One thing most people would agree on is tax is complicated. The detail of tax is where people will disagree and politicians spend an awful lot of time debating, amending, rewriting and tinkering with tax laws.
An aspect or idiosyncrasy of the personal tax system is the oddity that exists on personal income between £100,000 and £121,000 where income between these bands is taxed at a marginal rate of 60%.
Obviously this is nonsense as everyone knows the top rate of personal tax is 45% which starts on income of over £150,000. But what happens when your income reaches £100,000 the Government starts to restrict your personal allowance which reduces down to zero when your income reaches £121,000.
How this situation ever came to exist is anyone guess, but to someone looking in, it would seem like it was an idea raised in a discussion focus group that went too far without somebody looking at how the numbers feed through, because its hard to believe anyone wanted the highest marginal rate of tax to be in a band between £100,000 and £121,000 as band rates are generally progressive in nature.
A last minute reminder for 13/14 personal tax year. The personal tax year ends on the 5 April 14, if you have not already done so, then you should consider making use of your ISA allowance before it is too late.
You should of course also review any previous ISA investments regularly to ensure you are getting the best returns for your investment. It is generally possible to transfer your ISA’s to a new cash or investment ISA.
Working in tax for longer than I am prepared to admit, the one constant is change, and increasing complexity. Many Governments have been and gone, promising simplification of the taxation system and the reality has been the opposite.
You can debate the moral implications of any tax change, and with the changes in child benefit which came into force on the 7th January 2013 will be one of the most heated, the merits of which will have been debated over many a Christmas dinner table.
Commentators have estimated the changes will affect over one million families in the UK.
What can not be debated is the change in the rules has created an unnecessary complex system for tax payers, the real beneficiaries of which are the Government with their reduced payments to claimants. Tax advisers and accountants those who can advise on it, and complete the additional self assessments for people who are in the £50,000 to £60,000 tax bracket and continue to receive child benefit, will have more work due to the change.
You may be liable to this new tax charge if you, or your partner, have an individual income of more than £50,000 and one of you gets Child Benefit. Once a parent earns above £60,000 the benefit is totally withdrawn and it is proportionately withdrawn between £50,000 and £60,000.
It is estimated there will be about half a million people in this bracket who will now need to complete a self assessment tax form to continue to receive child benefit.
The biggest losers will be London and the South East of England.
If your individual income is more than £50,000 and you, or your partner, choose to carry on getting Child Benefit payments, you will need to declare these payments by registering for Self Assessment and filling in a tax return. Find out more about who should declare, how and when.
You will be responsible for declaring the Child Benefit if either of the following applies.
If your partner’s income is more than £50,000 and your income is less than theirs they will be responsible for declaring the Child Benefit you receive.
You will need to declare the Child Benefit by filling in a Self Assessment tax return.
You will need to declare the amount of Child Benefit you, or your partner, are entitled to receive for that tax year providing your individual adjusted net income is more than £50,000.
If you or your partner are affected by the High Income Child Benefit charge and have decided to stop Child Benefit payments, there’s an online form to make your request. Only the person who is entitled to the Child Benefit payment can stop the payments. the payments.
If you or your partner has income over £50,000 talk to your Sherwin Currid Accountant who will be able to assist you in your best course of action.
Freelancer Accounting by Sherwin Currid Accountancy assists freelancers and contractors in London and the South East with their taxation and accounting requirements.
Benjamin Franklin’s famous quote ‘ in this world nothing can be certain but death and taxes’ is often quoted by people to highlight how it is impossible to escape taxes, they will always catch up with you, like death.
But avoidance of taxes is big business, and always makes for an interesting story in the press with celebraties such as Norman Wisdom, Ken Dodd, Jimmy Carr and Gary Barlow, all attracting unwanted column inches around their tax affairs.
Like most things in the history of our planet, Income Tax is a modern invention being introduced in Britain by William Pitt the Younger in his budget of 1798 to pay for the Napoleonic Wars. Income tax started at 2% and increased to a maximum of 10% and it stayed in pleace until 1802 when it was abolished and it raised around £6m for the war effort.
Income tax was reintroduced on a permanent basis by Sir Robert Peel in the Income tax Act of 1842 and has remained ever since.
The government has tweeked the rates over the years to provide stimulation for the economy or to cover deficits in spending wiht the highest recorded rate of income tax being in the Second World War at 99.25% currently (2012) the rate is 50%, 45% from 2013.
Of all the taxes collected by HMRC it is generally the largest revenue collector, amounding for around 1/3 of all taxes collected around £150bn per annum.
If you have UK source income then the answer is generally yes, there are a few exceptions such as the private arrangements the monarchy has with HMRC or if you are a charity, but in general Benjamin Franklin had in right in his quote ‘ in this world nothing can be certain but death and taxes’.
If you have any questions around your income tax, freelancer accounting is a leading provider of accountancy and taxation services to freelancers and contractors in London and the South East of England, and we would be delighted to talk with you.