All posts by Marian

Marian worked in pensions/finance for 12 years including gaining the Associateship of the Pensions Management Institute. She has a keen interest in finance, taxation and property and spends time reasearching and writing articles on these topics.
Tax Codes

Tax Code Letters M and N

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Transfer of the personal Allowance for Married Couples and Civil Partnerships

If you have the tax code letter M or N after the number in your tax code notification then these two letters are linked as it means that you  have either transferred or have received a transfer of the 10% personal allowance to/from your partner.

The marriage transfer allowance was introduced so that those who did not pay tax on their earnings up to the full personal allowance, could transfer 10% of their allowance to their partner (as long as their partner was only paying basic rate tax).

So, for example if your tax code for 2018/19 is 1304M that means that your partner has transferred 10% of their personal allowance to you (amounting to £1,185).

This 10% is added on to your personal allowance of £11,850, giving you a total personal allowance of £13,035 (the figures are rounded for the tax code).

Conversely, if your tax code is 1066N then that is likely to be because you have volunteered to give up 10% of your personal allowance to transfer over to your partner who can make use of it. You can do this if you don’t use all of your personal allowance.

This is worked out by taking £1,185 away from £11,850, thus giving you a personal allowance of £10,665 (figures are rounded).

(The above figures are based on amounts for the 2018/19 tax year.)

If you believe that your tax code is wrong then you should contact HMRC on 0300 200 3300.

 

 

Tax Codes

Tax Code Letters – L

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Letter L

When you are given a tax code it will consist of some numbers followed by a letter.

The number will indicate how much personal allowance you can have in the relevant tax year and the letter gives you more information about how that number was arrived at.

In the case of the letter L, this is the most common letter used as it is given to those people who are entitled to the standard personal allowance.

If you are assigned the letter L at the end of your tax code then it is likely that you have pretty simple tax affairs.

In order to work out the amount of personal allowance that you are are entitled to you will need to multiply the number by 10 to get the actual figure.

So for example, if your tax code is 1150L then you multiply 1150 by 10 and you get a personal allowance of £11,500 (which is the standard personal allowance for the tax year 2017/18).

If you believe that your tax code is wrong then you can ring HMRC on 0300 200 3300.

 

 

Autumn Statement, National Insurance

Class 2 NICs Abolished From 2018

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The self-employed on lower earnings will now have to pay Class 4 NICs.

Who Pays Class 2 NICs?

Class 2 National Insurance Contributions are paid by self-employed people whose profits are above the Small Profits Threshold which for 2017/18 is £6,025.

If you earn below that level you are eligible for the small earnings exception (although this was abolished in 2015) which means that you do not have to pay NI but can pay voluntary Class 2 if you wish to.

If you earn above £8,164 then you pay Class 4 NI as well on your profits.

The payment of Class 2 contributions (which are currently set at £2.85 a week) enables those people who pay them access to contributory benefits (class 4 does not).

However, the 2016 Autumn Statement confirmed that Class 2 NICs will be abolished with effect from 2018/19** and the self-employed will then have to pay Class 4 (or voluntary Class 3) NICs. Class 4 NICs will then qualify for contributory benefits.

Complex Rules

The rules around this are quite complex and there will apparently be some transitional help. But in essence, Class 4 contributions will need to be paid by the self-employed on earnings over the Lower Profits Limit.

For 2017/18 the Lower Profits Limit was £8,164 and any profit between that and £45,000 was charged at 9%. Profits over £45,000 are subject to a charge of 2% for Class 4 NICs.

Payment is Dependent on Profits

Once the Class 2 NICs are abolished a new threshold will be introduced called the Small Profits Limit. This will be equivalent to 52 x the Lower Earnings Limit. For 2017/18 this is £6,025.

Anyone whose profits fall between the Small Profits Limit and the Lower Profits limit will not need to pay the Class 4 NI contributions but will be treated as if they have paid them.

As Class 4 NICs will in future give access to contributory benefits, this in turn includes qualifying years for the State Pension.

In Summary

If your earnings are below £6,025 (or the rate declared for 2018/19) then you will not need to pay NICs but can choose to pay the voluntary Class 3 NICs which are £14.80 a week.

If your earnings are between £6,025 and £8,164 (or equivalent 2018/19 levels) you do not have to pay NI but will be credited with paying Class 4 NICs.

If your earnings are above £8,164 (or 2018/19 equivalent) you will pay only Class 4 NICs at the effective rate.

**2018 Update

The abolition of class 2 NICs has been postponed until 2019/20.

Tax Allowances

Apply Online for the Marriage Allowance

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We have written in the past about the relatively new Marriage Allowance that was introduced so that married couples or those in a civil partnership are able to transfer part of their personal allowance.

The Marriage Allowance can be transferred from one half of the couple that is not using their full personal allowance to the other half who would be able to make use of it at the basic rate of tax.

You can apply for the Marriage Allowance online and to do this you will need some details relating to yourself and your partner. You can check out all the information here.

You can also backdate it to 5th April 2015 if you were eligible for it in previous tax years but have not yet claimed it.

Once you have applied for it, you will continue to have the Marriage Allowance transferred to your partner until you let HMRC know that you are no longer eligible or your circumstances change.

The person who receives the extra allowance will either get it through their tax return or as a change to their tax code, but it can take a few months for it to be processed. Don’t worry though, as it will be backdated to the start of the tax year.

Tax Allowances

Tax Allowances for 2017/18

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With the new tax year approaching rapidly we thought it was worth having a summary of the new UK tax allowances as they will stand for 2017/18.

You can always find a summary of allowances here together with links to further information and clarification on certain allowances, but otherwise here they are in summary:

Personal Allowance (amount of earnings you can have tax free) – £11,500

ISA Allowance (amount available to invest over all types of ISA) – £20,000

Capital Gains Tax Allowance (amount of gains allowed before tax is due) – £11,300

Inheritance Tax Allowance (amount that can be inherited tax free, including property) – £425,000

Personal Savings Allowance (amount of savings income that is tax free) – £1,000/£500

Property Allowance (amount that can be earned by small property related deals) – £1,000

Trading Allowance (amount that can be earned tax free from minor trading) – £1,000

Rent a Room Allowance (amount that can be earned tax free from renting out a room in your home) – £7,500

Not all of these allowances apply to everybody so you should check that they apply to you before using this information for your personal tax affairs.

Tax Codes

2017/18 Tax Codes

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It is generally the case that UK taxpayers will be issued with a new tax code each year. Tax codes are issued to individuals and their employers so that the employer knows how much tax they should deduct from the employee’s earnings.

Standard tax code

The standard 2017/18 tax code for those with simple financial situations (for example, having only one job, no tax owing from previous years, no other employee benefits etc) is 1150L.

This standard tax code means that you are entitled to the UK personal allowance of £11,500 for the year and therefore that is the amount that you can earn before any tax is deducted.

But it may be the case that you do not have this standard tax code or perhaps your code has another letter at the end (instead of L).

If this is the case then you may have one or any of the following which may affect your tax code (and these are just some examples):

  • earnings from another job
  • benefits in kind
  • tax owed from previous years
  • pension income
  • transfer of the marriage allowance
  • earnings over £100k
Can’t figure out your tax code?

If you can’t figure it out though, you will probably need to speak to the Inland Revenue to check that you have the right tax code and will not be paying too little (or indeed too much) tax in 2016/17. The number to call for tax code queries is 0300 200 3300.

Or you may find it easier to check your tax code online which you can here do if you have a Government gateway ID.

Tax code letters

So the letters at the end of the tax code may also give you an indication of what your code is all about.

There are a couple of new tax codes that have been introduced recently which take account of the new transferable marriage allowance – those are the letter M if you have received a transfer of the marriage allowance and the letter N if you have given a up part of your allowance.

You can check out a full list of the tax code letters and what they mean on the Inland Revenue website.

Tax Allowances

Is the Personal Savings Allowance Increasing in 2017/18?

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The personal savings allowance was introduced in April 2016 and it meant that 95% of people no longer had to pay any tax on their savings.

Anyone who was in the 20% or the 40% tax brackets was entitled to a personal allowance of either £1000 or £500 respectively. Those in the highest tax bracket were not entitled to any personal tax allowance.

The figures given are the amount of interest that savers could earn before they would have to pay any tax on that interest. The figures were set for the initial tax year of the allowance which was 2016/17.

But if you are looking to see if the personal savings allowance is increasing for the new tax year 2017/18 then the answer is no, the allowances will remain at the figures of £1,000 for basic rate tax payers and £500 for higher rate tax payers.

With interest rates as low as they currently are this means that savers would need to have a significant amount of savings before they actually need to pay any tax on the income received from those savings.

In addition to the personal savings allowance there is also the £,5000 dividend allowance which means that savers will not have to pay any interest on the first £5,000 of dividend income that they receive.

Personal Allowance News, Tax Allowances, Types of Tax Allowances

Minor Trading Allowances 2017/18

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In the tax year 2017/18 the government will be introducing a new UK tax allowance for minor trading and property activity.

The allowance for each category is £1,000 and this means that individuals (who the government classes as self-starters) who have earnings under these two categories can earn up to the allowance and not pay tax on those earnings.

The allowances are also available to those people who earn more than £1,000 in each category, in which case those people will be able to earn the first £1,000 tax free.

The allowance is aimed at the entrepreneurial people in today’s society who aim to make some extra money on the side by doing things like renting out their driveway or selling goods on eBay.

The allowance could also include people who make money buying and selling at car boot sales
The allowance could also include people who make money buying and selling at car boot sales

But it is not just limited to these activities and could include for example people making and selling cakes in their spare time or those who make money buying and selling items at car boot sales. It could also cover people who rent out their garage or perhaps some land and those people who do some paid gardening or DIY work at weekends.

Anyone whose earnings are less than £1,000 a year in these categories will not need to fill in a tax return to declare any of this income but people earning over £1,000 will need to declare those earnings and deduct the £1,000 allowance from the income which would be taxable.

Another prime example would be people who use AirBnB to rent out rooms in their house (but not those who use the rent a room allowance to claim tax relief).

Both reliefs are available so if you have earnings in both categories you can claim up to £2,000 in these additional allowances.

 

 

Autumn Statement, Personal Allowance News

Autumn Statement Confirms Increase in Personal Allowance

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The Chancellor of the Exchequer, Philip Hammond, today confirmed in his 2016 Autumn Statement that the personal allowance, which currently stands at £11,000 per annum for the tax year 2016/17, will be increased as per the announcements in previous budgets.

The personal allowance is the amount that an individual may earn before they have to start paying tax.

The increases that were previously announced mean that the personal allowance will be £11,500 starting from April 2017 for the tax year 2017/18 and will increase to £12,500 by the end of the current parliament.

20poundsAnyone who earns more than £11,500 currently (but less than £100,000) will benefit from the £500 increase in the personal allowance as follows:

Those who pay tax at the basic rate (currently 20%) will be £100 a year (around £8.33 a month) better off with the increase in the personal allowance.

Those who are subject to 40% tax will see £200 a year (£16.66 a month) more in their pay packets (plus any benefit they may gain from the increase in the 40% tax rate bracket).

There were rumours that the Chancellor may bring in the £12,500 personal allowance quicker than had previously been planned but this did not happen as it was confirmed this would likely be in the 2020s.

Once the personal allowance gets to £12,500 it will be increased in each year in line with inflation, unless any further increases are announced in subsequent budgets.

It was also announced that the Spring Budget will be the last budget at that time of year and that in 2017 the budget will move to being an autumn budget and there will be a subsequent spring statement, thus giving plenty of notice before any changes are introduced in the following April.

Tax Issues

Can I Claim Gift Aid on Donations?

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The government Gift Aid scheme means that a donation to charity can be increased by 25% so that the charity is effectively getting tax relief on the donation.

So if you give £10 to charity and claim gift aid then the charity will get £12.50. Gift aid only applies at basic rate tax and not at higher rate (see below for more on this).

But if you are wondering can I claim Gift Aid on charity donations? then the answer is, only if you are actually paying some tax. So, if your earnings come below the personal allowance and you are not paying any other tax like Capital Gains Tax, then you cannot claim the Gift Aid on your donations to charity.

So this means that each year when the personal allowance increases, there will be more people that will be in the situation where they are not paying tax and therefore cannot claim Gift Aid.

However, as long as you are paying some tax, then you can claim Gift Aid on donations up to 4 x the amount of tax that you have paid in that tax year.

You will need to notify the charity that you are eligible to claim Gift Aid and if you do this when you are not actually eligible then you will be liable to pay back that tax.

If you pay higher rate tax then you can reclaim the difference between the higher and lower rate though your tax return.