Year End Tax Planning
Few avoid working for others at some time in their life and most will have encountered the PAYE system operated by employers to collect the income tax and national insurance contributions (NIC) due on wages and salaries and to collect the tax on benefits.
The tax code
Ensuring the right amount of tax is taken relies on a PAYE code, issued by HMRC and based on information given in a previous self assessment return or supplied by the employer. The employee, not the employer, is responsible for the accuracy of the code.
Code numbers try to reflect both your tax allowances and reliefs and also any tax you may owe on employment benefits. For many employees things are simple. They will have a set salary or wage and only a basic personal allowance. Their code number will be 944L (1000L) and the right amount of tax should be paid under PAYE. For those who are provided with employment benefits or have more than one job and/or receive pension income, the code number is generally adjusted to collect the tax due, so that there are no nasty underpayment surprises.
HMRC may also try to collect tax on untaxed income or tax owing from an earlier year. The code may even try to allow for higher or additional rate tax that has to be paid on investment income. With so many complications and some guess work involved, getting the code exactly right can be difficult and the right amount of tax will not always be deducted.
If you are unsure about your code and are anxious not to end the tax year under or overpaid, then you should have it checked. Please talk to us.
Cars and Fuel
Employer provided car benefits are calculated by reference to the CO2 emissions and the car's list price. The level of business mileage is not relevant. The greener the car, the lower the percentage charge. No benefit currently applies for an electric car with other cars attracting a benefit charge ranging from 5% to 35% of the list price of the car.
Check your position to confirm that an employer provided car is still a worthwhile benefit. It may be better to receive a tax free mileage allowance of up to 45p per mile for business travel in your own vehicle. If an employer provided car is still preferred, consider the acquisition of a lower CO2 emission vehicle on replacement to minimise the tax cost.
Where private fuel is provided, the benefit charge is also based on CO2 emissions. We can review your procedures to ensure no unnecessary tax charges arise.
Cheap or interest free loans
If loans made by the employer to an employee exceed £5,000 at any point in a tax year, tax is chargeable on the difference between the interest paid and the interest due at an official rate - currently 4%. An exception applies for certain qualifying loans - please contact us for information.
The limit on tax free loans is to rise to £10,000 from April 2014. This is an attractive perk for many employees.