Tax 2010/2011 For Dummies (UK Edition)
Although you can’t escape tax, you can make it easier to deal with. This Cheat Sheet gives you the essentials for the 2010–2011 UK tax year up front.
Capital Gains Tax in the UK
Capital gains tax, or CGT, is a tax on the profits or gains you make when you sell or dispose of an asset. Generally, the house you live in is exempt.
Nearly everyone in the UK is entitled to an annual tax-free allowance for CGT. If your overall gains for the tax year exceed the annual exemption limit, you pay CGT on the excess. If your overall gains are below the annual exemption limit, you won’t have to pay any CGT for that year.
The rate of CGT payable on disposals after 22 June 2010 is 28%, but only to the extent that gains exceed the basic rate band limit – £37,400 for 2010–11; otherwise the rate is 18%.
Corporation Tax in the UK
Corporation tax, or CT, is paid by limited companies and other organisations, including clubs, societies and charities, on their taxable profits. The rate of CT payable depends on the level of the company or organisation’s taxable profits.
Between the small profits rate and the full rate is a sliding scale known as marginal rate relief. If a company’s taxable profits are more than the small profits rate but less than the full rate, the effective rate of CT payable rises gradually from the lower rate to the full rate, depending on the amount of taxable profit.
|Rate||2009–10 and 2010–11|
|Small profits rate||21%|
The small profits rate is payable by companies with taxable profits up to £300,000. The full rate is payable on taxable profits above £1.5 million.
Taxing Income in the UK
Nearly everyone living in the UK is entitled to a personal tax allowance – the amount of income you can receive each year without having to pay income tax on it. You may be entitled to a higher personal allowance if you’re aged 65 or over.
|Personal Allowances||2009–10 and 2010–11|
|65 to 74||£9,490|
|Age allowance limits*||£22,900|
*The higher personal allowance paid to those people aged 65 and over is reduced for income at and above this level by £1 for every £2 of income until the extra age allowance rate comes down to the personal allowance for under 65s.
Inheritance Tax in the UK
Inheritance tax, or IHT, is a tax payable by your estate when you die. Not everyone in the UK has to pay IHT – it is only due if the value of your estate, including any assets held in trust and gifts made within seven years of your death, exceeds the IHT exemption threshold – called the nil-rate band – in force at the date of your death. Tax is due on the amount that exceeds that threshold.
|Band||2009–10 and 2010–11|
|40% rate band||£325,001 or more|
National Insurance Contributions in the UK
In the UK, most working people between the ages of 16 and 65 are eligible to pay national insurance contributions, or NICs. Paying NICs helps you build up entitlement to certain social security benefits, including the state retirement pension. The amount of NICs you pay depends on how much you earn and whether you’re employed or self-employed.
|Up to £110||0%|
|£110.01–£844||11%, or 9.4% if contracted out of the state second pension|
|Over £844||1% on earnings above this level|
|Limit below which Class 2 not payable:||£5,075|
|Class 2 rate:||£2.40 per week|
|Class 4 rate:||8% on profits between £5,715 and £43,875 and 1% on sums above the upper limit|
Stamp Duty Land Tax in the UK
Stamp duty land tax, or SDLT, is a UK tax paid on legal land and property transactions. It is charged as a percentage of the amount paid for the land or property when it is bought or transferred. The amount payable is worked out on the value of the transaction, and you pay the rate for the transaction value on the whole sum, not just on the amount over each threshold.
|Property Purchase Price||Rate|
|Up to £125,000||0%|
|£500,001 and over||4%|
Tax is paid at the rate applicable to the purchase price on the whole amount.
Properties costing up to £250,000 are exempt for first-time buyers only.
Taxable Income Bands in the UK
The amount of income tax you pay each year in the UK is worked out using different tax rates and a series of tax bands. The tax system is progressive, which means that tax rates increase as income increases.
If your taxable income exceeds the basic rate tax band, you have to pay tax at the basic rate on income up to the basic rate threshold, and at the higher rate on the amount of income that exceeds the basic rate tax threshold.
|Starting savings rate: 10%*||£0–£2,440||£0–£2,440|
|Basic rate: 20%||£0–£37,400||£0–£37,400|
|Higher rate: 40%||Over £37,400||£37,401–£150,000|
|Additional rate: 50%||Over £150,000|
*The 10% starting rate is for savings only. If non-savings taxable income exceeds the starting rate limit, the starting rate for savings will not be available for savings income.
Value Added Tax in the UK
Value Added Tax, or VAT, is a tax charged on most goods and services provided by VAT-registered businesses in the UK. VAT is charged when a registered business sells to either another business or to a non-business customer.
When registered businesses buy goods or services they can generally reclaim the VAT they’ve paid. There are currently three rates of VAT, depending on the goods or services the business provides.
|0%||Books, newspapers, children’s clothes, most food items|
|5%||Domestic gas and electricity/energy-saving materials|
|17.5%||Standard rate for most items – set to rise to 20% from 4 January 2011|
From April 2010, traders must register for VAT if their annual sales exceed £70,000 for the previous 12 months or expect to go over this level within the next 30 days.
From April 2010, traders whose sales fall below £68,000 may – but aren’t obliged to – deregister for VAT.