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Tax Fact from Fiction. 24/10/11

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Tax Tip

Tax Fact from Fiction. 24/10/11

Did you hear about the one………………..?
Or
Once upon a time………………………………?

That’s how most stories and jokes start. However, Tax Returns are not funny, but there are a lot of stories that are circulating that would win the Man Booker Prize for fiction.

Here are a couple that we have been asked about as to whether they a true or false.

If I get paid in cash, then it’s not taxable, is it?

Actually, it is. The Black Economy is still a big problem for The Tax Man, and there are stringent penalties (even prison) for anyone found wilfully cheating on the rules. It is the responsibility of ALL businesses to keep accurate records of your financial transactions and affairs - this applies to all businesses even one-man-bands.

If the Inland Revenue issued me with a tax code. It must be correct!

Absolutely not. See our Tax Tips http://www.netaccountants.net/tax_tips/tips.php?ID=87
Make sure that any tax code you have is checked off against the form P11D and the leaflet that came with it. Even if your information was given in correctly, it could easily have been lost among the millions of other PAYE codes.

You can always rely on the Revenue to pay back any overpaid tax?

Under the PAYE system, if you have no other source of income, it should happen automatically. Complications arise where Investment Income (taxed at a different level) and Pensions (especially if from several sources) occure. In this position you will have to complete a form R40 or an individual Tax Return.

If I give money to my children and I can escape the tax?

As a parent if you give money to a child then if the interest earned exceeds £100, it is treated as being the parent's income and not the child's. However, a grandparent can give away money without the same problem occurring. Watch out for inheritance tax (IHT) though; some gifts will be exempt, but larger amounts may create an IHT problem.

Money kept overseas is not taxable?

Oops! This is a big one. For most people living in the UK, even if the account is in the Channel Islands, it is taxable. HMRC are looking much more closely at overseas bank accounts and domiciliary qualifications as a source of lost revenue. You have been warned.

Children are not taxable.

It doesn’t matter how old you are, the tax Man can still get you. In the majority of cases, however, there won't be any tax to pay since the personal allowance allows each person this much income before they start paying tax. (2010-11 of £6,475 and for 2011-12 it is £7,475).

The State Pension is not taxable.

Oh yes it is. But only if you have other sources of income which cause you to exceed the personal allowances. If this is the case, it may well be that your tax code has been adjusted for the state pension.

If I let a room, the income is not taxable.

If you let a furnished room or rooms in your own home (excluding a room
used exclusively as an office) and your total income was less than the Rent a
Room exemption of £4,250 then no tax is liable. However, you should also include any income from additional services you provide.
 
There are separate rules and regulations for furnished holiday lettings.

If you need any help and advice with your Tax compliance, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help in all your financial planning and business advice.


ABDS of Southampton For all of your Personal and Corporate Tax Planning.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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