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Basic tax considerations if you come to work in the UK

If you come to live in the UK there are basic tax considerations that you will need to observe. Most importantly, you will be required to pay tax on your income (in excess of any allowances) if you come to live in the UK. Income includes; wages, benefits, your pension and savings interest. If you’re employed your employer will deduct Income Tax from your wages. Otherwise, you will likely be required to prepare and submit a Self-Assessment tax return if you work for yourself or you have other UK income.

You will also usually be required to pay National Insurance if you work in the UK. How much you pay will depend on whether you are employed or self-employed. There are countries with whom the UK has bilateral agreements and where you may not be required to pay National Insurance for the first 52 weeks you are in the UK; as long as you meet the necessary conditions.

You will not have to pay UK tax if you only make short business trips here, for example, a training course or meeting. There is a special process that can be used if you have overpaid tax in the UK and are a foreign national.

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Final reminder to sign up for Help to Buy

The Help to Buy ISA scheme will close to new savers after 30 November 2019. If you are interested in signing up to the scheme you need to do so ASAP and certainly before midnight on 30 November 2019. If you are a first-time buyer and planning to buy a property in the short to medium term, you should think about whether you (or perhaps your children) would benefit from this scheme.

Under the scheme you can claim a Government bonus of 25% on monthly savings of up to £200 towards a first home. The bonus translates to an extra £50 added to every £200 saved up to a maximum Government contribution of £3,000 on £12,000 worth of savings. You need to save at least £1,600 to receive the minimum Government bonus of £400.

Importantly, an account can be opened now with as little as £1, but you can make an initial deposit of up to £1,200 (the monthly maximum plus an extra £1,000). The scheme is open to first-time buyers aged over 16. Once you have opened an account you will be able to save in your Help to Buy ISA account until 30 November 2029 when accounts will close to additional contributions. Bonuses can be claimed until 1 December 2030.

The bonus is only payable on the purchase of a first home. The scheme is limited to one per person (not one per home) so two people buying a home together can both receive a bonus. The bonus is available on home purchases of up to £450,000 in London and £250,000 outside London and can only be claimed against the deposit for a new home. It cannot be used to pay solicitors, estate agents or any other costs associated with buying a home.

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Different types of student loan

Student Loans are part of the Government’s financial support package for students in higher education in the UK. They are available to help students meet their living costs while they are studying.

There are two main types of student loan.

  1. Fixed – term repayment loans (old – style loans). These loans were available to students commencing a course of higher education up to and including the academic year 1997-98 and are often known as ‘fixed – term repayment’ or ‘mortgage – style’ loans. Repayments are made directly to the Student Loans Company (SLC).
  2. Income – Contingent Loans (new – style loans). These loans replaced the fixed – term repayment loans and became available to students commencing a course of higher education from the academic year 1998-99. It is HMRC’s responsibility to collect repayments where the borrower is working in the UK. The SLC is responsible for collecting the loans of borrowers outside the UK tax system. There is an annual threshold below which repayments are not due. If the borrower’s income is above the threshold, repayments will be made according to the level of income. There are two main types of loan known as 'Plan 1' and 'Plan 2'. Repayments are deducted at a rate of 9% of income over the threshold, although each plan has a different threshold.

In April 2019, a new loan for England and Wales known as Postgraduate Loan (PGL) was introduced. There are separate thresholds and rates for these loans.

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HMRC’s tax app

A free HMRC tax app is available to taxpayers.

The APP can be used to see:

  • your tax code and National Insurance number
  • an estimate of the tax you need to pay
  • your income and benefits
  • up to 12 future tax credits payments
  • your Unique Taxpayer Reference (UTR) for Self-Assessment

The APP can also be used to complete a number of tasks that usually require the user to be logged on to a computer.

This includes:

  • renew your tax credits
  • access your Help to Save account
  • using HMRC’s tax calculator to work out your take home pay after Income Tax and National Insurance deductions
  • track forms and letters sent to HMRC
  • get 6-digit access codes to make your HMRC accounts more secure
  • claim a refund if you’ve paid too much tax
  • update your postal address
  • tell HMRC about changes that might affect your tax credits

The APP is available to download on an iPhone or any compatible android style smartphone.

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Furnished holiday let qualifying tests

The furnished holiday let (FHL) rules allow holiday lettings of properties that meet certain conditions to be treated as a trade for certain tax purposes.

In order to qualify as a furnished holiday letting, the following criteria need to be met:

  • The property must be let on a commercial basis with a view to the realisation of profits. Second homes or properties that are only let occasionally or to family and friends do not qualify.
  • The property must be located in the UK, or in a country within the EEA.
  • The property must be furnished. This means that there must be sufficient furniture provided for normal occupation and visitors must be entitled to use the furniture.

In addition, the property must pass the following 3 occupancy conditions.

  1. Pattern of occupation condition. The property must not be used for more than 155 days for longer term occupation (i.e. a continuous period of more than 31 days).
  2. The availability condition. The property must be available for commercial letting at commercial rates for at least 30 weeks (210 days) per year.
  3. The letting condition. The property must be let for at least 15 weeks (105 days) per year and homeowners should be able to demonstrate the income from these lettings. 

Where there are a number of furnished holiday lettings properties in a business, it is possible to average the days of lettings for the purposes of qualifying for the 15 weeks threshold. This is called an averaging election.

There is also a special period of grace election, which allows homeowners to treat a year as a qualifying year for the purposes of the furnished holiday let rules, where they genuinely intended to meet the occupancy threshold but were unable to do so, subject to a number of qualifying conditions.

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Interest on children’s savings

All children in the UK have their own personal annual tax allowance. However, anti-avoidance laws prevent this allowance being utilised by parents of children aged under 18 with some minimal exceptions.

If older children are employed by a parent they can receive income paid as wages subject to the usual rules.

There are special rules if a parent gifts significant amounts of money to their children which results in annual bank interest of more than £100 (before tax) accruing to each child. If this is the case, the parent is liable to pay tax on all the interest if it’s above their own Personal Savings Allowance.

The £100 limit does not apply to money given by grandparents, relatives or friends. In addition, any income from CTF’s or Junior ISA’s is exempt from Income Tax and CGT on the child or the parent even where the invested funds came from the child’s parents. The 2019-20 subscription limit for both CTFs and Junior ISAs is £4,368.

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Coding out debts deadline

You can have tax underpayments collected via an adjustment to your PAYE tax code, provided you are in employment or in receipt of a UK-based pension. The coding adjustment applies to certain debts such as Self-Assessment liabilities, tax credit overpayments and outstanding Class 2 NIC contributions.

Instead of paying off debts in a lump sum, money is collected in equal monthly instalments over a tax year.

The amount of debt that can be coded out ranges from £3,000 to £17,000 based on a graduated scale. This is a different limit to that for paying your Self-Assessment bill where the amount owed must be less than £3,000. The maximum coding out allowance only applies to taxpayers with earnings exceeding £90,000.

The full breakdown is as follows:

Earnings Coding out limit
Less than £30k     £3k
£30k to £39,999.99 £5k
£40k to £49,999.99 £7k
£50k to £59,999.99 £9k
£60k to £69,999.99 £11k
£70k to £79,999.99 £13k
£80k to £89,999.99 £15k
£90k or more £17k

If you had tax underpayments in the 2018-19 tax year, you have until 30 December 2019 to file your Self-Assessment returns in order to have the monies collected in the 2020-21 tax year – starting on 6 April 2020.

If you need help organising the payment of your tax bill – to be paid off by an adjustment to your tax code – call now as the December deadline is fast approaching.

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Just under 100 days to go

HMRC has published a news release to remind you that there is now less than 100 days to file your 2018-19 tax return. Last year over 11.5 million taxpayers were required to complete a Self-Assessment tax return but over 700,000 taxpayers missed the deadline.

The deadline for submitting your 2018-19 Self-Assessment tax returns online is 31 January 2020. You should also be aware that payment of any tax due should also be made by this date. This includes both the payment of any balance of Self-Assessment liability for the 2018-19, plus any payment on account due for the current 2019-20 tax year.

If you are filing online for the first time, you should ensure you register to use HMRC’s Self-Assessment online service as soon as possible. Once registered it can take up to seven working days for an activation code to be sent by mail. All Self-Assessment returns should now be made online as the deadline for submitting paper returns expired on 31 October 2019. There are penalties for late Self-Assessment returns including an automatic £100 penalty for submitting a late return even if there was no tax to pay or the tax due was paid on time.

HMRC is encouraging taxpayers to complete their tax return as early as possible to avoid working during the upcoming holiday period or getting more stressed as the filing date looms. In fact, last year over 2,000 taxpayers submitted their tax returns on Christmas Day.

If you are struggling to deal with the filing of your Self-Assessment tax return then this is a chore we can handle for you. Please call to discuss your options.

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Costs you can claim against your self-employed business

If you are self-employed it is important to be aware if an expense is allowable for tax deduction purposes or not. Any allowable costs can be used to reduce your taxable profit.

As a general rule you can claim for items that you would normally use for less than 2 years as allowable expenses, for example, stationery and other office sundries as well as rent, rates, power and insurance costs.

HMRC lists the following expenses as being allowable:

  • office costs, for example stationery or phone bills
  • travel costs, for example fuel, parking, train or bus fares
  • clothing expenses, for example uniforms
  • staff costs, for example salaries or subcontractor costs
  • things you buy to sell on, for example stock or raw materials
  • financial costs, for example insurance or bank charges
  • costs of your business premises, for example rent, heating, lighting, business rates
  • advertising or marketing, for example website costs
  • training courses related to your business, for example refresher courses

You can also claim the applicable part of rent, rates, power and insurance costs for any part of your home used as an office.

Equipment you buy to use in your business that you would expect to last for more than 2 years e.g. computers are treated as allowable expenses if you use cash basis accounting or you can claim Capital Allowances if you use traditional accounting. You cannot claim for any non-business use of premises, vehicles, phones or other office equipment.

The above list does not cover all the costs you may be able to claim. If you are new to self-employment, we can help you draw up a list of allowable costs for your business.

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Sale of income for a capital sum

A capital sum received by an individual in respect of the sale or relinquishment of income – derived from his or her personal activities – can sometimes be treated as earned income and chargeable to Income Tax. If this is the case, the amount charged to Income Tax is not also charged to Capital Gains Tax.

The following conditions must all be present before the sale of income legislation can operate.

  1. The individual must be carrying on an occupation wholly or partly in the UK.
  2. Transactions or arrangements must have been affected placing some other person in a position to exploit the earnings capacity of that individual.
  3. A 'capital amount' must have been obtained by the individual or for some other person, as part of, or in connection with, or in consequence of the transactions or arrangements.
  4. The main object, or one of the main objects, of the transactions or arrangements must be the avoidance or reduction of liability to Income Tax.

The charge to Income Tax will take place in the tax year or years in which the capital amount becomes receivable or the sale or realisation occurs.