Breaking the code
If you are an employee, you may recently have received a tax code notice through the post, particularly if you have filed a self-assessment tax return.
HM Revenue & Customs (HMRC) now automatically updates your tax code from information contained in your tax return under a process known as auto-coding. The auto-coding process uses details of your other income and deductions provided on your tax return to issue a new code for the current tax year. This means that the information that you supplied on your tax return for the year to 5 April 2012 will be used to generate a revised tax code for the year to 5 April 2013. The information will also be used to generate your tax code for the 2013/14 tax year, which starts on 6 April 2013. The auto-coding process takes place between mid-January and 5 April, although from mid-March to 5 April HMRC will send you a code for the 2013/14 tax year.
The idea is that by adjusting the tax code, any tax due on your other income can be collected under PAYE. This will save you having to settle the tax due through the self-assessment system. Although this is less hassle, it does mean that you will pay the tax earlier than if you pay it through self-assessment.
The adjustments made to your tax code will depend on the nature of any other income that you receive. However, if you have dividend income taxable at the higher or additional rate, an untaxed bank or building society interest, any income from property or casual earnings, HMRC may adjust your tax code to collect the associated tax through PAYE income.
Whenever you receive a new tax code it is important that you check it. In most cases, your tax code will be made up of letters and numbers. The number represents your allowances for the year, less your deductions for the year, with the last digit omitted. For example, if you receive the basic personal allowance for 2012/13 of £8,105 and have untaxed income of £5,000 which is taxed through your code, you will have a tax code for 2012/13 of 310L (£8,105 – £5,000 = £3,105 or 310).
The letter at the end of your tax code indicates whether you are eligible for a basic (code letter L) or age-related (code letter P and V) personal allowance. If you have a second job or a pension you may have a special code, such as BR, D0 or D1 (indicating, respectively, that all your income is to be taxed at the basic, higher or additional rate) an OT code (no allowances) or an NT code (no tax deducted). If your deductions exceed your allowances, for example if you have a lot of benefits in kind or an expensive company car, your code will start with the letter K.
If you do not agree with your tax code or your circumstances have changed, you should contact HMRC (0845 300 0627) and if your code if wrong, they will issue a revised code. Also, you do not have to have untaxed income collected through your code. If you would rather pay through the self-assessment system, you can ask HMRC to take the untaxed income through your code.
Operating PAYE in real time
If you are an employer, you will have recently received a letter from H M Revenue & Customs (HMRC) telling you what you need to do to get ready to operate PAYE in real time.
Under Real Time Information (RTI), employers must send details of pay and deductions to HMRC electronically each time that a payment is made to an employer. You will need to do this promptly, because the law requires that the information is sent at or before the time you make the payment to the employee.
Most employers will start operating PAYE in real time from the start of the 2013/14 tax year, which starts on 6 April 2013. All employers, with only a very few limited exceptions, must be compliant with RTI by October 2013.
To ensure you are ready to move to RTI, there are various things you need to do before the end of the tax year on 5 April. You will need to make sure that you have RTI-compliant payroll software (or outsource your payroll reporting to an agent or payroll bureau). If you are a small employer with nine or fewer employees, you can use HMRC’s free Basic PAYE Tools package, which you can download from their website (www.hmrc.gov.uk/payerti/payroll/bpt/paye-tools.htm). You will also need to enrol for PAYE Online if you have not already done so (www.hmrc.gov.uk/payerti/getting-started/using-paye-online.htm).
Before you can send information to HMRC electronically, you need to undergo a payroll alignment process. This is to ensure that the data you hold on your employees matches that held by HMRC. You should check your employee data is complete and correct. Unless you have more than 250 employees, you can do the alignment process as part of your first full payment submission to HMRC.
Under RTI, the main report that you will need to send to HMRC is the full payment submission (FPS). This is used to provide pay and deduction details and also details of starters and leavers. This means that once you join RTI, you will not need to send form P45 and P46 to HMRC online. However, you will still need to give an employee who leaves a P45 to give to his or her new employer.
If you make no payments in a pay period, or receive funding from HMRC, you may also need to send another report to HMRC, known as an employer payment submission (EPS).
As you are supplying pay and deduction details to HMRC throughout the year, you will not need to complete employer annual returns for years in which you report in real time. Instead, you just need to indicate which the last submission in the year is. You will still need to give employees a P60 though.
You can find a lot more information on the HMRC website to help you migrate to operating PAYE in real time (www.hmrc.gov.uk/payerti/getting-started/index.htm).
Don’t waste your capital gains tax annual allowance
As the end of the tax year approaches, you may want to check whether you have unused allowances that you could use to help you save tax.
For capital gains tax (CGT) purposes you are entitled to an annual allowance of £10,600 for 2012/13 and can make chargeable gains up to this limit without paying tax. If you are married or in a civil partnership, your spouse or civil partner also has an allowance of £10,600. The tax system allows you to transfer assets to a spouse or civil partner at a value which gives rise to neither a gain nor a loss. This means that a couple can realise gains of up to £21,200 for 2012/13 before paying CGT.
If you have not yet used up your CGT allowance and are thinking of selling shares or another asset which will realise a gain, you may want to accelerate the disposal to before the end of the tax year to make the most of this year’s allowances, leaving next year’s allowances free to shelter any gains you may make next year.
You cannot carry the CGT annual allowance forward, so it is a case of use it or lose it. This applies to other allowances too, such as the ISA limit for tax-free savings and you may want to review allowances generally before the year end to make sure you don’t waste valuable reliefs.
HMRC makes the most of social media
HM Revenue & Customs (HMRC) is using YouTube and Twitter to reach taxpayers.
It has recently published a further 21 videos on YouTube, which are aimed at helping new and growing businesses. The latest videos cover PAYE, VAT and corporation tax and address practical issues such as record keeping, registering as an employer, payroll systems and trading with other countries. You can also view HMRC’s previous videos on You Tube, covering topics such as VAT Online, the Construction Industry scheme and the Patent Box scheme.
You can find the videos on You Tube at http://youtube.com/hmrcgovuk.
The You Tube videos are designed to complement HMRC’s webinars. These are online presentations, both live and pre-recorded, which are designed to provide tax help to businesses and to the self-employed. You can find watch the webinars online at www.hmrc.gov.uk/webinars/index.htm.
You can also follow HMRC on Twitter: @HMRCgovuk.
Alternative dispute resolution gets the go-ahead
After a two-year pilot, HM Revenue & Customs (HMRC) is going ahead with alternative dispute resolution (ADR) for small and medium enterprises from 2013/14.
ADR offers an alternative way to resolve tax disputes in compliance checks. Under ADR, an independent person who has not been involved in the case (known as a facilitator) works with both the taxpayer and the HMRC case worker to try and broker an agreement between them. The ADR process applies to both direct tax and VAT disputes.
The ADR process was subject to a two-year pilot, which attracted good feedback. HMRC will offer it as part of its services from 2013/14. The ADR process should save time and costs for all involved.
If you want to use ADR to resolve a tax dispute, you should contact HMRC. Using ADR will not affect your review and appeal rights. You can find out more about ADR on the HMRC website: www.hmrc.gov.uk/news/alternative-dispute.htm.
