Tax FAQ – your tax questions answered here

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TAX FAQ: If I give a property to my children have I to worry about tax?

Tax FAQ – A: Yes. A gift like that is treated, for Capital Gains Tax purposes, as if you sold the thing for its market value. That will be the starting value for your child(ren). If what you give them is a holiday home or investment property you may have a large CGT bill to pay, even though you got no money.  If you give away your own house but still live in it there are other tax headaches.

TAX FAQ:Should I buy a computerised accounts package?

A: No. Most of these are much too complex to be worth paying for. You end up spending hours learning how to use them, then hours putting data in.

In general I find most businesses can do their book-keeping either in an old-fashioned book (like Adrian Huston still uses) or in a simple Excel spreadsheet. Huston & Co clients get free instruction in whichever method they prefer. We give clients a FREE Excel spreadsheet, already set up and ready for you to list your income and expenses.

TAX FAQ:I rent out a house, but don’t really make any money at it. Must I tell HMRC?

A: Yes. You need to tell them the address of the house you are letting out, the gross rents (before agent fees deducted) and the net rents after tax-deductible expenses. You might not have to fill in an annual Tax Return if the income is modest. In 2015 Tax Returns are required if gross rents are £10,000 per year, or more. Or if the net income after allowable expenses is £2,500 or more. Allowable expenses do NOT include mortgage repayments, but can include mortgage interest.

If HMRC doesn’t want a Tax Return from you, they may still deduct some estimated rental income from your tax code. Then they will write to you after the tax year is over asking for more accurate figures, but not a full Tax Return declaring all of your income sources.

TAX FAQ:I have just arrived in the UK, what must I do?

A: Prior to 2011 you had to submit form P86 to HMRC. That process was abandoned, so there is nothing specific you have to do simply because you have come to the UK (or come back after a few years abroad or non-resident).
* If you are setting up in business you must, within 3 months of the start, tell HMRC.
* If you are going to work make sure to give your employer the inromation they need.  They will have to worke through an HMRC Starter Checklist.  This helps your employer to get your tax code right. You should get a full UK tax allowance at your job. For 2015/16 that means a code of 1060L (giving tax allowances of £10,600.)
* Watch out for (2015/16 rates) 1060L M1, or 1060L W1, as these are emergency codes, and you may pay too much tax that first year. If you have one of these contact HMRC.
* Remember that once you come to the UK (with few exceptions) you will be taxed on your worldwide income from that date on. This means if you have income from bank accounts or businesses outside the UK HMRC needs to know. UK tax will be due on the income or profits.

TAX FAQ:Do I have to use an accountant?

A: No. Plain and simple. There is no law requiring you to use an accountant to keep your tax affairs tidy. The very largest limited companies need some help from a chartered accountant, but smaller companies don’t actually need an accountant either, though most have one.
As an individual it is your right to look after your own tax affairs, however the advantages of paying someone like Huston & Co to help are:
* You are left to deal with more important things – like family…or making money!
* You rest easy knowing that someone is looking after your tax affairs properly. Deadlines won’t be missed.
* A professional can advise you on how to keep your tax bill at the legal minimum. Not by taking risks or doing anything illegal.
* HMRC will address any queries they have to Huston & Co and the firm will handle matters from there ? using their (ex-HMRC) experience to best advantage.
* Huston & Co has a dedicated agent phone line to get through quickly to HMRC and sort out your tax issue. Members of the public can sit on hold for 30/60 minutes.
* While having an accountant will cost money, for most people that fee can be claimed as an expense for tax purposes against their business or rental income.

TAX FAQ:Normally I pay tax in January and July, but no demand has arrived this July. Why?

A: The Self Assessment system has tax being paid in 3 stages, but only on two dates – 31 January and 31 July. This means that for the 2015/16 tax year payments are:

31 January 2016 – Payment on Account number 1 against 2015/16

31 July 2016 : Payment on Account number 2 against 2015/16

31 January 2017 : Balancing payment (if any) for 2015/16

then  31 January 2017. Payment on Account number 1 against 2016/17 (half of the full 2015/16 tax bill)

31 July 2017 Payment on Account number 2 against 2016/17 (another half)
31 January 2018 Balancing payment (if any) for 2016/17
As if this is not confusing enough, some people drop out of the system for making Payments on Account at all. This typically happens because most of the tax they owe is deducted at source under PAYE or by banks etc.
If you don’t have to pay Payments on Account then any tax you owe for a tax year (like 2015/16) is payable the 31 January after the tax year ends (e.g. 31 January 2017).

TAX FAQ:I set up in business recently, but am making no money yet. What must I do?

A:Within 3 months of starting the business, regardless of whether you are making any money, you need to register the business with HMRC. Late registration puts you in line for a £100 penalty.  You can ask your accountant to register for you, or you can do it by phone or online. You will need your National Insurance number.

If you have in the past completed Self Assessment Tax Returns (they started in 1997) then try to get hold of your UTR (Unique Taxpayer Reference). This is on the front of all Tax Returns, and appears on tax Statements of Account as well. The UTR is 10 numbers, sometimes shown with a K at the end.

Once registered you will be sent a UTR, unless you had one already. Then once the next 6 April comes, you will be sent a Self Assessment Tax Return.

I recommend that from day one you keep a good record of business expenses (including car costs) along with receipts. Also a record of any money you earn. This will help you or your accountant to complete your accounts after the 5 April tax year ends.

It is a good idea to engage an accountant early as they can help you arrange a sensible book-keeping system to record what needs recorded.

Tax FAQ continued…

TAX FAQ: How can I have someone help me in contacting HMRC?

A: HMRC is very careful about the security of your information. They don’t want to give out important information to the wrong people. Every day private detectives and former partners ring up HMRC trying to extract details of people’s tax affairs.
For this reason HMRC will only correspond in writing with you or someone whom you have formally approved.
However if you want an accountant, or even a friend, to help you with a phone call to HMRC there is a way around the cumbersome authorisation process. Have your friend or accountant ring HMRC on 0300 200 3300 while you are with them. You need your National Insurance number, date of birth and name of employer / pension provider.
For the purpose of a single call HMRC will speak to them and then will need to speak to you. They will ask you some security questions. Once they are satisfied they are speaking to the genuine taxpayer (you), then you can pass the phone back to the other person to do whatever needs done.

Make sure your friend takes down the name of the HMRC officer they talk to, plus the date and time of the call. A few brief notes of what is to happen would be useful. These all help in case in the future HMRC fails in some way.
If you want an accountant, relative or friend to act for you with HMRC on an ongoing basis you need to send form 64-8 to HMRC which puts them on the record. They can then contact HMRC without you having to get involved.

TAX FAQ:I have just started getting a pension and HMRC has sent me form P161. Is it important?

A: Yes this is a tax FAQ which affects pensioners.  The P161 is an important form and it is in your interest to send it off promptly. This is HMRC’s way of finding out about your income from all sources. Only when they have that will they be able to get your tax codes right.
Just because you are getting a pension does not mean you are stopping all work. They need to know if you are continuing to work, or if you will have more than one pension.
Your State Pension is taxable. The normal way you get taxed is that the amount of your state pension is deducted from your allowances, reducing your tax code. This means if you keep working your take-home pay will go down (because you are paying the tax on your state pension.)
In the year you reach 65, and later years, you get extra tax-free allowances, though these will stop in 2016/17. However once your income rises above £27,700 (2015/16 figure) this extra allowance starts to get taken away, eventually leaving you with just a normal Personal Allowance (£10,600 2015/16) which most people get.

From 2016/17 everyone earning under £100,000 will get the same tax-free Personal Allowance – probably around £11,000. (Estimated June 2015)

TAX FAQ:I am going to work overseas but my other half and kids are staying in UK. Can I get tax-free status?

A: The fact that family is remaining in the UK is not a problem. You can still get tax-free status as regards your full-time work overseas. The main conditions you must meet are:

  • While you are allowed home on leave, your work (contracts) abroad must be continuous.
  • Over a tax year your trips to the UK cannot exceed 90 days.
  • Your period working full-time overseas must encompass two 6th Aprils. (So if you go abroad on 1 December 2015 your work needs to end up lasting to 6 April 2017.)
  • None of your duties should be in the UK.

If you do not meet these criteria there may still be some hope, but your case requires further checking as it is one of the more unusual cases.