How to check your 2019-20 PAYE code

Each individual’s PAYE code determines how their employment income is taxed.  The PAYE code normally includes a tax free element to make use of an individual’s personal allowance if they are entitled to one. If the code isn’t correct it can result in under- or over-payments of tax.

The basic PAYE code for the 2019-20 tax year, which runs from 6 April 2019 to 5 April 2020, is 1250L and incorporates a tax-free personal allowance of £12,500.  This is the PAYE code that you may start to see on your payslips from April 2019 onwards.  HMRC do not normally send out a notification if you are on the basic PAYE code.

However, if your tax code is different to the basic code of 1250L, then you should have received a ‘PAYE Coding Notice’ (form P2) from HMRC. This notice is sent to both you and your employer and/or pension provider so that they are notified of the PAYE code that they need to operate for you.  You can also check your PAYE code via your personal tax account with HMRC here.Continue reading

Budget Update – October 2018

As always there were many scare stories before the Budget but thankfully most of those didn’t materialise…for now anyway. Here is our round up of the key tax announcements affecting individuals, small businesses and landlords.  Overall, we think small businesses can breathe a huge sigh of relief as many of the mooted tax changes won’t take place, at least for another couple of years and possibly not at all for the smallest of businesses.

Personal Tax

The Chancellor left the best news until the end but we’ll start with it.  A year earlier than the Conservative manifesto commitment, from April 2019 the personal allowance will increase to £12,500 (from the current level of £11,850) and the higher rate threshold will increase to £50,000 (from £46,350).  These thresholds will remain the same in 2019-20 and 2020-21 and increase in line with CPI thereafter.  The increased thresholds from April 2019 represent an annual tax saving of £130 for a typical basic rate taxpayer and £860 for those earning £50,000 to £100,000. Continue reading

The New Tax-Free Childcare Scheme

In April 2017, HMRC began to roll out its new tax-free childcare scheme and on 14 February 2018 this was opened up to all working parents with children under the age of 12. For the first time, this includes parents who are self-employed which will be welcome news for the self-employed who have previously received very little in terms of childcare tax breaks.

Tax-free childcare available to all working parents with children under the age of 12

Under the scheme, for every £8 that a parent contributes to the scheme, the government will instantly top it up with an additional £2. The government will contribute up to £2,000 per year for each child, though this is restricted to a maximum of £500 per quarter; to benefit from the full £2,000 per year, parents would therefore need to contribute £2,000 per quarter, i.e., the full £8,000 cannot be contributed in one go at the end of the year as this would only be eligible for £500 of government top-up for that quarter. The funds must be used to pay for approved childcare, which includes registered childminders, nannies, nurseries, playschemes and after school or holiday clubs.

A parent is eligible for the scheme if they are employed for more than 16 hours per week and earning at least the national minimum wage or living wage but less than £100,000 per year.  The minimum wage restriction does not apply to those who have been self-employed for less than 12 months.Continue reading

Personal Tax Tips 2017-18

Good tax planning is essential from the very beginning of a new tax year.  We are now in the 2017/18 tax year which runs from 6 April 2017 to 5 April 2018. Taking action early in the tax year can often enhance the tax savings that would be made by leaving tax planning until the last minute.

Personal Tax Tips 2014/15Personal Allowances

Unless you earn over £100,000, all individuals are entitled to a certain tax-free amount of income, referred to as the ‘personal allowance’.  The personal allowance for the current tax year is £11,500.  A limited number of couples may be able to transfer a small portion of the personal allowance to a spouse using the marriage allowance, for which further details can be found here.

It is important to check that any PAYE coding notices received from HMRC correspond to these allowances with any adjustments made reflecting your own personal circumstances. It is also important to check that payslips match the PAYE coding notice.Continue reading

Should I become VAT registered?

VAT, which stands for ‘Value-Added Tax’ is completely separate to income tax or corporation tax and is a tax on sales. A VAT-registered business is effectively an ‘agent’ on behalf of HMRC and is responsible for charging its customers the correct rate of VAT and then reporting and paying that VAT to HMRC each quarter.

VAT

VAT Registration

A business must legally become registered for VAT when it reaches the VAT threshold, which is currently £85,000. In assessing whether the threshold has been reached, a business must look at its total sales over a rolling 12-month period – many businesses often get this wrong as they assume that the threshold applies to an accounting or tax year.  In considering whether the threshold has been reached, goods which are exempt from VAT should be excluded from the calculations, e.g., postage stamps, financial or property transactions.Continue reading

How individuals could benefit from the marriage allowance

The marriage allowance enables 10% of one spouse’s annual personal allowance to be transferred to the other spouse, if certain conditions are met.

The marriage allowance could save married couples and civil partners £212 tax

The marriage allowance could save married couples and civil partners £230 tax

The marriage allowance is applicable to both married couples and those in civil partnerships and means that an individual not utilising their annual personal allowance could transfer a portion of that allowance to their spouse or civil partner.  The 2017-18 personal allowance is £11,500 and so 10% or £1,150 of this amount is potentially transferable, saving £230 in tax.  In order to qualify for the transferable allowance, one partner must have income between £11,501 and £45,000 and the other must have income below the annual personal allowance of £11,500.  Income includes earnings from all sources such as employment, self-employment, pensions, rental properties, interest and dividends.  The marriage allowance will not be available if either one of the partners is a higher rate taxpayer.Continue reading

Spring Budget 2017 Announcements

The Chancellor promised that he would deliver a ‘light’ Budget and he kept his promise, with relatively few tax changes compared to prior years.  The key tax changes announced are summarised below.

Self-Employed Individuals

While there were very few headline-grabbing announcements, the one that has drawn significant interest is an increase in class 4 national insurance contributions by 1% from April 2018 and a further 1% in April 2019.  This will increase class 4 national insurance from the current 9% to 10% from April 2018 and to 11% from April 2019.  The justification for this is that unlike in the past, self-employed individuals are now entitled to the same state pension benefits as employees and so the playing field needs to be levelled so that both employees and self-employed individuals are taxed in the same way.  Employees currently pay a main rate of national insurance of 12% and the government’s aim is to align self-employed national insurance contributions with this.  The Budget announced an increase to 11% in April 2019 but it wouldn’t surprise us if a further 1% increase to 12% is introduced in the following year so that the rate is exactly aligned with employee national insurance contributions.Continue reading

HMRC Late Filing Penalties

If the 31 January self assessment/tax return deadline is missed, HMRC will automatically issue a £100 penalty irrespective of whether any tax was actually due to be paid. Late filing penalty letters are issued in mid-February and normally start to land on doormats at the end of February and early March.  We’re not quite sure why it takes so long for HMRC mail to arrive in the post, but that is another matter!

Additional penalties at £10 per day will start to be charged once the tax return becomes more than three months late, i.e., from 1 May for online returns. The daily penalty can be charged for a maximum of 90 days, i.e., until 31 July at which point £900 of penalties will have accrued in addition to the initial £100 penalty. A further £300 penalty will be charged when the tax return becomes six months overdue and again when it becomes 12 months overdue.  A maximum penalty of £1,200 could therefore be charged if a self assessment is not submitted and interest charges on any tax payments that should have been made by 31 January will also be incurred.Continue reading

How the VAT flat rate scheme has changed

VAT Flat Rate Scheme and Service BusinessesIn the Autumn Statement on 23 November 2016 a surprise announcement was made about the VAT flat rate scheme with the introduction from 1 April 2017 of a new flat rate of 16.5% for those businesses with very low costs. The new rate has been introduced to target micro-businesses who were using the flat rate scheme for financial gain rather than to genuinely save on administration time, but it unfortunately also catches out businesses that are legitimately using the scheme.  Businesses either currently using the flat rate VAT scheme or thinking of doing so in the future will therefore need to consider whether the new 16.5% rate will apply to them and what the implications of this would be. Continue reading

Inheritance Tax Planning

The inheritance tax paid on an individual’s estate upon their death is charged at a hefty 40% rate on the value of their estate after deducting the tax-free inheritance tax threshold, known as the ‘nil rate band’. The value of an estate is comprised of all of the deceased person’s assets, including property, shares and savings. The inheritance tax nil rate band is currently £325,000 and an additional property allowance of £175,000 on top of this is being brought in for those owning a main property that is being passed to their direct descendants, bringing the overall total to a potential £500,000 per individual or £1 million for married couples and civil partners.  The additional rate is being phased in over four years from 2017 at £100,000 until it reaches £175,000 in April 2020.  Note that any unused nil rate band can be transferred to a surviving spouse or civil partner.

For those with an estate valued above this level, a number of steps can be taken throughout their lifetime to minimise the amount of inheritance tax that will become payable upon their death. While no one likes to think about death, careful planning will ensure that as much as possible of an individual’s hard-earned estate is left to their intended beneficiaries rather than it going to HMRC’s coffers.Continue reading