Personal Tax Products
Registration with Inland Revenue:	£25
Tax Return minimum:	£350

Personal Tax

Fides Partners Limited can help you with your Tax return so that you meet your deadline with the Inland Revenue.

Our Fees:

Registration with Inland Revenue £25

Tax Return minimum £350

What is income tax?
Income tax is a tax paid on income by employees and people who are self-employed and may also be payable if you are not working but you have an income, such as a retirement pension or an occupational pension. Not all types of income are taxable and it will seldom be the case that all of your income is taxed. There is no minimum age at which a person becomes liable to pay income tax. The way the tax must be paid will depend on which schedule it falls into. The most common schedules are Schedule E for employees and Schedule D for the self-employed.

How is income tax calculated?

1. Add together all your yearly income, including social security benefits, income from renting out accommodation, wages, occupational pension, interest from bank and building society accounts.
2. Take off any income which is exempt from tax. Calculate whether you can claim tax relief on any of the money you have spent over the year (tax relief usually applies to people who are self-employed and have to buy items for the business). Deduct this tax relief. This leaves income on which tax may be payable (taxable income).
3. Work out which tax allowances you are entitled to. You will be entitled to a personal allowance (plus age related additions if appropriate). These allowances are deducted at this stage in the calculation.
4. Multiply the taxable income by the correct tax rate. This gives the tax due to be paid that year, unless you are entitled to married couple's allowance for over 65 year olds.
5. If applicable, deduct the appropriate percentage rate of married couple's allowance for over 65 year olds.

Tax allowances
Everyone is entitled to a basic personal tax allowance. In addition, you may be entitled to other allowances on top of the basic allowance. This means that some of your income, which would otherwise be taxable, will be tax free.

Tax allowances are announced in the Budget each year. If you are an employee and so are taxed under Pay As You Earn (PAYE), your personal allowance(s) will be spread throughout the year, so that each week or month you will be left with a certain amount of tax free income after the tax has been deducted. If you are self-employed or have an income but are not working, your personal allowance(s) will be taken into account when HM Revenue and Customs assesses your tax liability each year.

Tax relief
In addition to personal tax allowances, income spent on certain things can be ignored when calculating tax - this is known as tax relief on outgoings. This relief can be set against a tax bill to reduce it.

Tax relief for employees are spread throughout the year in the same way as personal tax allowances. Tax relief for self-employed people and people who have an income but are not working are taken into account by HMRC when assessing tax each year, once it has received the taxpayer’s tax return.

Income tax rates
Income is taxed at different percentage rates, depending on the amount of taxable income. These rates are announced in the Budget every year.

2007/2008	Rate of tax
0 - £2,230	10%
£2,231 - £34,600	22%
Over £34,600	40%

Income on which tax has already been paid
When calculating the tax due, it is necessary to work out whether or not you have received any income on which tax has already been paid. For example, interest on savings in a building society or bank account, where the interest is paid to you after the bank/building society has taken the tax off it. Payments from an occupational pension will also have had tax taken off before the payment is made to you.

When working out the total tax due for the year, it is necessary to take into account the fact that tax has already been paid on this income. This income (which needs to have the tax deducted added back in) will also count towards taxable income on which personal tax allowances are allowed.

National insurance contributions
When checking whether your tax has been correctly calculated, it may also be useful to calculate the national insurance contributions that you have to pay, as this will give the figure for your take-home pay. National insurance contributions are calculated on gross income. National insurance contributions for employees are deducted at different rates depending on your pension arrangements and on your level of income.

Record keeping
If you are a taxpayer, you must keep records of your income to enable you to complete a tax return. Personal or non-business records must be kept until 22 months after the end of the tax year that they relate to, and business records must be kept for five years after the fixed filing date.

How HM Revenue and Customs collects income tax

Deduction of tax at source
Only a minority of taxpayers pay tax directly to HM Revenue and Customs (HMRC) every year. The majority of taxpayers pay their tax through deductions that are made from their income before they receive it.

Some of the most common examples of deduction at source are PAYE, see below, and bank and building society interest, see below

Pay As You Earn (PAYE)
By law, anyone making payments to employees or members of occupational pension schemes is obliged to operate the PAYE system. This means they must deduct income tax and class 1 national insurance contributions from the payments that they make, and must send these sums to HMRC.

You are entitled to receive written confirmation of deductions that have been made by:

1. payslips, showing gross pay, deductions made and net pay if you are an employee and
2. a P60 certificate at the end of each tax year, confirming the amount of gross earnings, and the income tax and class 1 national insurance contributions deducted and
3. a P45 certificate whenever you change jobs, which shows the tax code operating on your earnings at the time you left and, in some cases, the earnings and income tax deducted in the tax year to date

Bank and building society interest
Banks and building societies deduct income tax from the interest paid on most deposits made with them by individuals, and pay this over to HMRC. This is done before the interest is paid to the account holder.

Confirmation of the interest earned in each tax year and the income tax deducted must be provided by the bank or building society free of charge to you, the saver, if you ask for it. A number of banks and building societies send these details to all their investors each year, as a matter of course.

If you do not need to pay any tax on this interest, for example, because your total income from all sources falls below your tax free income for the tax year, you can arrange to receive your interest gross, without deduction of any tax. You should ask your branch of the bank or building society for form R85, which you must complete and return to the branch. This avoids the need to claim a tax refund.

Collection of tax by Self Assessment
Tax may have to be paid to HMRC direct by Self Assessment where the full liability was not, or cannot be, met by deduction at source. This may occur with, for example:

• earnings from self-employment
• rental income from property
• interest received gross, for example, on National Savings investments accounts
• income from overseas
• fringe benefits received by employees and earnings of employees where an insufficient amount has been paid under PAYE.

Assessment procedure
Where tax needs to be collected by Self Assessment, for example, because you are self-employed, a tax return form must be completed. You can then either ask HMRC to calculate the tax due based on the figures in the tax return (revenue calculation), or can calculate the amount of tax due yourself (taxpayer calculation).

Paying tax under Self Assessment
If you have completed a tax return, you will usually be sent a statement of account, which is like a tax bill, when the tax is due. If you asked HMRC to do the tax calculation, the statement of account will show the result of the calculation and how much tax is due. If you did the tax calculation yourself, you will need to enter the amount that you are due to pay on the statement of account

The due date for payment

Taxable income	Normal due date
Income from self-employment - due in two equal payments on account, with a third balancing payment(or repayment) due when the tax liability has been assessed	1st payment: 31 January in the tax year 2nd payment: 31 July following the end of the tax year Final payment: 31 January following the end of the tax year
Rental income	31 January following the end of the tax year
Investment income received gross	31 January following the end of the tax year
Investment income received after basic rate tax deducted but where tax at higher rate is due - due in two equal payments on account, with a third balancing payment (or repayment) due when the tax liability has been assessed	1st payment: 31 January in the tax year 2nd payment: 31 July following the end of the tax year Final payment: 31 January following the end of the tax year
Capital gains	31 January following the end of the tax year
Income from employment, pensions, benefits in kind, where not enough tax has been deducted under PAYE	Special rules apply - this tax is payable within 14 days of the collector issuing a demand, which usually occurs about a month after the assessment if no appeal is made. Exceptionally, if PAYE cannot be operated because the employer lives overseas or is otherwise exempt, for example, works for an embassy, tax is payable in four installments each year.

Please contact us for further details