Certain taxpayer expenditure can qualify for tax relief, and these amounts are known as deductible payments. The payments are deducted from income when calculating taxable income, effectively saving tax at a taxpayer’s marginal rate. For example, if a taxpayer pays tax at a marginal rate of 40%, they will  have saved 40p for every £1 of the payment they pay in the tax year. Interest paid on qualifying loans is a deductible payment, however there is a cap on the amount that may be relieved each tax year.  The total amount which can be deducted is the greater of £50,000 or 25% of adjusted total income (being total income less payroll giving and gross pension contributions paid). Qualifying Interest Where a loan is a qualify...

Venture Capital Trusts ("VCTs") represent a tax efficient way for investors to unitise their investments across a number of qualifying entities. A VCT is actually a company which is quoted on a UK stock market.  That company in turn owns shares or equity, or lends money to unconnected trading companies. New shares listed on the stock market attract better tax benefits than shares which are bought on the stock market.   The tax benefits for newly listed shares are as follows: 30% income tax relief on annual investments of up to £200,000. This tax reducer can reduce a tax liability to zero, but cannot in itself create a repayment.  The individual must hold the VCT shares for more than 5 years to consolidate this. There is n...

Entrepreneur’s relief  ("ER") is a valuable relief from Capital Gains Tax ("CGT") which, when available, restricts the tax rate to a flat 10% on up to £10 million worth of lifetime gains. The 2018 Budget announced changes to the conditions for obtaining ER, and in light of the new rules it may be worthwhile for taxpayers to dispose of relevant assets before 6 April 2019. Minimum Qualifying Period ER applies to disposals of: shares in a trading company; (the whole or part of) a business; assets in association with the sale of a business; assets from a solvent company that has ceased trading. For disposals involving shares, the shareholder would need to work for the company and hold at least 5% of the ordinary s...

Following a number of tribunal cases (including Mohammed Salem Kadhem v HMRC [2017]), HM Revenue & Customs has updated its official guidance on the circumstances when a director is required to submit a self-assessment tax return. Previously, HMRC has maintained that a director of a company was required to register for self-assessment and submit a tax return by virtue of holding office - even if there was no tax liability to report. However, following several defeats in the courts, HMRC has now confirmed that provided that you are subject to PAYE on your income and you have no further liability to tax, you will not be required to submit a tax return. It is important to note that if you receive dividends in excess of the dividend...

Whilst you may be entitled to a State Pension once you reach retirement age, you may wish to have additional funds in order to support you. Pension funds aim to provide you with a further source of income to draw on later in life and are oftentimes a tax-efficient way to save for your retirement. This is because not only can you receive tax relief on payments made into your pension, but growth within the pension is also tax free. With this in mind, please read on for our summary of the taxation of pension contribution. Maximum Contribution & "Relevant Earnings" Firstly, the maximum contributions you can personally make into your pension in a year is the greater of £3,600 and 100% of your "relevant earnings". Relevant ear...

Here are some of the highlights from the Chancellor of the Exchequer's 2018 Budget (published on 29 October 2018): Personal Tax The Personal Allowance will be raised to £12,500 and the Higher Rate Threshold (i.e. the amount that an individual can earn before paying higher rate tax) to £50,000 in April 2019 – a year earlier than planned. These levels will remain the same in 2020/21, and then increase by CPI going forward. The final exemption period for Principal Private Residence Relief (PPR) which provides Capital Gains Tax relief on the sale of your home will be reduced from 18 to 9 months. Under the current PPR rules, where you have let a property which at one point was your home Lettings Relief may be available to reduc...

Registering for self-assessment  Taxpayers who are required to submit tax returns for the first time regarding the 2017/18 tax year (i.e. between 6 April 2017 – 5 April 2018) are required to register for self-assessment by 5 October 2018. Penalty charges   Failing to notify HMRC by the deadline and failing to pay tax due by the 31 January 2019 deadline may result in a penalty. This penalty is calculated as a percentage of the income and/or capital gains tax that is late for payment. The percentage that will apply is determined in light of the behaviour of the taxpayer (non-deliberate, deliberate, or deliberate and concealed), whether or not the taxpayer made a “prompted” or “unprompted” disclosure, and the amount ...

Under the Construction Industry Scheme (CIS), contractors are required to deduct funds from a subcontractor's payment and forward it directly to HMRC, which in turn are deemed to be advance payments towards the subcontractors' tax liabilities. Who is involved in CIS? Businesses that carry out construction work may be required to register under CIS, regardless of the nature of the business itself. These businesses can involve contractors, subcontractors, and/or a mixture of both. Construction work relating to a permanent or temporary building/structure and civil engineering work (e.g. roads) will be covered by CIS, and includes the following: Preparation of a site Demolition Building Repairs Alterations and decoarti...

From April 2019, Wales will begin to have partial control on the income tax its residents pay. This follows the devolution of Stamp Duty Land Tax (Land Transaction Tax) and Landfill Tax (Landfill Disposals Tax) to Wales in April 2018. Welsh Income Tax There are currently three main income tax rates in England and Wales: the basic rate (20%), the higher rate (40%), and the additional rate (45%). In 2019/20 the UK government will reduce all three income tax rates in Wales by 10%.  The Welsh government will then have the power to set its own tax rate on top of this UK base rate. The UK government will retain the power to set tax reliefs and allowances (like the personal allowance). If the Welsh government chooses to set the ...

The submission of an incorrect tax return may result in a penalty if the error was the result of careless or deliberate behaviour. However, where an individual can demonstrate that they took "reasonable care" when preparing their return, then a penalty will not be charged. Tax Avoidance Arrangements Where you entered into a tax avoidance scheme which is later defeated by HMRC resulting in an incorrect tax return, the presumption is that you have not taken reasonable care and will therefore be subject to the penalty. This applies for returns or documents sent to HMRC after 16 November 2017 relating to the 2017/18 tax year onwards. However, it you entered into the arrangement as a result of taking professional advice, then HMRC will gene...