Tax Tips for Individuals
1. Make sure you claim the children’s tax credit.
2. Consider taking a salary increase instead of the company car, then using your own car for business and claiming mileage.
3. If your employer is not paying you the full 40p per mile, then claim the difference on your tax return.
4. If you don’t like paperwork, then go to www.inlandrevenue.gov.uk and register to prepare your own tax return using the internet service or contact an accountant who is registered for agent efiling.
Tax Tips for Businesses
1. If you are not already benefiting from the low corporation tax rates, then consider forming your own limited company now. Trading through a limited company could save you over £3,000 per year. Small Businesses
2. If you spend more than £25,000 a year on research and development, then make sure you or your accountant are claiming the research and development tax credit.
3. If you don’t like paperwork, then look into the VAT Flat Rate Scheme.
For next year (i.e. from 6 April 2003) National Insurance will increase from 10% to 11% for earnings up to the upper earnings limit (currently £30,420) and from 0% to 1% for earnings above this amount.
Tax Rates and Allowances
The personal allowance is increased from £4,535 in 2001/02 to £4,615 for 2002/03 and 2003/04. The 10% band is increased from £1,880 to £1,920. The starting point for the 40% band is increased from £29,400 to £29,900.
Children’s Tax Credit
For 2002/03 the children’s tax credit is increased from £5,200 to £5,290 and a new baby rate of £10,490 is introduced. This results in tax reductions of £10 per week or £20 a week for a baby.
Working Tax Credit
This now provides a guaranteed minimum income from
full-time work of £183 for couples and £154 for single people and aims to
ensure that a couple where one partner works are £50 a week better off than if
neither partner worked.
New rules for company cars which came into force on 6 April 2002. These rules encourage more environmentally friendly car use by giving a discount for cars with low emissions and no discount for high business mileage. The tax charge is now based on the list price of the car and its fuel emissions. The fuel emissions for different cars can be found at www.vcacarfueldata.org.uk
This is good news for drivers who do low business mileage in small cars.
It is bad news for drivers in large cars who used to do high business mileage.
If you have a large company car and used to do over 18,000 business miles per annum, then your tax bill for the company car is going to more than double.
A company van might be worth considering as the benefit in kind charge on a van is still only £500 per annum.
Simplified Business Mileage Rates
The new Inland Revenue mileage rates for business trips done in a private car have also been changed to encourage smaller cars. The new rates, which do NOT depend on the type of car you are driving are :
40p per mile for the first 10,000 miles in any tax year
25p per mile thereafter.
If you are claiming business mileage then make sure that your insurance covers you for business trips.
Internet Filing of Tax Returns
For the last two years the Inland Revenue has run an internet tax return service. The service has been improving and this year could see it really take off.
Accountants can now e-file tax returns on behalf of their clients. The taxpayer only needs to sign an approved summary of the tax return. The internet service will reduce costs both for accountants and for the Inland Revenue. I would expect to see prices for electronically preparing and filing simple tax returns fall to as low as £50 - £100.
From 2003/04 gift aid donations can be carried back into the previous tax year.
Gift Aid is being extended to cover donations to amateur sports clubs.
New Corporation Tax Rates
For a limited company the first £10,000 of profits are taxed at 0% (i.e. NO TAX). The next £40,000 are taxed at 23.75% and then the next £250,000 are taxed at 19%.
For a sole trader the first £4,615 is tax free. The next £1,920 is taxed at 10%. The next £27,980 is taxed and 22% and anything above that is taxed at 40%. In addition class 4 National Insurance is charged at 7% on profits between £4,615 and £30,420. For 2003-04 this will rise to 8% and 1% will be charged on earnings above the upper limit.
Research & Development Tax Credits
Since April 2000, small and medium sized companies spending over £25,000 on research & development (r&d) have been able to claim tax credits on most of their r&d expenditure. In some cases a tax refund of 24% of r&d spending can be obtained. Qualifying expenditure is salary costs, consumable stores and 65% of payments for sub-contracted r&d work.
This scheme has now been extended to large companies.
Subsidised Bus Travel
Where an employer
pays a subsidy to a local bus company, employees can be carried free or pay
reduced fares without creating a tax and national insurance contributions (NICs)
With this exemption
and the new company car tax regime, some companies may start offering bus passes
instead of company cars.
Limits for operating PAYE
The threshold for tax and National Insurance has been increased from £87 per week to £89 per week (or from £378 to £384 per month).
Employer’s National Insurance
From 6 April 2003 employer’s National Insurance will increase from 11.8% to 12.8%.
VAT Flat Rate Scheme
A new scheme is now available to businesses with taxable turnover of up to £100,000 per annum. Under the scheme, a business would complete its VAT Returns by taking turnover and multiplying by an agreed percentage and that’s it.
No analysis of VAT on purchases is required.
Enhanced Capital Allowances for Energy Efficient Equipment
100% capital allowances are available for certain items of plant and machinery, including cars with fuel emissions of not more than 120gm/km CO2.
See www.eca.gov.uk for details.
COMMUNITY AMATEUR SPORTS CLUBS
The main reliefs, available from April 2002 are:
· Fundraising income up to £15,000 exempt from tax;
· Income from interest exempt from tax;
· Rental income up to £10,000 exempt from tax;
· Disposals exempt from capital gains tax;
· Gift aid on individual donations;
· Inheritance tax relief on gifts;
· Gifts of assets on no-gain, no-loss basis for capital gains;
· Business relief on gifts of trading stock.
To benefit, sports clubs must be open to the whole community, organised on an amateur basis, and their main purpose must be to provide facilities for, and promote participation in, an eligible sport. Eligible sports will initially be defined with reference to those recognised by national Sports Councils.
THIRD WORLD ISSUES
In February it became a criminal offence for a UK citizen to bribe a foreign official.
From 1 April 2002 bribes are not tax deductible.
Drug Research Into Third World Diseases
Expenditure on research into TB, malaria, HIV and AIDS qualifies for an extra 50% deduction for corporation tax purposes.
Corporate Donations of Medical Supplies & Equipment
The new relief will enable companies to donate medical
supplies or medical equipment for humanitarian purposes to recipients that are
not UK charities without incurring a charge to tax. Companies will also be
entitled to deduct the cost of transporting, delivering or distributing goods
donated for humanitarian purposes within or outside the UK.
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Last modified: November 28, 2006