July, 2011

How To Get A Copy Of Your P60

One of the most important tax forms that you will need is your P60.  Your P60 summarises your pay and the tax that you have paid in a particular tax year.

Our guide looks at what your P60 is for, when you should receive one and how to get a copy of your P60.

What is your P60 and when do you receive it?

Your P60 is a form which shows your total earnings from a job or pension in the previous tax year.  It also shows how much tax you have paid.  If you have several jobs or pensions then you should receive a P60 for each of them.

You should receive a P60 at the end of every tax year – usually around April or May.  You are entitled by law to receive a P60 from your employer if you are still working for them at the 5th April.  Ask your employer to provide you with a P60 if you haven’t received one.

What you need your P60 for

There are various reasons that you may need a P60:

  • To apply or renew tax credits
  • To claim a tax rebate
  • To complete your self assessment tax return

Many banks and building societies also request your P60 when deciding whether to agree a loan or mortgage application.

Paper and electronic P60s

From the 2010/11 tax year your employers can provide your P60 on paper or electronically.  You will have to give your consent to your employer to receive an electronic version as you must have the ability to securely view and print a copy.

Getting a copy of your P60

If you have lost your P60, you should first approach your employer to ask them if they can provide you with a copy.

Employers are obliged to keep records of pay for three years and so they should be able to provide you with a copy of your P60 for the last three years.  The P60 will be clearly marked as ‘duplicate’.

HM Revenue and Customs (HMRC) cannot provide a duplicate of your P60.

If you need a copy of your P60 from more than three years ago, it is unlikely that you will be able to get one.  Your employer may be able to provide you with a ‘statement of earnings’ on company headed paper which should act as a replacement for a P60.

Alternatively, you should contact your Tax Office.  Your tax office will be able to provide you with alternative, official information regarding the amount of tax that you paid.

What percentage of tax do I pay?

What income tax rate do you pay?

As the name suggests, income tax is a tax on your income.  However, not everyone pays income tax and not all income is taxable.  And, different rates of tax apply depending on the amount of money that you earn.

Our guide looks at the different tax rates in the UK and answers the question ‘what percentage of tax do I pay?’

When you pay 0% tax

Almost everyone in the UK who is resident for tax purposes is allowed to earn a certain amount each year without paying any tax.  This is called your’ personal allowance’.

In the current tax year (2011/12), the basic Personal Allowance – or tax-free amount – is £7,475.

This means that you will pay 0% tax on the first £7,475 of your earnings.

If you’re aged 65 or over, registered blind or married (assuming one of you was born before 6 April 1935) then you may also be able to claim additional allowances.  This will increase the amount of income that you can earn before you start paying tax.

When you pay 20% tax

You only pay income tax on taxable income that’s above your tax-free allowances.  So, if your total earnings are less than your personal allowance, you’ll pay no tax.  If you earn more than your personal allowance (for most people this will be £7,475) then you will pay some tax on your earnings above this amount.

The ‘basic rate’ of tax in the UK is 20%.

You pay 20% tax on the first £35,000 of your taxable income.

When you pay 40% tax

If you earn more than your personal allowance plus the limit for the ‘basic rate’ of tax then you will begin to pay ‘higher rate’ tax on any earnings over this amount.

For example, if you earn £50,000 in tax year 2011/12 and you have the basic personal allowance, your tax rates will be:

  • £0 – £7,475 – 0% (your personal allowance)
  • £7,475 – £42,475 – 20% (‘basic rate’ – on the first £35,000 of your taxable income)
  • £42,475 – £50,000 – 40% (‘higher rate’ – on your taxable income over £35,000)

When you pay 50% tax

If you are a high earner, then part of your income may be taxed at the ‘additional rate’ of 50%.  50% tax is charged on any taxable earnings over £150,000.

Other rates

Bear in mind that other rates of tax apply to different types of income.  For example, savings interest and dividends are taxed at different rates.

A worked example

You are 35 years old, have £25,000 of taxable earnings a year and you are eligible for the full personal allowance.  The percentage of tax you pay is:

  • £0 – £7,475 – Nil
  • £7,475 – £25,000 – 20% (equivalent to 20% of £17,525 = £3,505)

Tax when leaving the UK

Thousands of people leave the UK every month to live or work abroad.  In 2010, BBC’s Newsnight reported that a staggering 450,000 emigrate from the UK each year to set up a new life overseas.

If you are planning to work or live abroad, you may well become a ‘non-resident’ in the UK.  This means that you may stop paying UK income tax on your earnings, although you may continue to have a tax liability if you continue to receive any income in the UK.

Our guide looks at how your tax is affected when you leave the UK.

When do you become ‘non resident’ for UK income tax?

You will be treated as a ‘non resident’ for tax purposes from the day after you leave the UK.  However, you must demonstrate that:

  • You left the UK permanently or for at least the entire tax year
  • Your visits to the UK are less than 183 days in a tax year and average below 91 days over a maximum of four consecutive years

What you have to do when you leave the UK

If you are emigrating or planning to leave the UK you must inform HM Revenue and Customs (HMRC).  If you are not required to complete a tax return you will be obliged to complete the form P85 Leaving the UK – Getting Your Tax Right.  You will also have to enclose parts 2 and 3 of your P45 if you have one.

HMRC will consider the information on this form and will work out if you will become non-resident.  They will also send you any tax rebate that you are owed.

What if part of your work is in the UK?

You may move abroad but part of your work remains in the UK.  In this case, you will continue to pay UK income tax on your earnings from the work you do in this country.  This is normally done by allocating your earnings based on the number of days you work in the UK and the number of days you work overseas.

What if you have other UK based income?

Even if your work is outside the UK, you may continue to earn money in the UK through savings, pensions or property.  In these scenarios, you may still have to pay some UK income tax.

For example, if you are ‘non resident’ you will still pay tax on your savings interest.  UK tax will also be due on income from a rental property and on your UK pensions.

If you have any other questions, watch the short explainer video below or alternatively ask a question in the comments and we’ll personally answer it:

 

 

Income tax in UK ‘may have to rise by 12p in the pound’

A new report has found that the income tax rates in the UK may have to rise by a staggering 12 pence in the pound over the next few decades in order to keep Britain’s public finances at a sustainable level.

The UK’s debt is currently at more than 60 per cent of national income, compared to the 40 per cent level that is considered ‘safe’ for a solvent economy.  Spending cuts in excess of the Government’s current plans and tax rises are seen as the only way to cope with the aftermath of the global financial crisis and the challenges of an aging population.

Income tax needs to rise by 12p in the pound to plug hole in finances

The report from the Office of Budget Responsibility (OBR) – an independent think tank set up by Chancellor George Osborne – has painted a nightmare picture for the UK economy.

An aging population in the UK is pushing up the costs of pension and healthcare, meaning that in fifty years time over a quarter of the UK population will be over the age of 65.  The cost of pensions and healthcare will rise to £80 billion by the year 2061 meaning that unless the NHS becomes significantly more efficient, the Government will have to raise an additional £57 billion every year in taxes.

As a 1p rise in income tax raises £4.6 billion, taxes would have to rise by 12p to bring down the UK’s debt to the levels last seen before the recession.

Robert Chote, head of the OBR, said: “The Government is likely to have to tax more or spend less elsewhere to keep the public finances on a sustainable path.”

In the short term, an income tax rise of 5p is considered the minimum amount that would be necessary to get the UK economy back on an even keel.  The OBR report said: ‘Under our central projections, the Government would need to implement a permanent tax increase or spending cut of 1.5 per cent of GDP (£22billion in today’s terms) in 2016/17 to get debt back to 40 per cent.’

The Daily Mail reports that ‘if ministers decide to put up taxes, this would equate to an increase of almost 5p on the basic and higher rate of income tax.’

Part of the problem over the next few decades will be caused by a reduction in some of the other tax revenues that the Government enjoys.  The OBR report pointed to the declining revenues from fuel duty as cars become more fuel efficient whilst tax revenues from tobacco shrink as less and less people smoke.

How Much Is Council Tax?

Council Tax applies to all domestic properties whether you own or rent your home.  Whether you live in a house, flat, mobile home, houseboat or bungalow, you will be required to pay Council Tax.

Council Tax is paid to your local council and goes towards funding local services such as police, libraries, refuse collection and the fire service.

In order to work out how much Council Tax you will pay, you will need to follow a three step process.  Our guide explains how you can work out what Council Tax you will pay.

Step One – Work out which valuation band you’re in

The main factor that determines the Council Tax that you will pay is the valuation of your home.  In England there are eight Council Tax valuation bands based on the value of your home on 1 April 1991.  Your Council Tax is not based on the current value of your home but on the value on this date.

In Wales, your home is put in one of nine valuation band based on the value in 2003.  There are also different valuation bands in Scotland.

The current valuation bands in England are:

  • Valuation band A – up to £40,000
  • Valuation band B – over £40,000 and up to £52,000
  • Valuation band C – over £52,000 and up to £68,000
  • Valuation band D – over £68,000 and up to £88,000
  • Valuation band E – over £88,000 and up to £120,000
  • Valuation band F – over £120,000 and up to £160,000
  • Valuation band G – over £160,000 and up to £320,000
  • Valuation band H – over £320,000

Step Two – Find out what your council charges for your band

Once you have established which valuation band your home is in, you can then approach your local council to establish their Council Tax rate for that band.

Each council decides on its own charging structure and the amount of Council Tax that you will pay will vary from council to council.

Step Three – Work out if you’re entitled to any exemptions

Once you have established what you will be charged for your home by your local council, you can then look at whether any discounts or exemptions to your Council Tax can be applied.

While a ‘full’ Council Tax bill is based on two or more adults living in a household, what you will pay depends on your personal circumstances.

For example, if you are the only adult living in your household you are entitled to a 25 per cent reduction on your Council Tax.  In addition, homes which are occupied only by students in full time education are generally completely exempt from paying any Council Tax at all.

There are a number of reasons why you may be eligible for a discount and you can contact your local council to find out more about these.

Your P45, P46 and P60 Explained

Your P45, P46 and P60 are the three most common tax forms you are likely to encounter.  Every employee is entitled to a P45 and P60 by law while you may also be asked to complete a P46 form when you start work with a new employer.

Our guide explains these common tax forms.

Your P45

You receive a P45 from your employer when you stop working for them.  It shows how much you have earned and how much tax you have paid in the current tax year.

A P45 form includes information such as:

  • Your tax code and National Insurance number
  • The amount you earned in the current tax year
  • How much tax your employer has deducted in the current tax year
  • The date you stopped work for that company

A P45 has four parts.  These are Part 1, Part 1A, Part 2 and Part 3.

Part 1 is sent to HM Revenue and Customs.  You receive the other three parts.  Part 1A is kept for your own records and parts 2 and 3 are given to your new employer (when you start a new job) or to the Jobcentre (if you are claiming Jobseeker’s Allowance).

Your P46

If you are starting your first job or if you are taking on a further job in addition to your present employment, you may not have a P45 form.  In this case, your new employer may ask you to complete a P46.

A P46 form includes information such as:

  • Whether you have another job
  • Whether this is your first job
  • Whether you have been claiming benefits such as Jobseeker’s Allowance

In order that your new employer can work out what tax code to apply – and therefore how much tax to deduct – it’s important that you complete a P46 form as soon as you can.

Your P60

At the end of every tax year you should receive a P60 form.  It is a summary of your pay in the previous tax year and any tax that has been deducted. It is a legal requirement that your employer provides you with a P60 if you were working for them at the end of the tax year (5th April).

You will need your P60 if:

  • You want to claim back any overpaid tax
  • You have to complete a Self Assessment tax return
  • You want to apply for tax credits

While most people receive a paper version of their P60, a company is now allowed to send an electronic version if you have given your consent to receive it in this format.  You must have access to secure facilities in order that you can look at your P60 and print a copy for your records.

Claiming Back Tax If You’ve Overpaid Through Your Job

Have you paid too much Income Tax?

If you are on the wrong tax code, you have more than one job or if you have changed jobs during the tax year you may well find yourself in a situation where you have paid too much income tax.

Our guide looks at when you might have paid too much tax and how you go about claiming a tax refund.

Why you may have paid too much tax

There are lots of reasons that you may have paid too much income tax.  Some of the most common reasons are:

  • Your employer was using the wrong tax code (for more information on tax codes head here)
  • You have changed jobs and were on an emergency tax code for a period
  • You are a student, only worked during the holidays and didn’t complete the tax form P38S
  • You had more than one job
  • You were made redundant during the tax year
  • You were only employed for part of the tax year
  • Other income that you receive (rental income, savings/investment income) has reduced from previous years and you didn’t let HM Revenue and Customs know
  • You changed from full to part time work or you became self employed part way through the tax year

How to claim back overpaid tax in the current tax year

If you think you have paid too much tax in the current tax year, you can approach HMRC to claim your tax back.

If you are an employee, contact HMRC and tell them why you think you paid too much tax.  HMRC should have all the information to determine whether you have overpaid although they may ask you to forward additional documents to support your claim.

If you have overpaid, your tax code will probably be altered in order that any refund will be paid with your wages.

How to claim back overpaid tax in previous tax years

If you think you have paid too much tax in a previous tax year, you should again write to HMRC including any appropriate documentation, such as a P60 or P45.  Also include any relevant information about your employment history and any benefits that you may have received.

HMRC will investigate your query and, if you are due a tax refund, you will receive a cheque in the post.

There are time limits for claiming a tax refund if you’re employed.  You normally have four years from the end of the relevant tax year to submit a claim, although you have until 31 January 2012 to claim a refund from tax year 2005/6 and until 31 March 2012 to claim a refund for tax year 2006/7.