Tips on saving tax, the latest tax and business news, tax loopholes and useful links

Shortly before leaving his post, the head of the Italian tax authorities decided to publish the tax returns (and income details) of everyone in the country.

The website is now closed down, but it did reveal that Giorgio Armani earned £35m whereas Donatella Versace is worth only £1.7m!

Here’s an interesting article on some of the options people have if they want to steer clear of the Taxman and such grey areas as IR35, Managed Service Companies, Income Shifting, s.447 ITEPA etc.

Options include closing down your company and setting up a new one, taking out tax investigation insurance or paying a small amount of additional tax.

For those of you that are interested, or those who want to take issue with HMRC over something, we publish below the charter that the Taxman is supposedly committed to:

You are entitled to expect the Inland Revenue to be fair

By settling your tax affairs impartially
By expecting you to pay only what is due under the law
By treating everyone with equal fairness
To help you

To get your tax affairs right
To understand your rights and obligations
By providing clear leaflets and forms
By giving you information and assistance at our enquiry offices
By being courteous at all times
To provide an efficient service

By settling your tax affairs promptly and accurately
By keeping your private affairs strictly confidential
By using the information you give us only as allowed by the law
By keeping to a minimum your costs of complying with the law
By keeping our costs down
To be accountable for what we do

By setting standards for ourselves and publishing how well we live up to them
If you are not satisfied

We will tell you exactly how to complain
You can ask for your tax affairs to be looked at again
You can appeal to an independent tribunal
Your MP can refer your complaint to the Ombudsman
In return, we need you

To be honest
To give us accurate information
To pay your tax on time

The Chancellor, Alistair Darling, has announced an increase to the Personal Allowance of £600 for 2008/09 giving lower paid taxpayers a £120 benefit.

This is in response to a backlash from MPs over the abolition of the 10% income tax rate that was announced by Gordon Brown when he was Chancellor. The change will not be implemented until September 2008 which is when employees will notice the increase in their net take home pay of £60 followed by a £10 monthly increase for the rest of the tax year.

To ensure that higer rate taxpayers don’t gain from this change, the threshold for the higher rate of income tax has been decreased by £1,200. The new figures are as follows:

Personal Allowance (0%): £6,035
Basic Rate Band (20%): £34,800
Higher Rate Band (40%): £40,836+

Note: There is no change to the National Insurance bands however, meaning directors of their own companies on a salary of £452 pcm (or thereabouts) would see no benefit in increasing their salary as the tax saving is negated by the NIC cost.

We have heard rumours that the Taxman will soon be surfing social networking sites such as Facebook to glean information on taxpayers lifestyles and spending habits. This may result in them launching an investigation into your tax affairs asking about undeclared income.

We have already seen this in action over in Ireland and we understand the UK authorities are monitoring the success of these Irish investigations.

The moral of the story is to be careful about what information you publish about yourself.

Why was ‘Taxman’ written?

“George [Harrison] wrote Taxman, and I played guitar on it. He wrote it in anger at finding out what the taxman did. He had never known before then what could happen to your money.”
- Paul McCartney

“Taxman was when I first realized that even though we had started earning money, we were actually giving most of it away in taxes.”
- George Harrison

Lyrics:

Let me tell you how it will be
There’s one for you, nineteen for me
‘Cause I’m the taxman, yeah, I’m the taxman

Should five per cent appear too small
Be thankful I don’t take it all
‘Cause I’m the taxman, yeah I’m the taxman

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold I’ll tax the heat,
If you take a walk, I’ll tax your feet.

Don’t ask me what I want it for
If you don’t want to pay some more
‘Cause I’m the taxman, yeah, I’m the taxman

Now my advice for those who die
Declare the pennies on your eyes
‘Cause I’m the taxman, yeah, I’m the taxman
And you’re working for no one but me.

We get asked from time to time whether small business owners should make personal pension contributions personally or via their limited company. So here’s our take on the situation, assuming that most small business owners pay only a modest salary and the rest of their income is extracted as dividends (this is generally the most tax efficient route).

If you pay into your pension personally, it is possible that you will get personal tax relief, at 20%. However, if you do what a lot of people do and pay yourself a salary of approx. £5,400 pa only, you may have no personal tax liability (check with your accountant) in which case you will miss out on this tax relief. Also, pension contributions are not deductible against National Insurance contributions. This means that you have to pay 11% of your income in NI and your employer (which is your company so ultimately your cost as well) also has to pay NI at 12.8%, meaning 23.8% going to the Chancellor.

If your company paid the pension contribution instead, this NI wouldn’t be payable but you would still get tax relief (at a slightly increased 21%, the current company tax rates) so you’re saving nearly 25% of your money by doing it this way.

Enough said…?

Below is a summary of the 2008/09 tax rates announced in today’s Budget speech

Income tax
0% income tax on first £5,435
20% income tax on earnings from £5,435 to £41,435 (0% effective rate for dividends)
40% income tax on earnings in excess of £41,435 (25% effective rate for dividends)

Self employed National Insurance
Class 2 increases to £2.30 per week
The threshold when class 4 NICs reduce from 8% to 1% is now set at £40,040 (this is a massive increase of £5,200 from the previous year)

Capital gains tax
Annual exemption increases to £9,600 (0% tax on gains up to this level)
10% tax rate of first £1m of lifetime gains from the sale of business assets
18% tax rate for all other gains

Pensions
Annual allowance is now £235,000
Lifetime allowance up to £1.65m

Company tax
21% tax rate on profits up to £300,000 (20% previously)

VAT registration limit
Increased to £67,000 turnover in a 12 months period (previously £64,000)

Capital allowances
100% allowance on asset spend of up to £50,000 per annum
20% allowance per year for all other plant and machinery assets
If the remaining balances on previously purchased assets are less than £1,000 these can now be written off in full

Inheritance tax
Exemption up to £312,000 per person or £624,000 per couple

ISAs
Cash allowance £3,600
Shares allowance £7,200
Total maximum allowance £7,200

Other
Alcohol duty increases by 4p per pint of beer
Tobacco duty up 11p per pack of cigarettes
Petrol increases by 2p per litre from 1 October 2008

2007/08 tax return deadlines
31 October 2008 for paper returns
31 January 2009 for online returns

Income shifting
Proposed rule changes have been delayed until 2009. Income shifting is when taxable income is moved into the hands of a spouse/relative paying tax at a lower rate.

Umbrella companies
HMRC will look closely at the expenses that freelancers claim when working via an umbrella company. This is in response to reports that excessive claims have been made in the past.

Self assessment taxpayers and agents authorised to act for them, can now change contact details online on the HMRC website.

From 6 February 2008, you can use the links within the ‘About your organisation’, ‘About you’ or ‘About your client’ pages.

Partnerships and their authorised agents can:
- change their main, communication and trade address; and
- change main contact details (day, evening and mobile telephone numbers, fax number and email address).

Partnerships only can add, change or remove an authorised agent.

Agents acting for SA individuals can:
- change their client’s name and main address;
- change their client’s contact details (day, evening and mobile telephone numbers, fax number and email address);
- submit a claim for repayment for their client;
- submit a request to reduce their client’s payments on account;
- change their client’s capacitor name and address; and
- change and delete their client’s communication address.

The Government has announced the increased rates of national minimum wage which will apply from 1 October 2008.

There are three levels of minimum wage, as follows:

• Adult rate for workers aged 22 years and older:
Currently £5.52 per hour – rising to £5.73 from 1 October 2008

• A youth rate for workers aged 18-21 inclusive:
Currently £4.60 per hour, rising to £4.77 from 1 October 2008

• A lower rate for all workers aged 16-17 years:
Currently £3.40 an hour, rising to £3.53 from 1 October 2008