1. Personal allowance – everyone has a personal allowance which is a tax free band, these are normally £6475 for the younger working population, rising to £9.5k for the over 65s who also get an additional amount for married couples of at least £2.6k.  This sets the level from which other adjustments are made.
2. If you have more than 1 employment or pension and one is under the personal allowance limit, HMRC will issue two coding notices, one which “should” cover the smaller amount and the balance of the tax free amount is allocated to the other employment.  This means that you will not be overtaxed.  This is often used for pensioners where part of the allowance is allocated to the state pension and the rest to other income.  In order to check this make sure the deduction for “state pension/state benefits” is about the same or a little more than the annual state pension you receive.
3. Benefits in kind – employees sometimes get benefits from their employers such as health insurance or company cars.  These are part of taxable income so in order to tax these amounts correctly part of the personal allowance is taken away which by default means that this part of income becomes taxable.  In order to check this make sure that the figure deducted from your code is the amount of the benefit paid for the year, which should be shown on the P11D form you receive from your employer every year.  If you no longer receive a benefit you should call or write to HMRC to advise them so they can amend the code.
4. Additional allowances for Gift Aid and pension contributions – both of these are taxable at the basic rate (although pension contributions are now restricted for the very highest earners (over £150k), so if you are a higher rate taxpayer HMRC will give you an allowance to make sure that these are not taxed at the higher rate on these.
5. If you have underpaid tax as a result of your tax code being wrong you must advise HMRC by preparing a Self Assessment Tax Return.

If you have identified an error you can call HMRC using the 0845 number but this is often accompanied by a very long wait, so alternatively write to them, but the processing time will be several weeks, so there is no fast and simple solution.

We hope you find the contents of this blog useful; the principles of allocating the tax code are fairly simple but if you are unsure you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting – Accountants who “speak your language”

1. For the wife to be paid a small amount, she was involved in a number of administrative roles within the business.  This has to be restricted to £95 per week otherwise the Carer Allowance would be restricted.  A matter of note is that if you are in receipt of Carer Allowance, all of your basic NI contributions are covered.
2. As the client made large contributions under Gift Aid his basic rate tax band was already in excess of £37400 limit.  His income could therefore go up to this greater limit without paying tax at the higher rate.  Clearly if he wished to and had the finances he could increase the amount given under gift aid to increase this further.
3. He wished to make a pension contribution and having planned in advance of the end of the tax year, I was able to advise him of how much he could pay to avoid having to pay higher rate tax by extending his basic rate band further.
4. He did not necessarily want to make too large a pension contribution as he is approaching retirement age so he now has the choice to make a smaller pension contribution and potentially fully utilise his ISA allowance of £10,200 for 2009/10.
5. He had not been advised on what expenses he could claim on his company and I was able to assist him in this area, covering items such as use of home as office, and claiming the mileage rate.  He had also just gone over the VAT limit, a fact he could easily have missed as he had excluded part of his income.
6. He has now secured a full time PAYE position so the company may or not be retained but the moral of the story is to get advice early to make sure you:
   1. do not miss out on opportunities and
   2. also avoid the pitfalls.

We hope you find the contents of this blog useful, you should of course always seek professional advice for your specific needs.  Alastair Wood, AW Accounting  – Accountants who “speak your language”

1. Is the shareholding in the company arranged in the most tax efficient way? A gift between husband and wife is tax free, but should not be done regularly as it may be treated as a right to income
2. If available have the maximum dividends been declared to make full use of the shareholders personal allowance and basic rate tax band (and minimise and higher rate tax if applicable).  If not now is the time to look at it not on 31 March!
3. If no directors remuneration has been paid for a cash poor new business consider running the payroll as this will have 3 advantages:
   1. If paying above ~£475 per month the full years NI contribution will count
   2. Even if there is no cash available, this becomes due tax free to the director when there is cash
   3. This is a taxable expense and even if there is no corporation tax saving this year, a loss can be set against future years profits
   4. If the company did not trade immediately after incorporation, consider extending the year end at Companies House so you can easily compare the first year to subsequent months. This will also delay the date corporation tax is due.

Time is short, make the most of the tax opportunities you have.  Alastair Wood, AW Accounting  – Accountants who “speak your language”