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.
Details supplied here will be strictly condfidential!
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