As we near the end of the summer season, or is it the monsoon season, we are including information in the newsletter this month to highlight:
• Changes to PAYE tax codes 1 September 2008
• State Benefits that are tax free
• Two important consequences of the new Annual Investment Allowance, and
• Postal and payment changes.
Changes to tax codes
For those who have not received the HM Revenue & Customs (HMRC) employers letter we have reproduced below changes to tax codes which need to be made from 1 September 2008.
The changes were introduced to soften the effects on some lower paid persons who were adversely affected by the scrapping of the 10% starting rate band for income tax on 6 April 2008. As well as changes to tax codes you should also have received new tax tables or changes to your payroll software that accommodate the lowering of the basic rate band for income tax purposes; from £36,000 to £34,800.
Changes to Tax Codes:
L codes - Add 60 to the existing code. For example 543L becomes 603L.
T codes - No change unless you receive P6 from tax office.
P, V or Y codes - No change unless you receive P6 from tax office.
A or H codes - These codes are no longer in use, seek advice from HMRC immediately if you are still using codes with these suffixes.
State Benefits that are tax free
Please ensure that you take account of the following notes when you declare benefits on your tax return.
The State Retirement Pension:
Your state pension is taxable but do not include either the Winter Fuel Payment or the Christmas Bonus as both of these latter payments are tax-free.
Incapacity Benefit (IB):
• Short term IB paid at the lower rates is not taxable for the first 28 weeks, after 28 weeks it becomes taxable.
• Short term IB paid at the higher rates is taxable.
• Long term IB paid at the higher rates is taxable unless benefit commenced before 13 April 1995.
The new Employment and Support Allowance
This new benefit is being introduced from October 2008. It will replace the existing Incapacity Benefit and Income Support for all new claimants.
• If the payment of this allowance is contribution based it will be taxable.
• If the payment is income based it will be tax-free.
Annual Investment Allowance personal considerations
From 6 April 2008 sole traders and partners can claim up to £50,000 a year as a direct write off against their profits if they invest in certain qualifying assets; plant and equipment, vans and so on. Small and medium sized companies can also claim (from 1 April 2008). This article alerts individuals claiming the allowance of two other matters they should consider before making a claim.
First the good news!
If the claim you make reduces your income sufficiently you may be eligible for tax credits.
The problem is that until the current tax year's earnings are quantified, you will not know for certain that you are eligible to claim - a pity as you can only back date claims for three months!
A possible solution may be to make a protective tax credit claim now. Your initial claim may show £nil but when adjusted for your actual post AIA claim the actual claim achieved may be much higher.
And now the bad news!
Many lenders now ask for taxable income rather than trading profits when they consider if you are eligible for a loan. If your trading profits of £50,000 are covered by an AIA claim of £50,000, zero income is not going to qualify for much of a loan. Hopefully lenders will take into account the reason for the dip in your taxable income - but some may not!
HMRC further online incentive
From 1 October 2008 HMRC will no longer send taxpayers a postage paid envelope to use when paying their tax or filing/paying their VAT returns.
This apparently is a signal to us all to make returns and payments online.
To ease the payment process HMRC are also about to make it easier to pay our tax by allowing us to use our credit card. Legislation has just been passed that will allow them to recover the credit card charges. HMRC will charge you 0.91% for the privilege.
Tax Diary September/October 2008
1 September 2008 - Due date for corporation tax due for the year ended 30 November 2007.
19 September 2008 - PAYE and NIC deductions due for month ended 5 September 2008. (If you pay your tax electronically the due date is 22 September 2008)
19 September 2008 - Filing deadline for the CIS300 monthly return for the month ended 5 September 2008.
19 September 2008 - CIS tax deducted for the month ended 5 September 2008 is payable by today.
1 October 2008 - Due date for corporation tax due for the year ended 31 December 2007.
19 October 2008 - PAYE and NIC deductions due for month ended 5 October 2008. (If you pay your tax electronically the due date is 22 October 2008)
19 October 2008 - Filing deadline for the CIS300 monthly return for the month ended 5 October 2008.
19 October 2008 - CIS tax deducted for the month ended 5 October 2008 is payable by today.
DISCLAIMER - PLEASE NOTE: The ideas shared with you in this email are intended to inform rather than advise. Taxpayers circumstances do vary and if you feel that tax strategies we have outlined may be beneficial it is important that you contact us before implementation. If you do or do not take action as a result of reading this newsletter, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.