©2019 by Ashgrove Accountants Ltd (Company Registration No: 08046804)

TAX

Income tax:

 

Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income.

You pay tax on things like:

  • Money you earn from employment

  • Profits you make if you’re self-employed - including from services you sell through websites or apps

  • Some state benefits

  • Most pensions, including state pensions, company and personal pensions and retirement annuities

  • Rental income (unless you’re a live-in landlord and get less than the rent a room limit)

  • Benefits you get from your job

  • Income from a trust

 

You do not pay tax on things like:

  • Interest on savings under your savings allowance

  • The first £1,000 of income from self-employment - this is your ‘trading allowance’

  • The first £1,000 of income from property you rent (unless you’re using the rent a room scheme)

  • Income from tax-exempt accounts, like individual savings accounts and national savings certificates

  • Dividends from company shares under your dividends allowance

  • Some state benefits

  • Premium bond or national lottery wins

  • Rent you get from a lodger in your house that’s below the rent a room limit

 

National Insurance:

You pay National Insurance contributions to qualify for certain benefits and the State Pension.

 

You pay National Insurance if you’re 16 or over and either:

 

  • An employee earning above £162 a week

  • Self-employed and making a profit of £6,205 or more a year

  • You need a national insurance number before you can start paying national insurance contributions.

 

 

National Insurance classes

There are different types of National Insurance (known as ‘classes’). The type you pay depends on your employment status and how much you earn, and whether you have any gaps in your National Insurance record.

If you’re employed, you stop paying Class 1 National Insurance when you reach the State Pension age.

 

If you’re self-employed you stop paying:

 

  • Class 2 National Insurance when you reach State Pension age

  • Class 4 National Insurance from 6 April (start of the tax year) after you reach State Pension age.

 

 

Corporation tax:

You must pay Corporation Tax on profits from doing business as:

 

  • A limited company

  • Any foreign company with a UK branch or office

  • A club, co-operative or other unincorporated association, eg a community group or sports club

You don’t get a bill for Corporation Tax. There are specific things you must do to work out, pay and report your tax.

 

  1. Register for Corporation Tax when you start doing business or restart a dormant business. Unincorporated associations must write to HMRC.

 

  1. Keep accounting records and prepare a Company Tax Return to work out how much Corporation Tax to pay.

 

  1. Pay Corporation Tax or report if you have nothing to pay by your deadline - this is usually 9 months and 1 day after the end of your ‘accounting period’.

  2. File your Company Tax Return by your deadline - this is usually 12 months after the end of your accounting period.

 

(Your accounting period is normally the same 12 months as the financial year covered by your annual accounts).

Profits you pay Corporation Tax on

 

Taxable profits for Corporation Tax include the money your company or association makes from:

 

  • Doing business (‘trading profits’)

  • Investments

  • Selling assets for more than they cost (‘chargeable gains’)

If your company is based in the UK, it pays Corporation Tax on all its profits from the UK and abroad.

If your company isn’t based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities.

VAT:

If your business’ VAT taxable turnover is more than £85,000, you must register for VAT with HM Revenue and Customs (HMRC)

When you register, you’ll be sent a VAT registration certificate. This confirms:

 

  1. Your VAT number;

  2. When to submit your first VAT Return and payment;

  3. Your ‘effective date of registration’ - this is the date you went over the threshold, or the date you asked to register if it was voluntary;

  4. You can register voluntarily if your turnover is less than £85,000, unless everything you sell is exempt. You’ll have certain responsibilities if you register for VAT.

 

Your VAT responsibilities

 

From the effective date of registration, you must:

 

  1. Charge the right amount of VAT

  2. Pay any VAT due to HMRC

  3. Submit VAT Returns

  4. Keep VAT records and a VAT account

  5. You can also reclaim the VAT you’ve paid on certain purchases made before you registered.

 

You can’t charge or show VAT on your invoices until you get your VAT number. However, you’ll still have to pay the VAT to HMRC for this period.

You should increase your prices to allow for this and tell your customers why. Once you’ve got your VAT number you can then reissue the invoices showing the VAT.

 

Capital gain tax:

Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.

 

Example

You bought a painting for £5,000 and sold it later for £25,000. This means you made a gain of £20,000 (£25,000 minus £5,000).

 

Some assets are tax-free. You also do not have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

 

The Disposing of an asset includes:

 

  • Selling it

  • Giving it away as a gift, or transferring it to someone else

  • Swapping it for something else

  • Getting compensation for it - like an insurance pay-out if it’s been lost or destroyed.

 

Stamp duties:

You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland.

 

The tax is different if the property or land is in:

 

Scotland - pay Land and Buildings Transaction Tax

Wales - pay Land Transaction Tax if the sale was completed on or after 1 April 2018

The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties.

 

There are different rules if you’re buying your first home. You get a discount (relief) that means you pay less or no tax if:

 

  • You complete your purchase on or after 22 November 2017

  • The purchase price is £500,000 or less

  • You, and anyone else you’re buying with, are first-time buyers

 

You pay the tax when you:

 

  • Buy a freehold property

  • Buy a new or existing leasehold

  • Buy a property through a shared ownership scheme

  • Are transferred land or property in exchange for payment, eg you take on a mortgage or buy a share in a house

 

The amount you pay depends on whether the land or property is:

 

  • Residential and whether you’re a first-time buyer

  • Non-residential or mixed-use

 

You can use HM Revenue and Customs’ (HMRC) Stamp Duty Land Tax calculator to work out how much tax you’ll pay.

You may be able to reduce the amount of tax you pay by claiming relief, such as if you’re a first-time buyer or purchasing more than one property (‘multiple dwellings’).

 

The total value you pay SDLT on (sometimes called the ‘consideration’) is usually the price you pay for the property or land.

 

Sometimes it might include another type of payment like:

 

  • Goods

  • Works or services

  • Release from a debt

  • Transfer of a debt, including the value of any outstanding mortgage

 

You must send an SDLT return to HMRC and pay the tax within 30 days of completion.

If you have a solicitor, agent or conveyancer, they’ll usually file your return and pay the tax on your behalf on the day of completion and add the amount to their fees. They’ll also claim any relief you’re eligible for, such as if you’re a first-time buyer. If they don’t do this for you, you can file a return and pay the tax yourself.

 

Inheritance tax:

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

 

There’s normally no Inheritance Tax to pay if either:

 

  • The value of your estate is below the £325,000 threshold

  • You leave everything to your spouse or civil partner, a charity or a community amateur sports club

 

  1. If the estate’s value is below the threshold you’ll still need to report it to HMRC.

  2. If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren, your threshold will increase to £450,000.

  3. If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold can be as much as £900,000.

 

Inheritance Tax rates

The standard Inheritance Tax rate is 40%. It’s only charged on the part of your estate that’s above the threshold.

 

Example

Your estate is worth £500,000 and your tax-free threshold is £325,000. The Inheritance Tax charged will be 40% of £175,000 (£500,000 minus £325,000).

 

The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will.

 

Reliefs and exemptions

 

Some gifts you give while you’re alive may be taxed after your death. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged is less than 40%.

Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill.

Contact the Inheritance Tax and probate helpline about Agricultural Relief if your estate includes a farm or woodland.

 

Funds from your estate are used to pay Inheritance Tax to HM Revenue and Customs (HMRC). This is done by the person dealing with the estate (called the ‘executor’, if there’s a will).

Your beneficiaries (the people who inherit your estate) don’t normally pay tax on things they inherit. They may have related taxes to pay, for example if they get rental income from a house left to them in a will.

People you give gifts to might have to pay Inheritance Tax, but only if you give away more than £325,000 and die within 7 years.

 

Paying HMRC:

You must pay HM Revenue and Customs (HMRC) for:

 

  • Self-assessment

  • Employers’ PAYE and national insurance

  • Vat

  • Corporation tax

  • Stamp duty land tax

  • Income tax (because you previously under-paid)

  • Miscellaneous payments (if your payment reference begins with ‘x’)

  • You cannot pay by personal credit card. There’s a fee if you pay by corporate credit card.

  • Payment link and details are on HMRC website in relevant section.