Make sure your tax affairs are in order

Oct 24 2009 by Iain Laing, The Journal

AS the October 31 deadline for filing your paper self assessment tax return looms, Mike Ranson, president of the Northern Society of Chartered Accountants, helps clear up some common myths:

Money kept overseas is not taxable

For most people living in the UK, interest on this money is taxable. If you are resident in the UK you will be taxed on your worldwide income, whether or not you bring it into the UK. If you are not both resident and domiciled in the UK the position may be different. Seek advice.

Children are not taxable

Even babies who have an income over the allowance are taxable. The personal allowance of £6,035 for 2008/09 or £6,475 for 2009/10, allows each person this much income before they start paying tax, so for most children, there won’t be any to pay.

Give money to your children and escape tax on the interest it earns

If a parent gives money to a child (meaning unmarried and under 18), then if the interest earned exceeds £100, it is treated as being the parent’s income and not the child’s. A grandparent can give away money without the same restrictions.

Students are not taxable in their first year at university

Just like children, students who earn more than the personal allowance will have to pay tax.

HMRC always gets your tax code right

Not always. Make sure that any benefits that you get from your employer have been valued correctly (check Form P11D). Also check that the suffix (the letter after your numerical code number) is right for your circumstances.

If you have overpaid tax you can always rely on HMRC to pay it back

This doesn’t always happen by magic – you may need to ask. If you have overpaid tax under the PAYE system and have no other income, then you should be refunded automatically. Often, though, the situation is more complicated and you need to complete a tax return or a Repayment Claim Form (R40). Investment income is taxed at a different rate to earnings, so it is always worth checking the tax you have paid at the end of the year. Pensioners are particularly liable to overpay tax as they often have several sources of pension and interest income.

If you let a room to a lodger income is not taxable

All income from letting property is taxable but income of up to £4,250 is exempt under the Rent-a-Room scheme.

State pension is not taxable

The state pension is taxable but is always paid gross. If you do have other income, such as an occupational pension, then you will probably find that your tax code has been adjusted for the state pension.

You don’t need to pay tax if you have an experienced qualified accountant

Certainly you are likely to pay less tax than if you try to do it yourself but it won’t mean paying no tax. This is because the system is peppered with reliefs and deductions that need to be claimed.

You don’t need to pay tax if you only ever work for cash

HMRC devotes significant resources to tracking money in the black economy. It is your responsibility to keep records of your financial affairs and to declare your income.

Mike says: “Remember, if you don’t have the paper form or all the pages, you can download them from the HMRC website – you don’t have to phone them. If your tax affairs are straightforward you might be sent the four-page short tax return instead. Generally this will be people with simple tax affairs including, employees, pensioners and the self-employed with turnover below £30,000.

“It is a good idea to make a list of all of your sources of income and then to gather together the paperwork including Form P60, self employed accounts, details of all domestic and foreign income, details of anything you can claim, details of capital gains, interest statements, information on share dividends, and details on rental information. Don’t put phantom notes on the return. Where you don’t have actual figures you can use estimates or provisional figures as long as you state how you arrived at them and why you are estimating.”

For further information or to find a local chartered accountant please visit www.icaew.com