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Taxing Times 2

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Archived 1 Jan 2006

Tax issues can be daunting and difficult, and getting independent advice for simple issues can be expensive. So to save you a bit of dosh I asked Tax Accountant Tony Tesciuba (who also happens to be my Uncle) to answer some of your basic tax queries.

So I put ‘personal/small biz tax help' in the weekly Martin's Money Tip e-mail (see the original thread) inviting MoneySavers to post any questions on tax and the following is the result, so unlike every other article on the site, the answers below are Tony's not mine.

And I should say I agreed to tell people about his website www.tesciuba.com, as part of this. For those battling with self-assesment forms, help can also be found from HM Reveune & Customs on 0845 9000 444.

The Obligatory Disclaimer (well he is an accountant – Martin)

The answers to these questions are based on tax law at September 2005. They are general in nature and are no substitute for taking professional advice specific to your own circumstances. While the answers are given in good faith, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the author or by MoneySavingExpert.com.

Small businesses

Part time business loss

I made a loss in a Self Employed part time business last year and had a tax refund due to this, do I still carry the loss forward to this year and reduce it by this year's income or is it finished?

You claim loss relief in boxes 3.84 to 3.88 of the self employment pages of your tax return and say there how you want to use them. If you have any losses left from last year that you have not claimed in any other way, you should have carried them forward in box 3.87 . If so, put the same number in box 3.88 next year and you can offset it, but only against profit from the same trade. Trading losses can be carried forward from year to year until they eventually get used.

Childcare

I am setting up as a Ltd Company Business in Jan 2006; both my wife and I will be joint Directors and the only two employees. Our baby will be going into Nursery full time, what do we need to do, in order to claim the allowable childcare scheme which I believe is approx £50/each per week.

From 6 April 2005 , the first £50 per employee that an employer spends on employees' childcare is tax- and NI-free for the employee. Childcare includes workplace nurseries, childcare vouchers, commercial nurseries and the services of a childminder. In this case, the company (not the employee!) contracting directly with the nursery is likely to be the simplest route. Keep a note of the name and register or approval number of the nursery. Have a look at the detailed guidance at www.hmrc.gov.uk/childcare/.

Sole trader or company?

I understand if a self employed sole trader starts up a company, the first £10k to £12k are tax free; is this worth it if you earn say £20k as sole trader? (also private pension pays £22K; I am 56 years old).

I'm afraid Gordon Brown has made this rather complicated. The first £10,000 of company profits is taxed at 0% and the next £40,000 at 23.75%, unless you draw the profit out as a dividend (you would, wouldn't you), when it is all taxed at 19%. Even so, I reckon you would be about £1,200 better off in tax terms by incorporating. You would have to weigh this up against the costs and regulatory burden of a company.

When did I commence trading?

I have just started part time self-employment; I have two other part time jobs totalling 18 hours a week. When does the IR consider the date you start trading? Would that be the day you get your first customer/payment or is it the day you begin to set up? I had my first clients in late July and as it's a holistic therapy business it is building very slowly, and I have taken only a couple of hundred pounds.

Good question! There's no firm answer and the words “set up and commenced trading" have their normal common sense meanings. I'd say that you ain't got a business until you have customers, so the day you sold your first treatment seems right. You must tell the Revenue that you have started in business within three months or face a £100 fine. They will set you up to pay class 2 National Insurance and arrange for you to be sent the appropriate tax return which will be for the year to 5 April 2006 . If you do not expect to earn much, ask about exemption from or deferment of National Insurance. You can deal with all of this on the phone on 0845 915 4515.

There are some factsheets about setting up in business on my website www.tesciuba.com

Relief for pre-trading expenditure

I have been planning the set up of this business for some time and as I need a lot of equipment to start up and have no capital I have been buying stuff in for about two years and storing it ready to start. How do I go about claiming tax relief on it? I have receipts for virtually everything but they obviously have old dates on them?

No problem. Provided you paid for the assets and the equipment qualifies under the normal capital allowance rules, the expenditure is treated as having been incurred on the day that you commence trading. You can go back as far as seven years, if necessary.

When you register for VAT, you can reclaim the VAT paid on goods and services that you bought to set up your business. You can go back three years before registration for goods, but only 6 months for services. Depending on who your customers will be, you might think of registering for VAT early to get back the VAT on these goods.

To PAYE or not to PAYE?

If I have two part time employed jobs and start a part time business, would I have to be responsible for calculating all three jobs on one return or would I remain on PAYE for the two small jobs and do a separate return for the business?

The employments will remain on PAYE. When you do a tax return, you'll have two sets of employment pages and one set of self employment pages. Yes, you will have to calculate the total tax bill and will get credit for the tax already paid under PAYE.

Voluntary National Insurance payments

Last week I set up my small business, and currently work from home. I'm only going to be earning around £1,500 a year. I know that I can get a S.E.E, and not pay National Insurance contributions, but wondered if I should still pay them voluntarily?

You can pay voluntary class 3 contributions to make up for gaps in your contribution record for benefit or state pension purposes. The Revenue will write to you about 18 months after the tax year if you have not paid or been credited with enough. Alternatively you can write quoting your National Insurance number to: Inland Revenue, National Insurance Contributions Office, Benton Park View, Newcastle upon Tyne NE98 1NG

Free tax info

I only earn a small amount, not enough to pay an accountant, where can I find information on the things I can write off to tax?

TaxAid is a UK charity providing free tax advice to people who cannot afford to pay a professional adviser. The service is independent and confidential. See their website at www.taxaid.co.uk or call them on 0845 120 3779.

Liability to capital gains tax

I am in my late 50's and wish to retire; I have sweated blood to build a small business that will realise a reasonable profit when I sell later this year. How do I mitigate/negate my liability to Capital Gains Tax so that I can fund my retirement with the hard won profit? Like many, my pension fund is worth zilch!

Whoa! Don't do anything without taking proper tax and legal advice. You will probably do this only once in a lifetime and risk getting skinned alive if the buyer is properly advised. Please don't just rely on this, but there are quite a few things you can do such as taking a pension contribution out before you go and selling shares in the company (if that's what you have) rather than the assets of the business. You also need to check that you will qualify for the maximum taper relief. Some of my clients have at least considered emigration as a way of avoiding a big CGT bill, if that suits your personal circumstances.

As a very broad generalisation, any planning you do to reduce your CGT bill will be to the disadvantage of the buyer and vice versa. So there is normally some hard negotiating to do. Please make sure you get some help.

Be very cautious about some of the packaged CGT saving products. These are all risky to some extent and the Revenue does not like them.

Tax relief on workspace?

I live in a small studio and use my pc/desk for running my self employment (as a sole trader in freelance catering management). Can I claim a % of the floor space, council tax and utilities, ISP costs etc against my tax? If so what % would be realistic? (The 'workspace' including cupboards full of research materials etc covers about 15% of the total flat).

Yes. You'll have to be able to justify the percentage, but 15% sounds OK. Make sure that the business use does not prevent the use of that part of the studio as your home or you risk generating a CGT problem. The split of the ISP charges should reflect your personal v business usage.

Should I pay myself a salary?

I'm the director of a very small limited company. At an accountant's advice, I take dividend payments rather than paying myself a PAYE salary. Can I or should I continue doing this or should I be paying myself a PAYE salary?

If you pay yourself a salary of at least £4,265 a year, you will not have to pay National Insurance contributions, but will qualify for contributory social security benefits. NI contributions kick it at £4,888 a year. Pay yourself perhaps £5,000 a year, which you can do in a single payroll run in March each year.

Tax on charity work

Basically, I'm in full time employment, and I also do freelance projects. I'm currently undertaking some technical services work for a registered charity that I would usually bill for £350. Of course I don't want to be charging them, as it's a charity. Is it possible to write this off in someway as I'm effectively giving away £350 of services?

If you don't charge, you won't have any income to be taxed on. I can't do better than that!

Lost petrol receipts

My wife is a self employed hairdresser, and she has kept a good record of her petrol receipts, until recently when they were accidentally thrown in the recycling bin. Can we work out her mileage and claim that against the Revenue's mileage rates?

The law requires you to preserve your business records including original paperwork (or stored images these days). If you at least have a record of the dates and amounts on the receipts, the Revenue might be happy enough: it depends on the circumstances and whether or not the Revenue thinks you are pulling a fast one, to use technical jargon. There is a useful guide to record keeping for self assessment in Revenue booklet SA/BK4.

Strictly speaking, car expenses claimed have to be the business proportion of total costs incurred. However, as a practicality, the Revenue will allow you to use the authorised mileage rates instead. These are currently 40p a mile for the first 10,000 miles a year and 25p a mile after that. This concession is only available for small businesses below the VAT threshold and you would still have to keep a log of business journeys. If you do this, you cannot claim any other general running costs or capital allowances. But you can claim costs that are specific to a particular journey such as tolls, congestion charges and parking fees and the business proportion of interest on a loan to buy the car.

Claiming mileage as a childminder

My wife is a Childminder - can I put the car in her name and offset depreciation/mileage against any tax?

If your wife is self-employed and travels to her clients, the cost of that travel is a deductible expense. The authorised mileage rates mentioned in the previous question might be practical for her.

It is not necessary for a person who claims mileage rate basis to be the legal owner of the vehicle. All that is necessary is that the taxpayer claiming the expense is paying the costs of running and maintaining the vehicle.

Ltd company vs. partnership

Please can you advise me what if any tax advantages there are for a limited company compared to a partnership.

Companies pay lower rates of corporation tax than individuals or partners pay in income tax and National Insurance. Taking the money out of a company as a dividend generates no further tax liability for basic rate shareholders. Retaining money in the company defers at least part of the tax bill, compared with a partnership where profits are taxed whether drawn or not.

Generally speaking, incorporation saves tax on profits up to about £400,000 a year, with the peak saving of about £8,000 being at around £300,000 of profits. The savings depend on how you structure your income – any accountant should be able to do the sums for you.

Both limited company and partnership

Would it be beneficial for a husband and wife of a small business to be both a partnership and a limited company?

For tax and National Insurance, either the company or the partnership route is better and I cannot think why you might want to have both. If the business can genuinely be split, having two entities can get them both under the VAT threshold. That helps if your customers are not able to recover VAT.

Be wary of setting up multiple companies. All non-dormant companies controlled by either spouse, or both, are treated as associated for corporation tax purposes and the benefit of the lower rates is divided between them. Partnerships and sole traders do not count for this purpose.

Further info on legal tax loopholes

Where can I get further information about legal tax loopholes which exist for small businesses?

There is always lively debate on the Cutting Tax board in the chat forum, also I suggest you subscribe to my website www.tesciuba.com!

Ltd companies abroad

I heard somewhere that there is a way to establish a ltd company abroad (Channel Isles etc) from which one can run business?

Beware the ill-informed man in the pub.

UK registered companies are always UK resident and so subject to UK corporation tax. Foreign companies are UK resident if they are managed and controlled here. So unless you plan to emigrate, forget it!

Work related

Claiming on meals and snacks

I drive for a taxi firm based 15 miles from home and most work I get is in just about every direction BUT home. I can work long hours from around 11am and into the night, sometimes until 2 or 3am . The only way I can get to have a decent evening meal is to eat out. What are the rules for claiming meals and snacks in my case?

I assume you are self employed.

The Revenue's stance is that the cost of food, drink and accommodation is not in general an expense incurred wholly and exclusively for business purposes, since everyone must eat in order to live.

I've never seen a deduction for food in a taxi driver's accounts and you have to start from the assumption that you could not claim one. That's not to say that you could not try negotiating a figure with your local inspector. Try £2 a meal: the amount for lunches that the Road Haulage Association has agreed for lorry drivers. Good luck: you'll need it.

Trading losses and partnerships

My wife has a low income part time job, earning about £4,000 a year. She also began making cakes from home in Feb 04 and has set it up as a small business. I do her accounts, most of her buying, and help make the cakes at times. To date, costs have outweighed income by about £4,000 although she hasn't paid herself a penny (or me). As she doesn't pay income tax, I was wondering if we could consider the cake making as a partnership, and the loss be set aside the PAYE tax I pay from my main job as a Sales Representative?

Traders can use trading losses (1) against profits from the same trade in future years; (2) against their total income or capital gains of the same or previous year; or (3) in a new trade, against their total income of the previous three years.

None of these are of immediate help to your wife, if she has no other income beyond her personal allowances. She will have to carry her losses forward, hopefully to offset against substantial future profits.

If you are indeed working with your wife, you could become a partner and yes, you could use your share of the losses against your other income. However, you cannot backdate the creation of a partnership, so it will only help with any future losses. The Revenue will expect the business to turn a profit shortly, or they might say that this is merely a hobby.

High rate relief on gift aid

I am employed fulltime on PAYE, so far I have not filed my returns. I do make regular contributions to charity. I would like to claim back some tax as I am a high rate taxpayer. How can I go about doing this? Do I need to file my returns?

If you only have PAYE income, you have no obligation to file a return, unless the Revenue sends you one. So don't worry about that.

You should write a letter to your tax office each year, quoting your National Insurance number and telling them the dates, amount and charities involved. They should then issue you a new PAYE code giving effect to the high rate relief. Write before 31 January 2006 , and you should be able to get relief on your 2003/04 payments as well.

There is no need for a full return, but I wouldn't die of shock if this process triggered a return being sent to you anyway.

Declaring accounted for tax

I do self assessment for simple self employment. I gift aid some money to charity, so the charity pick up the tax directly. I also pay into a personal pension that recoups the tax direct into the pension account. Do I need to add this information onto my tax form, or can I ignore it as the tax has already been accounted for?

You have to complete the return fully, even if it makes no difference to the tax you pay.

Claiming the internet as an expense

I'm part-time self-employed as a translator and therefore use the Internet (at home) a lot for work. Can I put the monthly provider charge against tax in my self-assessment, and would that have any other implications for my tax return?

The business proportion of the charge is a business expense, like any other. Show it in the expenses box on the self-employment page

Tax calculations and working abroad

My husband worked in Dubai for a year (6 weeks there, 2 weeks home) and I would like to know how this affects his tax calculation? Does he pay tax on these earnings that are paid in Dubai ?

To be non-resident, absence has to span a full tax year: 6 April to 5 April next. I'm afraid it sounds as if your husband might have failed to establish non-residence and so will be subject to UK-tax on his Dubai earnings. Residence is complicated. Have a look at Revenue booklet IR20 and speak to an adviser if you are not sure.

Tax relief on mileage

I get a car allowance from my work of £5500 per annum which is taxed through my monthly pay statement. I also get 15p per mile for business travel. Am I also able to claim tax relief on the mileage at 40 - 15 =25p p/mile (40p is tax office recommended figure)?

Yes, you can claim it as a deduction against your employment income. Keep detailed records and show the deduction in box 1.32 of the employment page of your return.

Tax implications of employee stock schemes

I work for the UK arm of a US company and recently participated in their ESPP (Employee Stock Purchase Programme). However, someone mentioned that there are some UK tax implications even though I haven't sold the shares yet. I cannot find out anything about what these rules are - can you help?

There is quite a variety of share schemes with different implications. You should start with the scheme organiser at your employer. They would have set the scheme up with the tax implications in mind and should be able to help you.

Is overtime worthwhile?

I work for Sainsbury's, and I would like to know where a happy medium lies between doing overtime and not getting taxed all of it! I earn around £1200 and get taxed £300 of it leaving me £900 whereas someone earns £900 and only gets taxed around £40. What is the best amount to earn so it becomes worthwhile?

It's worse than that. If you are a middle earner claiming tax credits, increasing your earnings can generate a claw-back of 37%. So with that and tax and NI, earning £1 extra can put just 28p in your pocket. Worse still, extra income can trigger the withdrawal of other benefits, such as that paid to your 16 year old children to stay on in education. You end up paying the government for going to work.

I suppose you have to decide for yourself if the extra work is worth it, but how can the government claim that the system encourages the work ethic, not to mention the honest disclosure of income?

Lunch allowance

I travel around the country working in different offices. I used to be entitled to a lunch allowance of up to £8 per day. Then my company got took over and the new company do not pay this. The S/A form lets you claim tax relief for travel and subsistence. Can I claim tax back for lunches as opposed to evening meal? I would be away from home over 10 hours and substantial distance. If so, how much can I claim?

As an employee, you are much more likely to get a deduction for lunches while travelling than the taxi driver in an earlier question.

Find out if the figure of £8 a day for lunches was agreed with the Revenue. If so, you should be OK claiming up to that amount per meal through box 1.32 on the employment page of your tax return. Keep receipts to back up your claim.

Casual earnings

When do casual earnings make you self employed?

One-off freelance income and profits from isolated literary or artistic activities can go in section 13 of the Tax Return. There's a full list of examples of such income in the notes to the self assessment return.

If you are selling goods or services with any regularity or if it looks like a business – you are self employed. The official definition is “carrying on a trade, profession or vocation”. Then you have to register for National Insurance and tax and complete the self-employment pages of the return.

Where's the dividing line? I don't know, but I can't imagine anyone getting very excited if the income earned is well under the class 2 National Insurance small earnings exemption limit of £4,345 a year.

The main thing is that the Revenue and civil society expect you to join the tax-paying club, and there's no lower limit for that.

Claiming on work clothes

I have worked as a self-employed translator from home since 1997. When the business took a nose dive last year, I worked virtually full-time as an administrator for a period of about nine months, also on a self-employed basis. Until that time, I had always worn casual clothes since I sat in front of my PC all day, and did not have face to face contact with clients. However, for the administrative work, I had to invest in 'office type', smart clothes. As far as I am aware, the Inland Revenue wouldn't allow clothes as allowable expenses, but I feel that it should in my case.

So did a barrister, Miss Mallalieu. After all, she could hardly wear her gown and wig down the pub at night. She took it all the way to the House of Lords, where she lost 4-1. So I'm afraid you ain't getting any allowance!

Working abroad

I have been offered a chance to work in Saudi Arabia for 2 years. I am not sure what to do about tax as I believe my income will be tax free? Can you offer any advice on what I should do?

Make sure that you will be away and employed for at least a full tax year. So, provided all your duties are performed abroad and you do not return for more than 183 days in a tax year, you will be treated as non-resident from the day you leave until the day you return. You will not subject to UK tax on your Saudi earnings.

You will have to pay UK tax in the normal way on income arising here, such as from renting out your house. Revenue booklet IR20 has more details. Please take advice before you go, because getting the dates of coming and going from the UK wrong can be very expensive.

Benefits in kind

I have my own car, but have a company credit card which I use for all of my petrol, private and business. I keep records of all journeys and fuel costs, so I can calculate costs for the year, but how do I represent this on my tax forms. I always get different answers from the tax office. I am a higher rate tax payer.

You have a benefit in kind of the total amount that you have spent on the card, less any amounts you have refunded or been taxed on under PAYE. You are not taxed on any annual charges or interest on the card. Your employer may well have a dispensation, which will set out how to deal with this. If not, the total spend on the card will be shown by your employer on your P11D in box C. You transfer this figure to the employment page on your return in box 1.13 . You can then claim a deduction for the cost of using your car for business trips at the approved mileage rates of 40p a mile for the first 10,000 business miles and 25p a mile after that. There is no alternative of charging actual costs.

I'd be interested to hear what other solutions have been suggested to you for this complicated question.

Computer software tax deductible?

Is the cost of computer software used in the course of a business a tax deductible expense at all, considering the significant costs of keeping up to date of the required software is in the region of £800 a year?

No problem. Strictly speaking, computer software is plant and machinery qualifying for capital allowances. The allowance for a small or medium sized business (basically up to £22.8 million turnover) is 50% in the first year and 25% of the balance each year after that. Annual upgrades that become obsolete after a year, such as anti-virus subscriptions for example, can be written off as a regular expense because they are short-life assets.

Self employment and short term contracts

I'm a sole trader and have just agreed (in theory) to sign a three month contract for services with a company I've been freelancing at for a while. Looking at the contract I'm worried that a certain clause may leave me materially at risk.

Quote:

"If a claim, assessment or demand is made against (the company) for the payment of income tax or national insurance contributions or any similar contributions due in respect of the payments made to you hereunder, you shall indemnify (the company) against any liability, assessment or claim together with all reasonable costs and expenses and any penalty fine or interest incurred or payable by (the company) in connection with or in consequence of any such liability, assessment or claim".

Before I sign, how likely is it that I may incur such fines on behalf of the company and is it reasonable for me to ask for this clause to be removed?

Well done for reading the small print. They are saying that if they get clobbered for PAYE as a result of the Revenue looking more closely at this, you'll pay the tax back to them. They have to say this because once you've gone; the Revenue will go to them for the tax, not you. By rights, you would get back any tax you would have paid as self-employed, so the world wouldn't end. It doesn't sound unreasonable, but save yourself the heart ache by considering carefully now whether or not your self-employed status would stand up to scrutiny. I'd recommend Revenue booklet IR56 “Employed or Self-Employed”, but many advisers disagree with the Revenue's stance on some points. Speak to a tax adviser or try the Professional Contractors Group.

Personal

Credit card cashback and tax

How is cash back from credit cards treated for tax purposes and also any incentives received from banks for opening a new account with them?

There are no tax implications for private individuals, although they did think about it some years ago! Businesses that get cash backs and other incentives to take out loans might be taxed on them, but that's another story.

Vehicles in rental business

In order to look after some houses we rent out, my wife and I bought a van during the 04/05 tax year for all the running about involved. There is no private use. Can we capitalise the van and claim tax on all the running costs, or should we treat the van as personal property and claim 40p for each mile used?

Vehicles used in a rental business qualify for capital allowances and their business running costs are deductible, like any other trade. Which way you claim the deduction is a matter of arithmetic – you can do whichever is better for you. The statutory mileage rate has the great merit of simplicity.

Second jobs

Last year I took on a 2nd part time job because my main business was not providing enough income. I work self employed for both jobs - do I have to file separate returns for each or can I submit one set of accounts for both.

The rules say that even if you only prepare one set of accounts, you have to split the income and expenditure between the two trades for tax purposes. It would be simpler (and better management) to keep separate accounts. Either way, you will have to prepare two sets of self-employment pages for your tax return.

Multiple PAYE employments

I run my own small business from home which is in the tourist industry. After 9/11 my business went downhill because Americans stopped travelling to this country and in 2004 I got a part time job with Marks and Spencer. My business is picking up now but how would you advise me to declare my income? Should I give my part time job as my main income or my small business?

I'm guessing, but I suppose the questioner is on PAYE on both jobs – otherwise, there is no choice to make.

Where someone has multiple PAYE employments, the Revenue will normally agree to any one of them being the main job and to issuing a proper PAYE code for that one. The others normally get taxed at code BR (flat 22% deduction). I don't think it makes much difference which you chose, but as a matter of practicality, the main job might best be the one you intend to stick with long-term.

Watch that you do not go over the maximum NI level. If you do, you should get a rebate automatically after the year end. Or you can apply for deferment using the form in Revenue booklet CA72.

Incomplete tax returns

About 10 to 15 years ago my 93 year old mother stopped sending in tax returns despite having some annual property rental income. Her records aren't in the best state but I'm attempting to work out for the last 5 years what her position is i.e. has she underpaid tax and by how much (she is registered blind so has this additional allowance). My question is how should I proceed once I have this information?

Unless there's something stupendous that you haven't told me, the Revenue is hardly likely to try to throw a 93 year old in jail, so she should not worry about that! However, they are obliged to treat all tax payers consistently and so will look to recover the back tax with interest and penalties. To reduce those penalties to a minimum, you need to tell the Revenue before they find out from someone else, pay the estimated tax due immediately and co-operate fully. Depending on how much is involved I think you should use a professional adviser, in case you catch an inspector on a bad day.

Declaring compensation?

My wife and I received a sum in compensation for endowment misselling during the last tax year. Do I have to declare this on our tax forms - and will we be liable for tax on it?

Any interest element of the settlement is taxable. The payer should have identified any interest and deducted tax from it. Whether tax is deducted or not, the interest is taxable and should go on your return. Apart from the interest element, the compensation is tax-free.

If you want to read up on the technicalities, see Tax Journal 72 at http://www.hmrc.gov.uk/bulletins/tb72.htm#1

Joint accounts and tax liability

I have just been asked to justify some elements of my tax return for 2003-4. The IR seems to think that I have not declared all of my banking and savings accounts. The only thing I can think of is that when my mother went overseas she altered her bank account to a joint account so that I could manage her UK accounts and expenses. I have never used the account for myself but it does attract a lot of interest, which is taxed at source. Would this be what the IR is referring to, should I have declared it even though the money is not mine, and what do I do now? Does the IR have access to, or information about my bank accounts? Should I declare this to them, or is it possible to discuss something like this with them without getting myself into further trouble?

You can bet your bottom dollar that the Revenue knows about your mum's bank account and a lot else besides!

Given that the money belongs to your mother, you were quite right not to include the interest on the joint account in your return – it's not your income. The issue seems simple enough and should not get you into any trouble. Write explaining the situation to the Revenue.

The interest is still taxable on your mother, even though she is abroad, but there might not be any tax to pay beyond that already deducted. They will of course check that any returns by your mother reflect the interest.

Proof of gift aid donations

Do charities need to provide you proof of Giftaid donations? The tax man has told me yes, he wants to see them, yet the charity says no.

The tax man is entitled to ask for evidence of your donation. I would have thought that any charity would want to help its donors by meeting any reasonable request to provide a receipt for a gift aid donation.

Keeping bank statements

Is it the rule that all records - e.g. annual bank statements with interest - must be kept for 6 years in case the IR wants to inspect them? By the same token, does that mean that the IR cannot seriously question a return after that time (because any records may well have been destroyed) and isn't that an incentive for some 'unscrupulous' people to delay their returns for that number of years if they wanted to hide something?

The basic rule is that individuals have to retain their records for at least 12 months from the due date for the tax return. For example, for the 2005 tax return, records will have to be kept until at least 31 January 2007 . The limit is 5 years for business and property records, until at least 31 January 2011 in our example.

Delaying returns won't help, because the limits are extended if the Revenue opens an enquiry, as it would inevitably do.

Revenue booklet SA/BK4 has more details.

When is a return required?

First of all I am assuming that anyone who is earning in the higher rate tax bracket - i.e. into the 40% band - has at least some interest accruing from a bank account. Does that fact alone require that they fill in a SA form? Is there therefore no end to having to fill out these darn forms year after year after year?

In an attempt to reduce the number of returns issued, the Revenue published new guidelines on when a return is or is not required. See http://www.hmrc.gov.uk/sa/guidelines.htm.

If you feel you have been issued a return unnecessarily, call your tax office.

Rental income

I currently let one room in my house to a friend of mine who I have a rather informal payment system with. Do I need to do anything for tax reasons?

The first £4,250 a year of rental income from someone sharing your own home is exempt from tax under the rent-a-room scheme. If the income is below the limit, you do not need to do anything to claim the relief – it's just not taxed. If the income is more than £4,250, you have to declare the difference. The informality of the arrangement is irrelevant.

Offshore accounts

I have a couple of bob in a Spanish bank account I have learned that I will be liable for tax on it even thoughts its money I have paid tax on in the UK before sending it to Spain. Are you able to advise on offshore accounts, and how offshore accounts work from a tax perspective?

If you are UK-resident, you have to pay UK tax on your world-wide savings income. You will get relief for any foreign tax already paid.

Under the new European Savings Directive, which came into effect on 1 July 2005 , interest paid to any EU (including UK) resident has to be paid net. The only way you could get it paid gross in a tax haven is if you can sign a declaration that you are resident in the UK , but not ordinarily resident and promise to pay the UK tax if the funds are ever remitted to the UK . If that applies to you, be aware that the rate of tax on remitted interest can be higher than that normally charged on savings income.

The Revenue is having a major crack-down on foreign bank accounts. They regularly swap information with foreign authorities and have announced their determination to end what they see as widespread abuse and non-disclosure.

Capital gains tax on gift to daughter

I have bought a plot of land with my daughter and my husband, it is under 0.50 hectare. We've got planning consent for a bungalow to be built for my daughter, this now has to go into her own name and ours removed. Does this mean capital gains tax is to be paid?

I assume you will make a gift to your daughter. This is certainly a disposal of your shares in the land by you and your husband. This will be deemed to take place at market value, with the benefit of planning permission. Whether or not there is any CGT to pay depends on the size of any gain, taper relief and your annual exemptions. Husband and wife each get the annual exemption, currently £8,500.

Property

Relief on buy to let loan

I have a buy to let property with a value £170K, mortgage £106K. If I increase the loan by 20K can I use it to pay off my residential mortgage or put into my pension pot and still claim tax relief on the additional loan? Incidentally the rental business would be making a loss. I am also a fulltime employee on PAYE.

Yes, it's a nice trick this, if the numbers work for you. You have to be able to use the extra mortgage interest and your question suggests that you might not.

This won't help this questioner, but, there is a surprisingly generous example of how this trick might work out in the taxpayer's favour in the Revenue's own manuals. In example 2 there, they allow the loan interest not only up to the original purchase price of the property, but in theory at least, even up to the much higher market value of the property when the owner first put it up for rental. Once again, in practice, there would have to be capacity to relieve the interest and the Revenue's example is based on a loan to value of just 55%.

Tax relief on house maintenance

I work from the house and have been allowed tax relief over a period of years against a proportion of my household expenses e.g. maintenance and repairs, heating and lighting etc. It is my main residence. NO specific room in the house has been set aside as my working room. When I come to sell the house will I have to pay any capital gains tax on the house sale?

No. You should be OK. CGT is only relevant where the business use is exclusive, for example a dentist's surgery or garage workshop attached to a house.

Pensions

Additional voluntary contributions to pension

I make additional voluntary contributions to my pension. In an agreement between my employer, the revenue and the pension company these contributions are taken from my gross salary. My employer then calculates PAYE on the remainder of my salary. When I fill in my self assessment the revenue look at the gross salary and tax figures from my p60 and conclude I have paid too little tax. How should I fill in my tax return so that the revenue understand what is going on?

The gross pay on your P60 is after deducting the pension contributions. As only this amount is taxable, the tax paid will stack up. You do not need to do anything else.

Tax code K

I'm now 63; retired for year as of the end of May 2004, and have paid tax with code K18, while working and receiving pension. Would I be allowed to get a rebate?

K codes are used to recover tax through PAYE that has not or will not be recovered in any other way: for example tax due on the state pension or payable from a previous tax year.

Whether or not you can get a new code and a refund depends on your circumstances. Ring your tax office at the number on your notice of coding and talk it through with them.

Inheritance

Inheritance tax on £70,000

Could you please advise whether I have to pay tax on the £70,000 I have recently inherited upon the death of my mother in her Nursing Home? I am thinking to purchase my Council House with this money, and possibly even have enough to modernise it - like running hot water, and an upstairs bathroom. (I have little other income. Am nearly always under the £6,000 mark, and have no savings at all. Hence it seemed sensible to buy the property with the third off which they offer.) Or will it be next year I have to pay tax, and if so, about how much should I keep back for the bill. It's all rather a worry and I can't afford an Accountant and am scared to ask the Tax Office these things. I shall be 60 in a few months.

The inheritance is not income, you do not have to pay tax on it and it does not have to go on your tax return. So don't worry about that.

You should talk through the implications of buying your house with someone you know and trust, because it may impact the benefits that you can claim. The Citizen's Advice Bureau can help here.

General

Tutorials for online forms

Is there a tutorial site written by HM Govt or someone else showing how to complete the online forms? Is it easy to abandon any online forms you have made a pig's ear of, and start again?

I find the Revenue's free self assessment return software easy enough to use and you can edit the form at any time before you file it. There is an on-line help system and you can call the online service helpdesk over the telephone. There were serious issues with the system overloading last January, but you should be OK if you file the return outside the main rush periods.

Alternatively, you can buy one of the many commercial tax return programs listed on the Revenue website. They have tutorials and help systems as well.

The Revenue wants online filing to work, so they will spend as much time as you need on the phone. If it is all too daunting, you can continue to file a paper return.

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