General Taxation

Tax in the UK

The tax year or “fiscal” year in the UK runs from April 6th to April 5th of the following calendar year.
• Income Tax is based on the income received over the whole year.
• Employed persons are taxed on the amount of income in the current tax year (current year basis).
• Their tax is collected by their employer under PAYE.
• Self-employed income tax is on a “current year” basis, i.e., their tax is based on the profits for their business year that ended in the current tax year.
• It is payable in two instalments, on January 31st in the current tax year, and on the following July 31st.
• “Self-employed” includes sole traders and
partnerships.

Benefits in Kind

Employees earning over £8,500 p.a. (including the value of any benefits in kind) are normally taxed on the value of those benefits in kind.

The main taxable benefits are:
• Company cars and fuel.
• Private health care (e.g. BUPA): taxed on the amount of the employer’s contributions.
• Living accommodation, unless it is required for the employee’s duties (e.g. caretaker).
• Interest-free loans: taxed on the amount of interest waived.

Capital gains tax

A taxable gain for CGT purposes arises when an item is disposed of at a price/value higher than that at which it was acquired.

The main exemptions;
• Transfers between spouses
• Transfers on death
• Annual personal exemption; Each UK resident is granted an annual exemption of £9,200 (2007/2008).  This exemption cannot be carried forward if not used. Use it or lose it.

Inheritance tax

• Inheritance Tax is payable on certain “transfers of value” made during a person’s lifetime or on the value of the estate passing on death.
• The taxable value of a transfer is the reduction in value of the donor’s estate, not the increase in value of the recipient’s estate.
• If the taxable estate is less than £300,000 (the nil rate band), no IHT is payable.
• If it exceeds the nil rate band, the excess is taxed at: 40% on death 20% on chargeable lifetime transfers
• If death occurs within 7 years of a chargeable lifetime transfer, additional tax may be due.
• These are lifetime transfers - on a PET, no tax is due at the time of the transfer, but tax becomes due if the donor dies within 7 years of the gift.
• All is due up to 3 years, then the liability reduces by 20% each year until year 7.

Stamp Duty

A tax on purchase of land and property:
£0 - 125,000 Nil
£125,001 - 250,000 1%
£250,001 - 500,000 3%
£500,001 and over 4%
Stamp Duty is not applicable in designated disadvantaged areas up to £150,000
The rate of stamp duty on shares is ½%

Income Tax- Calculating a tax bill

Add all your income

Deductions and allowances

Apply the Tax at your tax band

• First £2,230 of taxable income – 10% (starting rate)
• Next £32,370 – 22% (basic rate)
• All above £34,600 – 40% (higher rate)

VAT - Value added tax

VAT is an indirect tax levied on the sale of most goods and services in the UK.  The current standard rate is 17½%.

There is also a zero rate that applies to certain goods and services. These include:  • Books and newspapers  • Children’s clothes  • Transport and medicines • Supplies of certain goods and services are exempt from VAT. They include: • Sale of land  • Lending  • Insurance  • Health

Businesses with a turnover of at least £64,000 p.a. (2007/2008) are required to register for VAT, even if the goods/services they provide are currently zero rated.