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An additional solution to our national debt

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The idea of a Withholding Corporation Tax to catch the multinationals which have been avoiding corporation tax has been discussed before.  But there is a further tax that needs to be considered that is both ethical and will help the economy recover more quickly.

We have seen the problems of high interest rates, particularly in the consumer market of credit cards.  Some of these have been charging over 30% interest – on what are essentially demand-driven loans.  Such lending is very profitable for the banks – default is about 1% and the bank doesn’t have to have all the money in the first place.

High interest is a tax on both business and consumer and the cause of bankruptcy or at least depressed economic activity.  If you have £500 a month interest to pay on loans, you can’t spend that money elsewhere.  If a business is being charged massive interest, failure will put people out of work and the net loss to the exchequer, including unpaid income tax and VAT, is enormous.

In other words high interest promotes recession and unemployment every bit as much as public sector cuts.  It is generally a cost on society which we all have to bear yet there seems little we can do about – the market, whatever that means – determines the interest we must pay.  Yet this enormous profitability to the banks from writing loans comes with no liability to pick up the pieces from failure.  Where people pay high interest, the banks walk away laughing and take no responsibility.  It is the taxpayer who coughs up.  Excessive interest charges by banks and other lenders is therefore toxic to an economy.  That must be wrong.

Just as governments try to ensure that the interest they pay in the bond market is minimalised, so every household and every business would like to do this but the market is unresponsive.  And even though interest rates a dropped a little from the Funding for Lending programme, this cannot be a long term solution and doesn’t appear to have affected the upper end of interest charged anyway.

Some countries – and in the United States, some states – have limits on the interest that can be charged.  While this may seem a good idea, it interferes with the market particularly near the cut-off point and corresponding pressure from the lending industry keeps that point higher than is really necessary.  It is therefore not suggested that bank interest rates are capped but that some of the excess interest is paid to reflect the cost to society.

So the idea is to impose an Excess Interest Tax.  Monthly mandatory reporting of the loan book to the central bank together with the interest rates, term lengths and general category as consolidated figures would result in a charge to be paid to the Exchequer.   For example loans written over a certain limit – say 10% (depending on the base and/or Libor rates) – maybe as much as 50% of the excess would be paid as a tax.  Above maybe 20% over BoE base/Libor, closer to 100% of that excess would be paid.  All sorts of sliding scales can be envisaged.

An Excess Interest Tax will help to pay for the consequences of high interest and may persuade the banks to lower their interest charges, which is a win-win situation.    The excess levels would not affect sensible rates – for example mortgages – and by setting different rates for different categories of lending, it will be possibly to direct lending towards small business for example or enable short term loans such as PayDay loans as long as they are not rolled over.

The income from an Excess Interest Tax could be considerable – as much as £30bn a year if the present loan levels are maintained – and as it would be payable to the government it would immediately help to reduce the deficit.  It will of course affect the Corporation Tax payable by banks but this is paid on a much wider range of profitable activities and anyway, it would be money in the Treasury’s pocket today rather than later on.

Taken with tackling the massive tax avoidance detailed in a previous article, as much as £55bn could be raised annually and if tax evasion were successfully tackled as well, a further £70bn could be raised.  The issue in the UK is not one of excess government spending – much of which like education and health care is actually a long term investment – but of government income.  It really isn’t rocket science.

Should you give up your Frappuccino? Tax avoidance in the UK

Before we go any further, I’ll have to say that I’ve never had a Frappuccino; or for that matter anything sold by Starbucks that is not a straight forward Espresso. For me Starbucks is the absolutely last option – I visit their coffee shops only when there is nothing else and I am really desperate. In 2012, I believe I went to Starbucks once and this was in Santiago, Chile – there was no other coffee shop in sight, you see.

This, however, is not about the quality of their coffee but the news item that hit the headlines about a month ago: Starbucks being the second largest global restaurant or coffee chain after McDonalds (don’t even get me started on the food that this one serves) and having operated in the UK since 1998 through 735 outlets has paid only £8.6 million in taxes (mainly because some deductions were not recognised). And you know what?

We in the UK have bought from Starbucks stuff worth over £3 billion ($4.8 billion) during this time.

This is what makes the headlines; and Starbucks are by far not an isolated case. Companies have been ‘named and shamed’ for tax avoidance in the UK with alarming regularity and frequency. There have been reports about other large multinationals like Facebook, Google, Apple and Vodafone ; then, of course there are also Boots and IKEA (though we should probably let Swedish people worry about the last one). The practice of tax avoidance seems to be rife; so should we care?

 

Anecdotally, existing reactions seem to fit between boycotting the companies and showing complete lack of interest. I have friends who over the years have stopped using Facebook, don’t shop any longer on Amazon (and all companies associated with it) and their shadows don’t darken the threshold of Boots. Which is a pity because, Facebook aside, by doing this their lives are gradually becoming unnecessary harder – they live in the country and having their books and movies delivered was rather handy.

Also, the other day I was listening to a programme on the radio and heard some random interviews with people regarding their reactions to Starbucks paying very little tax in the UK during the last 14 years. Whilst some people heroically stopped their daily visits to Starbucks (which is not good for your health or your wallet, btw) as a form of protest, others were very open about the fact that ‘they don’t give two monkeys’ about whether or not the chain pays tax in the UK or not.

So, let me put forward two kinds of arguments here: a) that we should care; and b) that it shouldn’t concern us. After that I’ll get back to the matter of whether you should give up your Frappuccino.

We should care

It seems to me that each and every one of us should care that large multinationals are avoiding corporation tax in the UK for pragmatic and ethical reasons.

Let’s discuss the pragmatic reasons first. Naturally, these are about money. Now, most, if not all, of the money that the government has comes from taxes. Data show that in the UK the highest proportion of the budget comes from income tax (29%), followed by national insurance (NI, 19%) and value added tax (VAT; 15%). Forth on this list is corporation tax – it constitutes about 9% of all taxes and is in the region of £50 billion.

Taxes feed the budget and pay for health, education, the universities (decreasing proportion), defence and infrastructure; not to mention the welfare state which is, I believe, one of the greatest achievements of the 20th century. It works a bit like your ‘home economics’, really – the more you bring in, the more you could spend on the services and goods you need. This, of course is assuming that governments don’t waste the money raised through taxation (which may be an assumption too far but this is a different matter).

Hence, corporations avoiding paying tax in the UK affects us directly by reducing ‘the income’ of government and how much it can spend on health, education, defence and the infrastructure. Relatively, the amounts may seem trivial but Vodafone arguably avoided paying over £6 billion in tax; can you imagine what this amount of money could have done for the nearly broke health service?

Moving to the ethical, we should care because not paying tax is wrong! As simple as that! This is not only a matter of law; there is basic human decency and responsibility involved as well.

Companies not paying tax in the UK shouldn’t concern us

I believe that there are three reasons why this shouldn’t concern us: a) tax avoidance is inherent to running a business; b) these companies contribute to the UK economy; and c) no law has been broken.

Running a business, a prosperous one, is about maximising profits and this goes hand in hand with minimising expenditure. Hence, avoiding tax is at the core of running a successful business. I may disagree on many issues with Boris Johnson but he nailed it when he said ‘I cannot exactly blame the finance directors of these companies for doing their job…their salaries and livings depend on minimising tax…’. Tax avoidance is part of the business!

Second, these companies may have succumbed to tax avoidance but they do contribute to the UK economy: they provide jobs thus saving on social security and increasing the income tax part of the budget.

And third, as Starbucks rightly pointed put when accused no law has been broken or regulation breached. These companies do act within the law.

How about this Frappuccino then?

The jury is out on the relative damaging effects that tax avoidance by large corporation has on the UK economy and our lives. What is important is that tax avoidance is ‘natural’ for any company aiming to maximise profits and the UK regulation allows such behaviour.

Giving up your Frappuccino is directed at the wrong party and is bound to have limited effect. It would be better to put pressure on the government to revisit the relevant regulation rather than attack companies and people who were doing their job; and doing it well.

I still think you should give up your Frappuccino but not to boycott tax avoidance! You should give it up to assert your good taste in coffee.

 

What Countries Have The Highest Tax Rates?

Do you live in a country that has one of the world’s highest tax rates?

Your ‘marginal’ tax rate is the rate of tax you pay on the last pound, dollar or euro that you earn. Most countries in the world have progressive tax systems, meaning that you pay higher rates of income tax on higher earnings.

For example, in the UK, the current income tax bands (2012/3) are:

£0 – £8,105 – 0%
£8,106 – £42,475 – 20%
£42,475 – £158,105 – 40%
Over £158,106 – 50%

So, the highest tax rate in the UK is currently 50 per cent. But, what are the highest tax rates around the world? Which countries have the highest top tax rates, and which have the lowest?

Our interactive map shows the top tax rates of many of the world’s major nations. Hover over the country for more information.

Where do you live? Is your country’s top rate of tax higher or lower than average? Let us know in the comments below.

Inland Revenue Tax Returns for 2011


When you work for a company and pay your tax through PAYE , you usually will not have to undertake the laborious process of completing a self assessment tax return. However, if you run your own business, an organization director or for those who have earnings coming from real estate, retirement benefits or assets, you might have to submit a tax return, and just so that you know, the deadline is fast approaching!

Completing your taxes doesn’t have to be a complicated practice. Just follow some of the tips in our guide below:

Do you have to complete a tax return For 2011?

Not everybody would need to submit a tax return with HMRC.. Typically the most frequently found factors that would require you to complete a tax return in 2011 are:

•             You are self employed or a sole trader

•             You have got income from abroad that happen to be liable to tax here in the UK.

•             You owe Capital Gains Tax from the sale of a property or shares

•             You have income of over £10,000 coming from property or savings/investments

Completing your Tax Return

In the event that you are required by the Inland Revenue to complete a tax return , you’ve got two options of how you are going to do this. The first option is to complete a traditional paper based tax return, the deadline for which is ealier. The alternative options it complete your tax return online, where you liability for tax will be calculated for you and you will be given three months extra time to complete it. If you would like to complete your tax return online you will need to register with HMRC, if you are using a tax return accountant they will be able to complete the online tax return procerss for you.If you choose to submit your tax return online you will get an extra three months in which to file your return. Your tax will be calculated automatically and you will also receive an acknowledgement that HMRC have received the return.

Your Two Options

The self assessment tax return 2011 has two main sections within it:

•             Core pages which everybody needs to fill out

•             Supplementary/additional sheets

You need to complete all of the additional pages that may be relevant for your specific scenarios. Most of these documents consist of earnings coming from real estate, earnings as a result of saving interest as well as assets, CGT and and income that you may have from a pension.

Regardless of whether you actually complete a paper based tax return or you use the online option, you will need to make sure that you have submitted every one of the applicable pages. In cases where it’s a paper based tax return, don’t fail to remember to sign and date it, as this is one of the most common errors that HMRC sees.

Don’t forget the Tax Return Deadline

The due date to complete your tax return by is:

•             Paper based tax returns – 31st October (or three months from the time the Inland Revenue sent you a notice to complete a tax return ) whichever may be the later

•             Online tax returns – 31st January (or three months from the day of your notice to complete a tax return) whatever may be the later

Remember, if you fail to complete your tax return by the dates above, there i an automatic penalty of £100, so get yourself organise and complete your tax return today.

How do I complete a tax return?

You’ll be able to complete a tax return yourself if you know how or if you follow the guidance of the Inland Revenue. Otherwise you can make use of a tax return professional who’ll complete the return on your behalf. Click on the link if you would like help completing your self assessment tax return online


Reclaim Back Your Petrol Costs For Work

Does your employer ask you to make work related journeys in your own car or are you self employed and use your car for work? Often you can claim a rebate on petrol/fuel and other related travel expenses. We answer a number of questions below on claiming back tax on petrol expenses:

Can I claim back my petrol/fuel expenses from my employment?

This will depend upon your current circumstance. In the event that you are driving a vehicle supplied by your company then you won’t be able to make a claim. If however you are making use of your own personal vehicle then there’s a good possibility that you could make a claim for this expense.

How much should I be allowed to claim for business mileage for using my own car?

A tax refund on business vehicle usage will be worked out at 40 pence per mile for the first 10,000 miles and 25 pence for any additional miles subsequent to this. You need to remember to deduct any payment which you may have been given from your company for using your own vehicle from this calculation. So for instance in the event you travel 25,000 miles annually, you’d be eligible for petrol/vehicle tax relief of:

(10,000 x £0.40) + (15,000 x £0.25) = £7,750

What happens if my company has compensated me for driving my car?

Any compensation that you receive from your company needs to be deducted from the tax relief calculation. So taking the example above, if your company paid you £2,500 during the tax year to use your own car for work related journeys you would have an adjusted tax rebate of £5,250.

How do I calculate my petrol tax rebate?

Find the amount of your tax relief, using the calculation method above and then multiple it by your marginal rate of tax. If you’re a basic tax rate payer it will be 20%. So from the above example you’ll be eligible for a tax rebate on business mileage of:

£5,250 x 20% =£1,050

Is there a petrol Rebate Form to Claim my Mileage?

If you’re self-employed, you can just include the above any allowable work related expenses in your tax return. Remember to keep a record of the mileage that you have completed. Alternatively you could make an application for a claim with HMRC by submitting a tax return.

If you are self-employed can you claim for train fares to and from clients?

If you are self employed you can claim back the cost of any work related allowable expenses such as travelling between clients.

Self Assessment Tax Return 2011


With the start of another year it can only mean one thing….the online tax return season is coming soon. This short article offers some tips on filling out your tax return this year. Remember if you do not complete your tax return by the end of this month, you will be due a £100 fine. If you can’t find the answer you would like, leave a comment below.

Do I need to complete a self assessment tax return in 2011?
There can be a variety of factors why HMRC may need a person to complete a tax return. Some reasons include:

+ Becoming self-employed in the 2009/2010 tax year.
+ Residing or being employed overseas
+ Company owner
+ A minister of religion (of any faith)
+ Earnings coming from savings and assets over £10,000
+ Earnings through renting real estate of £2,500 or higher
+ Earnings due to the estate of a deceased individual
+ Offshore Earnings
+ Yearly earnings exceeding £100,000 or higher
+ For those who have Capital Gains Tax (CGT) to be charged for
+ If you wish to claim expenses/expenditures or relief’s

How do I complete my tax return?
If you know how, it is quite possible to complete a tax return on your own. Alternatively, if you prefer, you can easily use a tax return advisor who’ll carry out the return on your behalf.The advantage of having someone to complete your tax return for you is that they will take all the stress of having to deal with HMRC and ensure that you have the documents that you need to submit all the required documents. Click the link if you would like to learn more about having someone assist completing your 2011 self assessment tax return.

When is the deadline for doing a tax return?
The due date just for paper based tax returns is 31 October. If you want to complete your tax return online, you will be given an extra 3 months and the deadline will be extended until the 31st January. It is recommended that you do not wait until the last minute to complete your tax return as there maybe delays in collecting information and facts about your income, expenses and assets.

Is there a penalty for not submitting a tax return in time?
If HMRC does not receive your tax return by midnight on 31st January, you’ll instantly be given a £100 fine. In the event that you also pay your tax late you can expect to be charged interest from the date the tax bill was due right up until your tax payment had been received.

Where can I get a Self Assessment Tax Return Form?
If you are using a tax accountant to complete your tax return, they will provide you with all the forms that you need. Paper based tax returns which should have been completed before 31st October can be downloaded here.

What is the difference between a Short Tax Return Form and a Regular One?
Depending on the complexity of your tax affairs you may be eligible to complete a short tax return form instead of a full one.

Disclaimer: The above mentioned information can’t be used as help and advice and it is for illustration reasons only. Please phone Tax Fix before making any claims or confirmation. Tax Fix can not accept any liability for action taken and any losses incurred.


The Top 10 Things You Should Know About House Lettings Tax Returns


Do you let out a property?

If so, you may well have to declare your rental income to HM Revenue and Customs (HMRC).  To help you, here is our guide to the top ten things you should know about house lettings tax returns.

1. You have to declare rental income to HMRC

All income, whether earned through employment or self-employment or that comes from property, savings, investments or pensions has to be declared to HMRC.

2. You don’t always have to submit tax returns for house lettings

You do not automatically have to complete a tax return just because you receive rental income.  If either of the following two statements applies, you won’t necessarily have to complete a tax return:

  • You earn income from property (before deducting allowable expenses) of less than £10,000
  • You earn income from property (after deducting allowable expenses) of less than £2,500

If you are employed, or getting a pension through PAYE, and your taxable income from property is less than £2,500, your tax code can be adjusted to collect the tax that you owe on your property income.

3. There are lots of tax expenses you can claim on house lettings tax returns

HMRC allow you to claim a number of tax expenses which can be deducted from your property income.  Tax allowances that you can claim include:

  • Council tax and any utility bills you pay
  • Letting agent’s fees
  • Interest on property loans
  • Buildings and contents insurance
  • Repairs and maintenance to the property
  • Professional fees including legal fees for lets of a year or less and accountant’s fees

4.  House lettings tax returns are different depending on the type of rental

The rules for declaring rental income depend on the type of letting.  It will normally be:

  • Residential letting (properties let out for people to live in as their home)
  • Holiday letting in UK
  • Holiday letting overseas

5. You need to claim tax expenses in the correct tax year

Make sure that you allocate property tax expenses to the year they apply to. It doesn’t matter when you pay the expenses but it does matter when they occurred.

6. Rules for the ‘rent a room’ scheme are different

If you are letting furnished accommodation in your own home to a lodger and your total receipts are £4,250 or below (£2,125 if letting jointly), you are able to earn this income tax-free under the ‘Rent a Room’ scheme.

7. You can submit house lettings tax returns in two different ways

If you do have to submit a tax return to include rental income you receive, you can do this in one of two ways:

  • Through a paper based tax return (deadline 31st October)
  • Through an online tax return (deadline 31st January)

8. You can’t claim for improvements to a property

Whilst you can claim for essential repairs to a property, you cannot claim improvements to a property (an extension or conservatory, for example) as an allowable tax expense.

9. You have to calculate your rental income

To work out your rental income you should: add up all the rental income you receive from your rental property/properties, add up all your allowable tax expenses and take your allowable expenses from your income.

10. You may not have to break down the expenses on your house letting tax return

If your total property income is under £68,000, you simply include the total figures for income and expenses on your tax return.  You do not have to break these figures down into their constituent parts.


Allowable Tax Expenses On Renting A House


If so, you will almost certainly have to pay tax on your rental income.  However, there are various tax allowances and tax expenses that you can claim to reduce the amount of tax that you will be liable for.  Here’s our guide to what you can claim – and what you can’t claim – as tax allowances when letting property.

Allowable expenses on renting a house

There are various tax expenses that you can deduct from your rental income.  These include:

  • Interest on property loans
  • Rent, ground rent and service charges
  • Accountant’s fees
  • Letting agent’s fees
  • Any utility bills or Council Tax that you pay
  • Maintenance and repairs to the property
  • Other costs of letting the property (gardening, cleaning, costs of advertising)

Reporting your allowable tax expenses

If your annual income from the letting for the tax year 2009-10 is under £68,000 (before you have deducted your tax expenses) you should include the total expenses on your tax return.  If your annual letting income is over £68,000, you will have to provide a breakdown of your expenses.

You should also remember that you can only claim tax expenses that are solely for running your property letting business.  If the tax expense is only partly for running your business (or if you use the property yourself) then you may only be able to claim a portion of it.

Expenses that you are not allowed to claim

There are various tax expenses that you are not permitted to deduct from your letting income.  These include:

  • Improvements to the property. You are permitted to claim maintenance and repairs, but you cannot claim improvements to the property (a conservatory or extension, for example)
  • Personal costs that are not to do with your property letting business
  • ‘Capital’ costs such as furniture or the property itself

Allowances that can reduce your taxable profit

Capital costs include expenditure you make on assets such as furniture.  Whilst there are different types of tax allowance that you can claim for your capital costs they do vary according to the type of property letting.

For furniture and equipment provided with a furnished residential letting (excluding furnished holiday lettings) you can claim a ‘wear and tear’ allowance.  The allowance is 10 per cent of the ‘net rent’.

Alternatively, you can claim a ‘renewals’ allowance. This covers the cost of replacing furniture or equipment. To work out your ‘renewals’ allowance you should take the cost of the replacement item and deduct from it:

  • The amount you sold the old item for
  • Anything additional that you paid for a superior replacement

Once you’ve chosen which of these allowances to claim for a property, you are not permitted to switch between them from year to year.

 


Are You About To Pay More Income Tax?

In an attempt to trim the UK’s budget deficit, the coalition Government have taken a range of bold steps to reduce expenditure and increase the money coming into the Treasury’s coffers.

Now, an estimated 700,000 British taxpayers are set to pay more income tax after the announcement that the Government is to lower the threshold at which higher rate (40 per cent) tax becomes payable.

Income tax thresholds to change in 2011

The tax thresholds are altered annually in line with inflation and generally announced in autumn’s Pre Budget Report.  With the proposed changes, the number of people who pay higher rate tax is estimated to rise by nearly three quarters of a million, from 3 million to almost 3.7 million.

Mike Warburton, senior tax partner at Grant Thornton, the accountants, said: “With these extra 700,000 higher-rate taxpayers, we are almost at the record level reached when Gordon Brown was chancellor, when there were 3.87 million higher-rate taxpayers.”

Higher rate threshold coming down every year

Recent changes in the structure of the tax system have been the reason for this huge increase in higher rate taxpayers.  When the Government increased the tax free allowance to drag a million low paid workers out of paying any tax at all, they simultaneously reduced the threshold at which top rate tax became payable in order that the middle classes did not benefit.

This tax year (2010/11) all earnings above £43,875 are taxed at 40 per cent.  However, from April 2011 this threshold will be lowered to £42,475, the Treasury has confirmed.

Mr Warburton said: “I’m all in favour of raising the lower threshold. But the Coalition was desperate not to be seen benefiting the middle classes. The threshold at £42,475 is only 1.6 times average earnings, which many people will consider a relatively low income to pay such a high rate of tax.”

National Insurance also rising

In addition to the lowering of the tax threshold, National Insurance (NI) rates for higher rate taxpayers will also rise in April 2011.  The rate of NI will rise from 11 per cent to 12 per cent.

Patricia Mock, a director in the private clients practice at Deloitte, said: “People earning between £40,000 to £50,000 and upwards will be significantly worse off than before.” The firm has calculated that anyone earning £50,000 will be £747 worse off next year.

She pointed out that from April 2013 higher-rate taxpayers with children will face a further blow when they lose out on child benefit.  This will cost a family with two children an additional £1,750 per year.

The Number One Secret Of Inheritance Tax Planning

Inheritance Tax (IHT) nets the Government just under £3 billion in revenue every year.  Despite this huge tax bill, Brits are becoming increasingly aware of IHT and the methods that can be employed to avoid it.  In 2009, tax officials told the Guardian that they expected the number of households paying Inheritance Tax to be at its lowest level since 1938.

There are lots of ways that you can reduce the amount of IHT that you pay.  However, the simplest and easiest way to begin your inheritance tax planning is to make a will.

Why you should make a will

As well as helping you to reduce the amount of inheritance tax that is due, there are various other important reasons why you should make a will:

  • You can decide how you want your assets to be shared out.  If you do not make a will, the law decides where your assets go and this might not suit your wishes
  • If you are not married or in a civil partnership, your partner will not automatically inherit your assets.  A will makes sure that your partner is provided for
  • if you are divorced or if your civil partnership has been dissolved you can decide whether to leave anything to an ex-partner who is living with someone else

Using your will to leave your assets to your wife, husband or civil partner

In this situation, there will typically be no IHT to pay.  A husband, wife or civil partner counts as an ‘exempt beneficiary’, meaning that you can leave assets to them in a will without paying any inheritance tax.  It’s a simple way and effective way of inheritance tax planning.

It is worth remembering, however, that if you leave all your assets to your spouse or civil partner, their estate will be worth more.  There may therefore be more IHT to pay when they die.

One exclusion to this rule applies if you are domiciled (have your permanent home) in the UK when you die but your spouse or civil partner isn’t. In this situation, you can only leave them £55,000 tax-free.

Using your will to leave your assets to other beneficiaries

In the tax year 2010/11 you are able to leave up to £325,000 tax free to anyone in your will.  £325,000 is the current IHT threshold over which tax is due.

In this situation you can use your will to give some of your estate to someone else or to a family trust. Inheritance Tax is then payable at 40 per cent on any amount you leave above the threshold.

Using your will to leave your assets to a UK charity

Inheritance Tax is not payable on any money or assets you leave to a registered UK charity.  These transfers are exempt.


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