As you would expect, Chartered Accountants have extensive knowledge of the taxation system. The UK tax system for individuals is largely dealt with through the payroll tax, Pay As You Earn (PAYE). However, a substantial portion of the population needs to notify the Inland Revenue of their circumstances through the completion of a Self Assessment form.
There is a general misconception that if the HM Revenue & Customs (HMRC) need to know about your tax affairs, that they will contact you. Under Self Assessment, each individual has to look at their own tax position and has a duty to notify the HMRC if they might be liable to pay tax. We have the experience to help you keep your tax affairs in order. We adopted the use of the Electronic Lodgment Service (ELS) from the outset. It enabled us to submit your Self Assessment form to the Inland Revenue in a fast and secure manner. Recently, the HMRC moved to an internet filing system and our experience with the earlier ELS has enabled us to have a smooth transition. Further changes using the new iXbrl format have also been incorporated into our accounts and tax systems.
The UK tax system is one of the most efficient and comprehensive systems in the world; it also is one of the most complex. The annual “Budget Statement” is made by the Chancellor of the Exchequer before Parliament, normally in March each year. The Budget sets out the tax rates that are to apply, tax allowances and changes to the operation of the tax system. There has been a recent trend to announce changes that will occur in a few years time and for a “Autumn Statement” to give hints also.
We cannot cover all the aspects of how tax is calculated or how it may affect you personally or your business on this web site. If you wish to discuss a specific matter or your own personal affairs, we will be pleased to help. Below is a rough guide as to some of the main tax types in the UK at present.
Income Tax - Self Assessment
The tax year runs from the 6th April in one year to the 5th April in the next year. Income tax applies to individuals and is a tax on their total earnings from employment, business profits (for sole traders and partnerships), savings and investments. Depending on an individual’s personal circumstances, tax reliefs and allowances can be claimed to reduce the tax liability
This is charged on the taxable profits and gains of limited companies. The tax rates apply to profits between 1st April in one year and 31st March in the following year. A company that does not have a 31st March year-end for its accounting results will be out of step with the tax year. The profits are apportioned between the tax years in which they are earned on a time basis and taxed at the rate applying in that tax year.
Capital Gains Tax
This is a tax on the profits or gains made when buying and selling assets such as stocks and shares, antiques, property. It applies to individuals and companies although different tax rules apply depending on if you are an individual or a limited liability company.
The aim of this tax is the taxation of wealth when it is passed from one person to another. The most common occurrence is on death, but equally can apply on gifts made during a lifetime. It is an unusual tax insofar as it is a cumulative tax throughout your lifetime. It has two tax rates, one for lifetime gifts and the other on death.
Value Added Tax (VAT)
This is a sales tax and applies to goods and services. The main tax rate is 20% from 4th January 2011. It had been 17.5% for many years but was reduced to 15% for a 13 month period before returning to 17.5% on 1st January 2010. A business must register for VAT when its annual turnover exceeds £70,000 but a business can voluntarily register below this limit. Goods and services purchased as part of your business activities may also include VAT. The VAT you charge to your customers on behalf of HM Revenue and Customs has to be paid over to that Government department. If you are registered for VAT, you can reclaim the VAT you are charged by your suppliers, however not all VAT you may be charged is reclaimable as there are restrictions.
The Inland Revenue is expected to perform an increasing number of enquiries into an individual’s Self Assessment returns. Over recent years, construction industry workers have been subject to “Status enquiries” aimed at identifying those people who have been treated as self employed but may truly be employees. The most controversial issue is IR35, which is aimed at personal service companies, in particular computer programmers. We have successfully defended clients against changes in status and are keeping a watchful eye on IR35 as the controversy continues.