| Business Taxation | Personal Taxation |
| Income Tax Self- Employment Value added Tax (VAT) Capital gain tax Corporation Tax Benefit in Kind National Insurance | Stamp Duty Capital Gain tax (CGT) Inheritance Tax Investment Tax National Insurance Investment |
Income tax is payable on taxable income, such as earnings, pensions, investment and rental income. Individuals pay income tax each year, net of personal allowances and other reliefs they may be entitled to. The tax is payable at various rates depending upon your level of income.
Employees pay tax via the PAYE system before they receive their salary. Tax on benefits in kind is collected via a restriction to the notice of coding.
The self-employed generally make payments on account of their tax liabilities on 31 January and 31st July each year. Any balancing payment becomes due on 31 January following the year of assessment.
Some forms of income are exempt from income tax, for example, National Savings Certificate interest, interest on ISAs, income from Premium bonds and student grants/scholarships.
If you are self-employed, you must keep detailed records. The information contained in financial statements and your accompanying tax return must be retained for a minimum of 5 years from the 31 January following the year of assessment.
A person who is registered to charge VAT in the course of a business carried on in the UK charges VAT on the taxable supply of goods and services. They are able to claim the VAT back on the business expenses incurred.
There are currently three rates of VAT, being the zero rate, standard rate (20%) and the special rate (5%) for domestic supplies of power and fuel.
Quarterly VAT returns must be completed and submitted to Customs & Excise with any payments of VAT being made to them or repayments claimed from them. Small business can opt for annual accounting of VAT rather than quarterly.
Capital allowances give a taxpayer relief for certain types of capital expenditure, as shown below.
Capital allowance rates
| Plant & Machinery: | Normal rate at 25% and then reducing balance or straight line method. First year allowance at 40%Plant and Machinery with long life, capital allowance at 6%, reducing balance method. |
| Motor Cars: | normal rate 25%, reducing balance method to a maximum of £3000.00 pa |
| Low emission and electric cars: | 100%, i.e. cars registered on or after 17th April 2002 |
| Industrial Buildings & Qualifying hotels: | 4% of cost per year. |
| Agricultural buildings: | 4% of cost per year |
| Scientific Research: | 100% |
| Industrial Buildings at enterprise zone: | 100% |
Corporation tax is payable by UK resident companies and unincorporated associations on the tax adjusted profits that they make for each accounting period. There are various rates depending on the level of the profits.
A company is required to complete a self-assessment tax return form and submit this to the Inland Revenue one year after their accounting year end. They are also required to pay any corporation tax due 9 months and 1 day after the end of the accounting period. Large companies must make quarterly payments on account of their estimated corporation tax liability.
If a company has taxable profits of over £1.5 million it must pay its corporation tax quarterly under the self assessment rules for companies.
Inheritance Tax is relevant where an individual makes a gift resulting in a fall in value of their estate.
Depending on the type of gift, lifetime tax (currently 20%) may be payable by either the person making the gift or the person receiving it.
For some gifts, tax is not payable unless the donor dies within seven years of making the gift.
If inheritance tax becomes payable there are annual exemptions and various reliefs that may be available to set against any chargeable gifts.
Capital gains tax is payable by individuals who are resident or ordinarily resident in the UK and who make a disposal of an asset in a tax year.
Not all assets are chargeable to capital gains tax. The main exemptions include your only or main residence, private motor cars, chattels bought and sold for less than £6,000, shares held in an ISA, gambling winnings etc.
There are various deductions to be set against the disposal proceeds of the asset(s). These include, the cost of sale, original cost of asset, current year capital losses, capital losses from earlier years, indexation allowance (if applicable), taper relief and annual exemption.
There are additional rules where part of an asset is disposed of, where there are losses brought forward or in the year of disposal and where assets were originally held before 31 March 1982.
Everyone resident in the UK is entitled to an annual exemption to set against his or her total capital gains in the tax year. The rate for 2005/2006 is £8,500.
If there is a chargeable gain, after all allowable deductions have been made, tax will be payable on this amount at either 10%, 20% or 40%, depending on the taxpayers total income for the year. The liability will be due for payment on the 31 January following the year of assessment. For any gains in 2005/2006, the tax becomes payable on 31 January 2007.