Re:locate magazine | Employee Support | Finance | “Tax doesn’t have to be taxing”

Armed with the right information, taxation needn’t be a nightmare, as tax expert Phil Smith explains.

“Tax doesn’t have to be taxing” – or so the man on the television likes to tell me each year. In an effort to encourage those of us required to file a tax return annually Her Majesty’s Revenue & Customs (HMRC) have resorted to various forms of media in order to convince us to do so earlier or online and avoid the post-Christmas rush to file by the overall deadline of 31 January.

You may not be required to complete a tax return if you are fully taxed under PAYE, or have savings and investment income of less than £10,000 per annum.

Self employed persons, ministers of religion, company directors, persons with employment income exceeding £100,000, those with more than £2,500 in untaxed investment income or capital gains exceeding £8,500 for tax year 2005/2006 are all likely to have to file a return. You can’t necessarily escape if you live abroad either: non resident landlords of UK property as well as those with UK investment income may also be required to file.

You soon get the picture that if you’re a higher rate taxpayer with some savings or investments you’re likely to be required to file.

And, if you are sent a return, you are required to file it even if you don’t believe you meet the criteria. You are responsible for asking HMRC to issue a tax return to you to complete where you think one is due.

There are a number of deadlines to bear in mind through the tax year. For the purposes of illustration, I will refer to the Tax Return for the income tax year ended 5 April 2006 (2005/2006). This return reports income and gains for the year ended on 5 April 2006, or for accounting periods of the self- employed that ended during that year.

The overall due date for filing is 31 January in the year following the relevant tax year, or 31 January 2007 in this case. In order to have HMRC compute the liability for you or collect smaller underpayments through Pay as You Earn (PAYE) withholding in the subsequent tax year commencing 6 April 2007 (2007-2008), there are other deadline dates to be aware of:

• For those who have a tax bill in excess of £500 for the previous year and do not pay tax through PAYE you are required to make two payments on account of your final liability. Each payment is equal to one half of the previous year’s liability. You can ask for an adjustment if you expect the sum to vary for the current tax year. Payments on account are due on 31 January and 31 July in the year of assessment. For 2005/2006 these dates are therefore 31 January 2006 and 31 July 2006. Any balance over and above the payment on account required is due by the normal due date of 31 January in the year following, ie 31 January 2007 as noted above.

On that basis, on the 31 January 2007 you are required to make any balancing payment for 2005/2006 plus the first payment on account for the tax year ending 5 April 2007.

• Charitable gifts, claiming higher rate relief
We often make charitable gifts through entrance fees or regular donations and sign up to say the charity can claim back the tax paid. What may be forgotten is that for higher rate taxpayers a claim on a tax return will provide a personal refund of the difference between the basic and higher rate liability. In other words, if we make a £78 donation the charity receive the benefit of £100 and a higher rate taxpayer would receive an £18 credit through the return.

• Joint investment income
Where you have joint investment accounts and only one of you is liable at higher rate or one of you has no liability, consider putting the account in the name of the lower rate tax payer. This will remove any unnecessary excess taxes being payable. Do remember that the account will subsequently be for their sole benefit, and bear in mind any legal implications that would bring.

• Working away from home expenses
When working away from home at a temporary workplace, either in the UK or abroad, employers often meet the majority or all of the expenses incurred. Where they do not meet the full cost it is possible to claim tax relief for the additional sum via the employment pages. Additional ‘reasonable’ costs may include travel, accommodation, meals, laundry and associated expenses. These should have been directly incurred in working away from your normal place of employment and not been reimbursed by your employer.

• Car mileage rate
Many employees use their personal car for business purposes. Where the employer does not reimburse the full rate agreed by HMRC –currently 40p per mile for the first 10,000 miles – a claim can be made for tax relief for the balance. In other words, employer reimburses 15p, employee can claim a reduction in taxable income on the tax return of 25p for each mile travelled on business. For higher rate taxpayers this is worth 6.25p per mile in tax relief.

Those living or working outside the UK for the whole of the tax year may still have to file a UK tax return if they continue to receive income from investments, property etc in the UK. Personal allowances are normally available along with graduated rates. Planning options might be to move UK investment income to accounts offshore where possible. The Channel Islands are often used in view of the connection to the UK banking system.

Capital gains made on UK assets acquired before you left the UK but disposed of while non-resident are potentially not taxable in the UK where you do not return to the UK within five complete tax years of your date of departure. Bear in mind you may be liable to gains taxes in the country where you are resident.

Selling a home occupied as your main residence is normally exempt from capital gains tax, but if the property has been let out or you have been abroad, this may render part of the gain taxable. Again, there are reliefs that may ensure full exemption is achieved.

There are many reliefs available for temporary residents in the UK or for those not domiciled in the UK. These include, but are not limited to, deductions for expenses incurred in moving to the UK of up to £8,000, income earned on days worked outside the UK and non taxability of offshore investment income and gains not remitted or enjoyed in the UK. It’s worth taking further advice to maximise the reliefs available.

By keeping accurate records of your income and expenditure and making an early start on preparing any income tax returns due, you could be saved the headache and possible increased taxes that may result in leaving it to the last minute. Help is at hand from HMRC by phone or online, commercially available software packages can help with record-keeping, or you could turn to one of the increasing number of tax advisers who will prepare the return for you.

© 2007. Article taken from pages 12-13 of the winter 2006/7 edition of Re:locate magazine, published by Profile Locations, Spray Hill, Hastings Road, Lamberhurst, Kent TN3 8JB. All rights reserved. This publication (or any part thereof) may not be reproduced in any form without the prior written permission of Profile Locations. Profile Locations accepts no liability for the accuracy of the contents or any opinions expressed herein.