Tax Tips: Or How Not to Annoy The Tax Man
VAT Registration – You must check your requirement to register for VAT at the end of every month, to ensure that your annual turnover has not exceeded the registration limit – currently £61,000 from 31st March 2006, (previously £60,000 after 31st March 2005).
Self-Employed – If you are self-employed and your gross turnover is less than £15,000 per year, you only need to show your total turnover, less total expenses and net profit on the tax return. However, you should still keep detailed records should HM Revenue & Customs require them.
Keeping Records – You must retain records relating to your business for at least 5 years and 10 months after the end of the tax year to which they relate. Failure to do so may result in penalties of up to £3,000 per tax year.
New Business – You need to register with HM Revenue & Customs to notify them of your new business within 3 months of starting otherwise you will be liable to a penalty of £100. If you do not receive a tax return you are required to notify HM Revenue & Customs that you have taxable profits by 5th October following the tax year end of 5th April.
Self Assessment
30th September – HM Revenue & Customs advise that they will calculate your tax if you submit your tax return to them by 30th September. Remember, that the tax office will always calculate your tax liability regardless of when you submit your tax return. The importance of this date is that the Revenue will advise you of your tax liability in time for the due date of 31st January. Returns submitted by this date resulting in an underpayment of tax below £2,000, allow you the option of having the tax collected by way of a restriction in a future years tax code.
Employees
Tax Code – This represents the tax allowances you are entitled to such as personal allowances and job expenses, less deductions like pensions, benefits or underpayments. The code spreads your allowances evenly over the year, therefore if there is a change in circumstances it is important to notify the tax office of the changes to ensure the correct amount of tax continues to be deducted from your income.
Loans – There is no charge to tax on an interest free loan provided to an employee, providing the loan does not exceed £5,000 in the tax year.
Employment Expenses – You may be able to make a claim for expenses incurred in the duties of employment. Some examples are travel and subsistence, professional subscriptions and use of home. There are also fixed-rate expenses for most classes of industry for the upkeep of tools and special clothing that have been agreed with the Revenue and trade unions.
Mileage Rates – If you use your own vehicle, motor cycle or bicycle for business trips your employer can pay you an allowance, based on HM Revenue & Customs approved rates, free of both tax and national insurance. If your employer does not pay any expenses or pays an amount below the approved rates, you can make a claim for the difference.
Property
Keeping Records – You must retain records relating to your property income for at least 5 years and 10 months after the end of the tax year to which they relate. Failure to do so may result in penalties of up to £3,000 per tax year.
Rent-a-Room Relief – This relief is available to owner-occupiers and tenants who let furnished rooms in their only or main residence. No tax is payable if the gross rents do not exceed £4,250. The exemption is split if the letting is by a couple. If the rents exceed £4,250 you have the option to pay tax on the excess or on the rent less allowable expenses. A claim must be made to the tax office if you want to elect to pay tax on the excess or the rent, less favourable expenses.
Investing in Buy-to-Let Properties – Interest payable on loans used to buy land or property used in a rental business, or on loans to fund repairs, improvements or alterations, is deductible in computing the profits or losses of the rental business.