of Value Added Tax (VAT) because they will have to act as an unpaid collector of this tax. In addition, those who run their business through a limited company need to know about corporation tax which taxes a company’s profits.

HMRC are increasingly emphasising the importance of good records. Failure to maintain adequate records may lead to inaccurate tax returns which could result in penalties.

This guide is designed to provide you with a simple guide to all of these taxes from seven perspectives - that of the family; the working man or woman in employment; the person running their own business; the taxation of investments; property matters; disposals and capital gains tax and finally, knowing that nothing is certain except death and taxes, the potential liability on your estate at death.

Please use the guide to help you identify planning opportunities, pitfalls to avoid and areas where you may need to take action and then contact us for further advice.

Self assessment (SA) timetable

• Income tax and capital gains tax are both assessed for a tax year which runs from 6 April to the following 5 April.
• Shortly after 5 April - SA returns or a notice to complete a return are issued by HMRC.
• 31 October following - non-electronic returns need to be submitted to HMRC by this date.
• 31 January following - final date for submission of return and all outstanding tax to be paid.
• There is an automatic penalty for late filing of the return of £100.
• Further penalties may be due if the filing of the return is significantly delayed. These are significantly increased from previous years and may run into hundreds of pounds.

Introduction »