Income Tax

Depending on your circumstances, you may be liable to pay income tax on income arising in the UK and elsewhere in the world. If your tax affairs are very straightforward, you may not receive a tax return from the Inland Revenue at all but if your circumstances change (such as starting to use a company car, starting a new business, starting to receive a pension, or starting to rent out your property) you are required to notify the Inland Revenue of that change so that a return can be issued. We can help you with this requirement. Failure to do so can render you liable to a fine, interest on tax paid late and, in the worst cases, imprisonment if you are found to have evaded tax wilfully.

Earnings from employment and most pensions (other than the state pension) are taxed at source. The Inland Revenue issues a notice of coding in order to tell the payer what code to apply. Your tax code takes account of your personal circumstances and is the means by which your personal allowances (the amount you can earn before paying tax) are given to you. From that notice, and using tax tables, your employer or the pension payer will work out what tax (and national insurance) to deduct and should pay it over to the Inland Revenue.

If you are in employment, your tax must also take account of any benefits in kind you may receive (such as the use of a company car, private fuel paid for, private health contributions, and so on). Just because the Inland Revenue issue a notice of coding and do not issue a tax return does not mean that you are paying the right tax. We can help you to pay the right tax at source.

State pension is taxable too but if state pension is your only source of income it is normally at a level which is covered by your personal allowances and so you end up paying no tax on the income.

In most cases, bank or building society interest is taxed at source and, if you are not a higher-rate tax payer, you have no further liability to tax on income form those sources. Dividends are much the same, except that they are taxed at different rates. It is possible, provided your income is low enough, to elect to have bank or building society paid gross (that is, without tax being deducted). This saves effort and avoids the need to apply for a refund of the tax suffered but can only apply in certain circumstances.

Income from property is usually received gross. If you are renting a room in your own home you can receive up to an amount each year free of tax.  The relevant figure can be found on our website.  If you receive more than that amount, tax is payable on the excess. Renting out a second property is a different matter, though, and tax is due on any net income from those sources. The net income can take account of certain expenses you have to pay in relation to the property (such as repairs, insurance, collection costs, and so on). Care must be taken with expenditure of a capital nature (such as fitting a new kitchen or a new roof) but we can advise you on what costs are allowable for tax purposes.

You may be receiving income from a trust or an estate of someone who has died or income from abroad. Whether you have to pay further tax on that income depends again on your overall income level and whether the income is taxed at source.

Some income is tax-free. This includes income from Personal Equity Plans (PEPs), Tax-exempt Special Savings Accounts (TESSAs) and Individual Savings Accounts (ISAs). There are rules which govern how much and how often you can invest in these accounts (PEPS and TESSAs have now been replaced by ISAs) and how and when you can withdraw money from these types of account. We can advise on these tax-efficient saving schemes.

Certain National Savings schemes are also tax-free.

You can find details on our website of the income figure above which tax (and national insurance) becomes payable.  The basic rate of tax and any higher rate tax limits (which change annually) are also available on the website.  Dividend and savings income are taxed at different rates if you are a higher rate taxpayer and, again, details can be found on our website.

We will also consider your circumstances to see whether you are due to receive any special personal allowances, depending on age and some disabilities.