Useful Tax Data

Below are the tax tables for 2008/2009 together with historical data for the year previous. For quick access to any specific section, please click on the following links.

Personal Tax

Income Tax

Allocation of rate bands

Taxable income uses up the rate bands in the following order:

Capital gains (after annual exemption and taper relief, see Personal Tax and Capital Gains Tax (CGT)) are added to the total income as the 'top slice' and taxed at the rates applicable to savings income (10%, 20% or 40%).

Extension of basic rate band

A taxpayer who pays personal (including stakeholder) pension policy premiums, or cash gifts to charity, increases the basic rate band by the grossed up equivalent of the payment. This means that more tax is paid at the basic rate and less is paid at the top rate.

Filing of return and payment

2007/08 personal tax return is due to be filed by 30th September 2008 if filed via a paper return or 31st January 2009 if filed electronically. The penalty for late return is £100 (or the tax due, if less)

2007/08 tax payable:

• tax on employment income paid under PAYE each month
• basic rate liability on savings and dividends usually settled by receiving the income net of tax paid or credited
• balance of tax due under self assessment (SA):

Missing any payment dates leads to interest; missing the balancing payment date by 28 days will lead to a 5% surcharge and a further 5% surcharge if not paid by 28th August.

Main Personal Allowances 

Age Allowances

* Born before 6th April 1935

If the taxpayer's total income exceeds the income limit (extended for gift aid and pension contributions), the age related allowances are reduced by £1 for every £2 of excess income. This is applied first from the Personal Allowance until the minimum is reached, then from the Married Couples Allowance until the minimum is reached.

Please note that the Married Couple Allowance is applied by way of a tax reduction and relief is granted at 10%.

Main Personal Reliefs

Rent-a-room exemption

For letting out part of the taxpayer's only or main residence, you may receive gross income of £4,250 per annum.

Gift aid

On a cash gift to charity, the charity can reclaim 22/78 (28.2%) of the donation from HMRC if the donor makes a declaration. The donor increases the basic rate band by the gross gift (100/78). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received.

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Business Tax

Businesses in general pay PAYE in respect of their employees and Value Added Tax (VAT) on turnover if they are required to be registered for that tax. Unincorporated businesses (sole traders and partnerships) pay Income Tax and National Insurance (NIC) on their profits. Companies pay Corporation Tax on all their profits including capital gains, against which, unlike individuals, they have no annual exemption.

Capital allowances

Major changes have been made to the capital allowances system which took effect on 1st April 2008 for companies and 6th April 2008 fo rsole traders and partnerships. The major changes are listed below: -

Special Pool

A special pool has been introduced for building integral features such as electrical and water systems, lifts, escalators and walkways. The special pool will also be used for long life plant. A writing down allowance of 10% will be available.

Writing Down Allowance

The writing down allowance on plant and machinery and cars is reduced from 25% to 20%.

Industrial and Agricultural Building Allowances

These are being phased out over the three years to 31st March 2011 by a staged reduction in the writing down allowances

Enterprise Zone Allowances

These will continue to be available until 5th April 2011 but will then be abolished.

Low Emission Cars

These will continue to attract a 100% first year allowance until 2013.

Annual Investment Allowance

An annual investment allowance of £50,000 is available to all businesses. In effect a 100% allowance will be available on additions to the general and special pools (but not on cars) of up to that level.

Small Pool Balances

As soon as a general or special pool reduces to a level of £1,000 or below it will be possible to write it off completely.

The main rates of capital allowances are set out below: -

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Corporation Tax

The rate of tax depends on the total profits of the company, but marginal relief is available where the profits fall within particular bands. The effective rate of tax within the band is shown in the table.

The bands are adjusted for associated companies and for accounting periods of less than 12 months.

Payment and filing

Companies which do not pay at the full rate (ie profits below £1.5m) settle their CT liability 9 months and a day after the end of the accounting period.

Large companies generally make payments on account of CT 6.5 months, 9.5 months, 12.5 months and 15.5 months after the start of a 12 month accounting period, with interest running until final settlement of the period's liability.

All companies file returns 12 months after the end of the period.

Taxation of dividends

Companies are not charged to CT on dividends received from other UK companies. Individuals and trusts receive dividends with a 10% 'tax credit'. The dividend plus the tax credit (100/90 of the amount received) is treated as taxable income, and the 10% tax credit settles some or all of the tax liability. But a taxpayer with no liability cannot obtain a repayment of the tax credit from the Revenue - it can only be used to settle liabilities.

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Capital Gains Tax (CGT)

A brief history leading up to the new rules

Capital Gain Tax (CGT) was first introduced in the UK on 6th April 1965. Until 1978 it was a fairly straightforward tax. No tax arose unless total disposal proceeds in a tax year exceeded £1,000. If they did, a single rate of 30% applied. The only minor complication was that gains arising before 6th April 1965 were exempt so in many instances a person making a disposal in the early years of this tax had to obtain a 6th April 1965 valuation.

In 1978 the £1,000 disposal threshold was replaced with an annual exemption linked to gains. Initially a lower rate of tax applied to gains marginally over the annual exemption and this was increased gradually so that the full rate applied to the whole of any large gain.

Over the years there were a number of further significant changes which are set out below.

1. In 1982 indexation was introduced to eliminate from the charge to tax any gain resulting from inflation.

2. In 1988 there was a re-basing to exempt from tax all gains arising before 31st March 1982.

3. In 1998 indexation was abolished and replaced with taper relief. Initially taper relief worked by reducing over a maximum of 10 years the gain chargeable when an asset was disposed of by reference to the length of time that asset had been held. The rate of taper relief was determined by whether the asset being disposed of was a business asset or non business asset.

4. Further changes to taper relief were made in successive years, reducing the period over which taper relief applies to business assets first to 4 years and then to 2 years. There were also a number of changes to the definition of “business asset” for taper relief purposes.

The result is that what started as a straightforward simple tax in 1965 had become by 2007 horrendously complex. A person disposing of an asset now has to take account of and consider in addition to the cost and disposal proceeds:

(a) the date it was purchased;

(b) if appropriate, the value of the asset on 31st March 1982 and 6th April 1965;

(c) whether the asset qualifies for business asset taper relief or not; and

(d) if so, whether that has been the case for the whole period that the asset has been owned.

The Chancellor saw a need for simplification and so in the 2007 Autumn Statement he announced that he would greatly simplify Capital Gains Tax. Under the new rules, which commenced on 6th April 2008, indexation and taper relief have been withdrawn and a single rate of 18% will be applied to all gains in excess of the annual exemption.

Of course, this simplification created winners and losers. Perhaps the most vociferous opposition came from the small business sector who saw this simplification as a doubling of the tax they would pay on selling their businesses. Faced with this pressure, in January 2008 the Chancellor made a concession by announcing that an “Entrepreneurs Relief” would be introduced which would apply to reduce gains on the disposal of business assets by four ninths to result in an effective tax charge of 10%. This relief is to come with a lifetime limit of £1 million per person.

The old rules (for reference only)

If the asset was owned before April 1998, the cost is adjusted for the effect of inflation up to that month before working out the gain. For assets bought since, the gain is generally the excess of proceeds over cost.

CGT is taxed, reported and paid in conjunction with income tax, and the details are given on Personal Tax.

Taper relief

For disposals since April 1998, gains are reduced according to the length of time for which the asset has been owned. Assets owned before April 1998 only count the complete years of ownership after 5 April 1998, plus one year for a 'non-business asset' which was owned on 17 March 1998.

Business assets (BA) have a more generous rate of taper relief:

• shares in a non-trading company, where the taxpayer is an officer or employee and they own 10% or less.
• any shares in unquoted trading companies.
• more than a 5% holding in quoted trading companies, or the taxpayer is an officer or employee.
• buildings let by a landlord to an unquoted trading company or unincorporated trade from 5/4/04.
• assets of an unincorporated business owned by a partner or sole trader.

The business asset rules were changed on 6th April 2000 and 6th April 2004 and any gain would therefore need to be apportioned and the relevant rules applied accordingly.

Non-business assets (NBA) include most non-employee quoted shareholdings and residential investment properties.

The percentages of a gain which is chargeable for disposals from 2007/08 onwards are:

Taper relief is calculated after applying all other reliefs (eg losses), apart from annual exemption. The effect of reducing the gain is sometimes expressed as a reduction in the rate of tax Ð the effective rate for a 40% taxpayer on a BA owned for two years is only 10%, because the gain is reduced to 25% of the full amount. The rate on NBA falls to 38% with 5% taper, 36% with 10% taper, etc.

Other major CGT reliefs

A number of types of asset are exempt from CGT, including chattels (tangible movable property) which are bought and sold for less than £6,000; cars; and the taxpayer's only or main residence. A taxpayer with more than one residence can choose which is to be exempt, but it is not possible to apply the exemption to an investment property which is rented out.

Gifts to charity are not charged to CGT, and gifts of quoted shares and land also enjoy an income tax relief (see Personal Tax).

Deferral of gains

Deferral is allowed on some types of reinvestment, such as subscription for new Enterprise Investment Scheme (EIS) shares.

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National Insurance (NIC)

For employees' NIC, see Employee Tax.

Self-employed people pay:

• weekly Class 2 contribution of £2.30, unless they claim exception for small earnings (below £4,825).
• Class 4 NIC at 8% of taxable profits between £5,435 and £40,040. Profits over £40,040 will be charged at 1%. This is assessed and paid with the self-assessment income tax on profits.
• Class 3 voluntary NIC may be paid at £8.10 per week by someone who is not in work but who wishes to maintain state pension rights.
  

Annual limits

Someone who is both employed and self-employed will pay Class 1, Class 2 and Class 4 NIC. It is possible to apply for deferment of Class 4, and sometimes Class 2 as well, so that the Class 1 paid on earnings can be taken into account. Class 4 will then be charged at only 1%, and the overall liability will be settled at a later date.

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Value Added Tax (VAT)

Rates of tax

The standard rate of VAT remains 17.5%, or 7/47 of the consideration received for making a supply.

A lower rate of 5% (or 1/21 of the gross receipt) applies to supplies including domestic fuel and power, installation of energy saving materials in houses, and some conversions of residential property.

A zero rate applies to a range of supplies including most food, books, new houses, and children's clothes.

Certain other supplies are exempt, which means no tax is charged to the customer, but the supplier cannot recover VAT on costs. These include many land-related supplies, insurance, finance, education, health and welfare, and non-profit sports clubs.

Thresholds

An unregistered business must register if it has made £67,000 of taxable supplies in the last 12 months, up to any month end, or if it expects to make £67,000 of taxable supplies in the next 30 days.

A registered business can deregister if it can satisfy Customs that taxable supplies in the next year will not exceed £65,000.

Small businesses with taxable turnover of up to £150,000 can opt to use the new 'flat-rate scheme'. A single rate, which varies with the type of business, is applied to all receipts, and no VAT is claimed on costs. The single rate is lower than 7/47 to compensate for lost input tax.

Small businesses with taxable turnover of up to £1,350,000 can use the cash accounting scheme (only paying VAT to Customs when customers have paid).

Scale charge for private use of fuel paid for by business
 
New VAT fuel scale charges (which charge VAT on the private use of road fuel provided by employees) will be introduced. The charges will be based on the CO2 emissions ratings of the vehicle rather than the engine size. There will now be 21 'bands' of charges with a much greater range between the highest and lowest charges. The new fuel scale charges take effect from the start of the first VAT accounting period commencing on or after 1 May 2007.

Returns and payments

Most VAT returns are prepared for three-month periods, and they are due (with any payment) by the end of the next month.

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Inheritance Tax (IHT)

Rates

The nil rate band for cumulative chargeable transfers in the last seven years is £312,000 for gifts from 6 April 2008 onwards. Gifts above that are charged at the following rates:

Payment

IHT on a deceased's estate and on gifts within 7 years of death is generally payable at the end of six months after the month of death, but it must be paid before probate is granted, and this may necessitate earlier settlement.

IHT on lifetime gifts is generally payable on the later of six months after the month of transfer or 30 April in the next tax year.

Major reliefs

The following transfers are exempt from IHT:

• the first £3,000 gifted in a tax year (unused limit may be carried forward for one year)
• small gifts of up to £250 to one person in a year
• normal expenditure out of income
• gifts between husband and wife, unless the donor is domiciled in the UK and the recipient is not in which case transfers are only exempt up to £55,000.
• gifts between individuals more than 7 years before the donor's death (until the donor dies such gifts are left out of account as 'potentially exempt').
• gifts in consideration of marriage - £5,000 from a parent, £2,500 from a grandparent or a party to the marriage, £1,000 from others.

Most business and agricultural property enjoys a 100% relief once it has been owned for two years, although some types of property are relieved only at 50%, and it is important to meet all the conditions.

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Trusts

Trusts are liable to income tax on income and CGT on gains for each tax year. The trustees are responsible for filing self assessment tax returns by the normal date (31 January 2009 for 2007/08), paying the tax on the normal dates (payments on account of income tax on 31 January 2008 and 31 July 2008 and the balance of income tax and the whole of the CGT on 31 January 2009).

The tax rates applicable to trusts are:

The CGT annual exemption is divided between trusts established by the same settlor since 1978, to a minimum of £820.

Trusts are also liable to pay inheritance tax in a variety of circumstances, and trustees should make sure that they have appropriate professional advice to enable them to fulfil all their legal and fiscal responsibilities.

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Employee Tax

Tax rates and payment

Employment income is charged to both income tax (as 'general' income) and to Class 1 National Insurance Contributions. Tax and NIC are normally paid by the employer through the PAYE system, but an employee whose tax is not fully paid should complete a tax return and settle the liability as described on Personal Tax.

If the tax underpaid is up to £2,000 and the 2007/08 tax return is submitted by 30 September 2008, the underpayment can be settled through PAYE for 2009/10 rather than being collected on 31 January 2009.

Class 1 NIC rates 2008/09

Employers and employees both contribute. Employee contributions used to be capped at the upper earnings limit, but a new charge of 1% will now apply to all pay above the primary threshold.

LEL = Lower Earnings Limit
PT = Primary Threshold
UEL = Upper Earnings Limit

No NIC is payable by employees or employers on earnings up to the PT.

Earnings between the LEL and the PT must be reported by the employer, and the employee receives credit towards the State Pension, but no NIC is payable.

Employer rates of NIC on earnings above the PT depend on whether the employee is within the State Second Pension (S2P), or whether the employer has 'contracted out' using a final salary (FS) or money purchase (MP) scheme.

FS = Final Salary Scheme
MP = Money Purchase Scheme

Contracting-out employers receive a special rebate on earnings between the LEL and the PT.

A person with more than one employment can defer the payment of some employee NIC until after the end of the tax year, when the total amount payable can be checked and limited so the full 11% rate is only applied to income between the PT and the UEL.

Benefits in kind

Benefits in kind are usually valued at a 'cash equivalent' and are then charged to income tax on the employee and Class 1A NIC (at 12.8%) on the employer. The cash equivalent is generally based on the cost to the employer of providing the benefit, but the following are charged according to a statutory formula.

Cars

Cars provided by the employer: a percentage of the original list price of the car, depending on the CO2 emissions rating of the car.

For non Euro IV / Euro 4 compliant diesel cars add 3% (min. is 18%, max. still 35%). There is no discount for the level of business mileage or the age of the car, but deduct employee contributions for private use.

Exact CO2 figure is always rounded down to the nearest 5g/km, e.g. CO2 emissions of 188g/km are treated as 185g/km.

Qualifying Low Emissions Cars (QUALECS) - Effective from 2008/2009 onwards - A car first registered on or after 1st January 2008 with a CO2 emmission not exceeding 120g/km (no rounding permitted) for 2008/2009 a rate of 10% will apply.

Fuel

Fuel provided by the employer for private use in a company car is charged without reduction for contributions unless all private fuel is paid for by the employee.
To calculate the taxable amount the percentage used to calculate car benefit is applied to a standard figure of £14,400.

Vans

From 6 April 2007, the scale charge will increase to £3,000 irrespectable of the age of the van. An additional fuel charge of £500 will also apply for unrestricted private use.

Loans of money

Loans of over £5,000 are charged on the excess of the official rate (6.25%) over any interest actually paid by the employee to the employer.

Use of assets

This is charged at 20% of the original cost of the assets to the employer, or the value when first made available to the employee, less any amount paid by the employee for private use.

Main exempt benefits in kind

Many benefits in kind are not charged to tax. A full list cannot be given here, but some of the principal ones are:

• providing a mobile phone, even with private use (but paying the bills on the employee's own phone remains chargeable)
• the provision of 'green transport' such as works buses or the use of a bicycle for commuting.

 Exempt mileage allowances: employee's own car

Exempt fuel-only allowances: company car

Other exempt payments to or for employees

• mileage allowances of up to 24p per mile for business use of the employee's motorcycle or 20p per mile for a pedal cycle.
• contributions to approved pension schemes
• payments of up to £5 a night when staying away for 'personal incidental expenses' (£10 if abroad).

Employee share schemes

Generally, employees are charged to income tax on the value of shares that they are given or issued by their employer, less any amount paid for the shares. This applies to 'free shares' and to shares acquired under option schemes. NIC is also charged if the company is quoted, as the shares can be easily sold.

If the employer operates one of these 'Revenue-approved' share schemes, the tax charge may be eliminated, reduced or deferred.

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