tax Archives - CruseBurke

News,May 2018

What is the Nil Rate Band on Inheritance Tax?

Smith25/09/2025tax

While death and taxes are unavoidable, the nil rate band offers a bit of relief, helping to transfer wealth to your loved ones without the taxman taking a cut. It is your pass to transferring wealth to the immediate descendants without triggering inheritance tax. It is also referred to as the nil rate band inheritance tax threshold and protects up to £325,000 in 2025. It becomes a relief for descendants who do not have to worry about the inheritance tax. Want to leave more for your loved ones? We will elaborate on what the nil rate band means, how it interacts with the IHT nil rate band rules, and why understanding the inheritance nil rate band might save you thousands. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about the nil rate band. Nil Rate Band Inheritance Tax In the UK, the first line of defence against inheritance tax is the nil rate band. It is often referred to as the IHT nil rate band. This key threshold helps heirs save thousands on tax for estates valued under £325,000. But there are rules around transferring unused nil rate bands between spouses or civil partners. And this makes things a bit more complicated. Whether you’re sorting out your will or dealing with the loss of a loved one, understanding the inheritance nil rate band can really help reduce the amount of tax you need to pay. Why is the Nil Rate Band Important? The nil rate band is an important concept in the estate planning process as it has a direct effect on the amount of tax your family may pay. With property prices and asset values rising across the UK, more estates are at risk of going over the tax-free limit. This could mean losing a big chunk of your hard-earned wealth to HMRC instead of passing it on to your loved ones. But don’t worry, if you plan ahead, things can go in your favour. The good news is, the nil rate band serves as a shield. It allows a specific amount of wealth to be passed on without paying any IHT. It is also referred to as the nil rate band inheritance tax threshold, and it shelters descendants against huge taxes. To most, it is the secret of intelligent estate planning. How Does the Transferable Nil Rate Band Work What if a married person or civil partner dies and does not use their full £325,000 NRB? Well, in that case, the unused portion of the nil rate band can be transferred to the surviving partner’s estate. For example, if a husband dies and leaves his entire estate to his wife, this transfer is tax-free. As a result, the husband’s full nil rate band is unused. When the wife later dies, her executors can claim her own £325,000 NRB plus the full 100% of her husband’s unused allowance. This effectively doubles the available NRB for her estate, allowing a total of £650,000 to be passed on free of Inheritance Tax (IHT) to beneficiaries, such as their children and grandchildren. To make this claim, the executors of the second estate shall have to make an application to HMRC with evidence of the first death. It is available even when the first death happened before the transferable rules (09 October, 2007), provided that the latter death happens afterwards. This transferable nil rate band is a valuable benefit for married couples, as this may effectively increase the tax-free limit and safeguard even more of the wealth against the IHT nil rate band tax. Eligibility for Transferable Nil Rate Band To claim the transferable Nil Rate Band (TNRB), you must have been married or in a civil partnership at the time of the first death. The TNRB applies when the first spouse or civil partner dies without using their full £325,000 allowance. The unused portion can then be transferred to the survivor’s estate, potentially increasing the tax-free threshold to £650,000. Special cases for eligibility: Remarriage: If a surviving spouse remarries, they can claim the unused NRB from each deceased spouse. However, the total transferable NRB added to their own allowance is capped at 100% of the standard NRB. What does that mean? Well, this means that a person’s NRB can be increased by a maximum of one full additional allowance. Even if they have been widowed more than once. Partial allowance used: If the first spouse used part of their allowance (e.g., leaving a gift to a non-exempt beneficiary), only the percentage of the NRB that was unused can be transferred Calculating IHT Using Nil Rate Band To calculate IHT, you have to calculate the full value of the estate, minus debt, funeral expenses, and exemptions. The remaining estate value is then compared to the nil rate band. Any amount above £325,000 will be subject to inheritance tax at 40%, except in other circumstances. For example, an estate valued at £400,000 would only pay 40% on £75,000, which is above the threshold, resulting in an IHT of only £30,000. £400,000 – £325,000 = £75,000 x 40% = £30,000 (IHT) In the case of lifetime transfers (gifts), if the donor dies within 7 years and the total value of taxable gifts exceeds the nil rate band, Inheritance Tax may be due. The rate of tax remains at 40% but the amount of tax payable is reduced by taper relief on a sliding scale for gifts made between 3-7 years before death. It’s important to note that not every asset is considered part of the estate for IHT purposes. For example, pensions and jointly held assets may be excluded from the estate, provided they are arranged properly. The Importance of a Will in the Nil Rate Band Sound estate planning is based on having a legally sound will. Without a will, your property will be distributed according to the rules of intestacy, which may not reflect your wishes. These regulations might go against your desires …

What is the Residence Nil Rate Band?

Smith18/09/2025tax , Taxation

The Residence Nil Rate Band (RNRB) is an inheritance tax allowance, set at £175,000. It is abbreviated as RNRB by experts. It is a transferable allowance for married couples and also for civil partners. It applies when a main home is left to direct descendants such as children or grandchildren. This blog describes the residence nil rate band in a simple manner. You will get to know how it is applicable to the nil rate band inheritance tax regulations. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about who owns a private limited company. What is Inheritance Tax (IHT)? IHT, or inheritance tax, applies to estates upon death. The government charges IHT on property exceeding some amounts. Inheritance tax is another issue that people typically consider when making their wills. The RNRB assists in lowering the tax for most families of direct descendants (children and grandchildren). The nil rate band of the basic IHT is £325,000, but RNRB can increase this amount under certain conditions. Below this amount, there is no IHT. They pay 40 percent above it. And if a sufficient charitable donation is made then the IHT rate on a UK estate is reduced from 40% to 36%. A large number of people have their own homes, and these constitute a significant portion of their estates. This is further relieved by the residence nil rate band. The residence nil rate band was initiated in 2017. It is to assist families in retaining homes without having high tax obligations. This RNRB increases the nil rate band for estates that qualify. Understanding the Nil Rate Band The nil rate band is the portion of an estate that is exempt from inheritance tax. Today, the IHT nil rate band is £325,000 per head. Couples or civil partners can combine their unused nil rate bands if one partner’s estate does not use the full £325,000. The unused portion can be transferred to the surviving partner’s estate. This will be up to £650,000 tax-free when married as a couple or civil partners. The nil rate band can be transferred from one spouse or civil partner to the surviving partner if the first partner’s estate does not use the full nil rate band. If a spouse does not use up their full nil rate band, the unused part can be passed to the surviving spouse, giving them a larger allowance. If the first spouse used £100,000 of their £325,000 nil rate band, the surviving spouse’s nil rate band would be £550,000, not £650,000. The nil rate band has remained frozen since the year 2009. The government had this frozen up to 2030. This has impacted the family’s estate planning. The nil rate band IHT rate did not increase with inflation. IHT nil rate band limits have been imposed on more estates. The basic nil rate band is usually confused with some others as the residence nil rate band. It applies to homes passed on to direct descendants. What is the Residence Nil Rate Band? The residential nil rate band is an additional allowance of IHT. The RNRB applies when a person’s home is passed on to direct descendants upon their death. The RNRB is now £175,000 per head. This increases the total tax-free amount. The residence nil rate band was introduced by the government as a way of assisting families. It is aimed at the main home nil rate band of owned estates. You are eligible in case there is a qualifying residence in your estate. Children and grandchildren are immediate family members and legal descendants. Adopted children and step-children are included, too. The IHT residence nil rate band necessitates that you leave the home to them. This may occur by rule of will or intestacy. The RNRB does not apply to every estate. Only this works in the direct case of inheritance of the home. For the RNRB to apply, legal heirs must receive the home directly. If a home is placed in a discretionary trust, the RNRB is usually lost. It is commonly called the IHT residence nil rate band. This points to its connection with inheritance tax relief. The residence nil rate band assists in minimising the tax on family houses. What is the Eligibility for RNRB? You must fulfil the important conditions of the residence nil rate band. It includes: The first condition is that the deceased must have owned a residence that is passed on to direct descendants. This is the principal residence nil rate band requirement. It has to be the house you used to live there. Second, leave it to the immediate legal descendants. The RNRB also applies to lineal relatives and in some cases to their spouses or civil partners. For example, it can cover a surviving husband, wife or partner of a deceased child or grandchild. The IHT residence nil rate band applies to all lineal relatives. The value of your estate is also important. If the estate is worth more than £2 million, the RNRB is gradually tapered. For every £2 above the threshold, the RNRB is reduced by £1. The RNRB can apply to foreign properties as long as they are part of a deceased’s estate that is subject to UK Inheritance Tax. Eligibility depends on the deceased’s domicile status. Foreign properties can be eligible provided that they comply with the regulations. Consult HMRC in particular cases. The executors claim the RNRB on the tax returns (IHT400). The details of the nil rate band of residence use IHT435. This will provide proper use of the IHT residence nil rate band. How Much is RNRB? It started in 2017 at £100,000 and has risen to £175,000 by 2020. This was frozen by the government until 2030. This has severely impacted the nil rate band inheritance tax planning. Couples or civil partners can combine their RNRB allowances, reaching up to £350,000, provided both are eligible. Add the basic IHT nil rate band, and it will …

What is the HMRC Payment ‘NIERS’ on my Payslip?

George25/05/2025tax , Tax Issues , Tax News and Tips

When you are carrying out a business that is based in the UK regardless of being a small business or a large business, your firm is under the obligation to pay the Employer’s National Insurance Contributions. For example, if you are a contractor who is associated with an umbrella company or a recruitment agency, you are being paid through the PAYE system. The firm or the company you are associated with will pay the Employer’s National Insurance. However, you are thinking about what HMRC payment NIERS has to do with any of it. Moreover, commonly this is known as class 1 secondary contributions as well. As we have earlier discussed that employers are under the obligation of saying the national insurance contribution from the salaries of their employees. When an employee earns an amount equal to £170 or more than this, the employee owned the payment of NIERS. You might witness such deduction already on your witness. However, several people do not really know what are all these deductions about. The deduction of NIERS is usually explained on your payslip. And when you cross a certain limit, your employer is now bound to pay PAYE and NIERS. In this guide, you will gather information about what is NIERS, how can it affect your pay rate, if a pay rate increase is due to NIERS, and what is the controversy behind NIERS. Talk to one of our intelligent and clever professionals to get your further queries about HMRC payment NIERS. We will ensure to come up with the best possible solution. What is the HMRC Payment NIERS? The frequently asked question among the contractors in the UK is what is NIERS? NIERS is known to be the national insurance employer’s contribution. When you are in the role of a contractor and associated with an umbrella company or a recruiter agency, you are usually paid through PAYE. Now your employer is obligated to pay the national insurance contribution from your salary. Around the UK all the employers will have to pay for this. This is because of the earnings of the employees that you have hired for their company. Moreover, Class 1 Secondary contributions is kind of another name used for this. The contractors who are associated with companies usually give their salaries through the payroll system and the explanation of the deductions is mentioned on the payslip as well. This will further make your employer obliged to fulfil the requirements of paying NICs on the salaries of employees as well as operating the PAYE system. How Does HMRC Payment NIERS Affect the Pay Rate? The employer of the umbrella companies is equally responsible for paying NICs and operating the PAYE system to pay the salaries. This does not matter whether you are associated with an umbrella company or any agency, both employers will have to pay NIC. Normally NIERS have no effect on your pay rate. The charges are calculated normally within the range of the agreed pay rate of the contractor with the employer. This is also known as the assignment rate. Normally the agencies and the umbrella companies tend to incorporate such an allowance in the computation while they are working on the pay rate of the contractor. This is to ensure that the NIERS commitment is done to keep the promise with HMRC. This will help to be protected from any kind of fines and penalties from HMRC. What is the Rate Increase due to HMRC Payment NIERS? Once you have joined an umbrella company, you might wonder about the pay rate increase. This normally happens because the agencies transfer the increase in rates to the umbrella companies. Now the umbrella company will be liable to pay the national insurance contributions from your salary account. When such a transferring case is observed, the agencies are no more liable for paying any NICs and it is now the umbrella company that is viewed as your employer. This will put the national insurance contribution rate into the PAYE rate of the contractor. What is the Controversy behind NIERS? There are several cases observed where the contractors associated with agencies or companies have complained that unnecessary deductions are being subtracted from the amount of salary. This is because of the fact that the contractors do not really understand what is NIERS. The wrong comprehension of the deductions causes trouble for the company owners as well as the employees. Usually, the employers of firms and companies do not get involved in any kind of wrong deduction or unlawful act because they are aware of the penalties and punishment charged by HMRC if caught. It is advisable to learn and comprehend your payslip well to avoid any such confusion for yourself and for your company. The Bottom Line The deduction on the payslip because of NIERS are often confusing for the contractors because of the fact that they are not fully able to read the payslip and the explanation of relevant deductions. This gets them further confused about the pay rate and increase in case of transferring from an agency to the umbrella company. This is why professional advice helps you understand the payslip and its terminology to explain the calculations or deductions. We hope these few minutes of reading will help you better understand HMRC payment NIERS. As well as how to deal with them professionally in the future in order to avoid causing trouble for the company owners and employees. If you seek professional help, learn more about HMRC payment NIERS. Why wander somewhere else when you have our young and clever team of professionals at CruseBurke? Disclaimer: The information provided in this blog is about HMRC payment NIERS, including the text and graphics, in general. It does not intend to disregard any of the professional advice.

How are Pension Plans Taxed?

George14/05/2025Pension , tax

The state pension is the benefit that every employee in the UK receives upon reaching retirement age. Everyone in the UK pays a certain amount of money from their salary each year to receive the state pension after retirement. As every income is taxed in the UK, the same applies to the state pension. If you are nearing your retirement age and need to know how are pension plans taxed, then dive into this article. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about pension plans taxed. How are Pension Plans Taxed? Generally, when you start transacting your pension savings, the UK government starts treating your pension money as a regular source of income, and it is taxed in the same way; however, there are some reliefs by the HMRC. It all depends on how you withdraw your money to ensure that the minimum tax is imposed on you. Certainly, the amount of tax paid by you at the end of the financial year will depend on your circumstances, which can change in the future. It is important to learn and plan on how to manage your finances after retirement and how to utilise the relief offered by the government. 1. Tax on your State Pension As mentioned earlier, the pension is taxed as income after retirement in the UK, and the UK government provides various strategies for how are pension plans taxed in the UK. The pension amount is transferred to your bank at the start of every month, just like your salary, but without any tax deduction. The due tax is deducted from your other sources of income if you have any. Apart from the tax bracket, you are still eligible for the tax allowance you get. The tax allowance is the amount of money you can earn without paying tax. On the other hand, if the state pension is your only source of income, then you are not liable to pay any tax to the HMRC. 2. Tax on Your Personal Pension The tax is imposed on personal pensions if you start withdrawing; however, the amount of tax depends on how you withdraw your money and the intervals of transactions. 3. Tax on Your Pension Lump Sum If you withdraw your pension as a lump sum amount, then the taxation charges would be different. In such cases, the first 25% of your amount is tax-free. This tax-free amount is apart from the personal tax allowance you avail yourself of while filing a tax return. However, if you withdraw more than a certain limit of your pension savings, that will be taxed as any other income you have. This may send you to a higher tax bracket. It is an efficient approach to spread your withdrawals over longer periods, maybe year to year, to keep your tax bracket low. 4. Tax if Someone Inherits Your Pension There are different tax liabilities if someone inherits your pension. They will be taxed according to their sources of income and their current circumstances. Making the right pension withdrawal choice serves you multiple benefits in the long run. If you take out only a certain part of your pension, you can continue contributing to your pension. Another benefit is you can carry forward the tax reliefs that you have not utilised yet. Collection of Tax Through Self-Assessment Another way to file a tax return is through self-assessment. If you are getting a monthly pension and fall under the bracket of filing a tax return, you can do it through self-assessment if you are eligible for it. The state pension is included as an adjustment in your tax code. The pension is adjusted only if you have a PAYE income source. There are times when miscalculations occur, and tax is overpaid or underpaid. If this happens to you, you can claim the overpaid amount of tax from the HMRC. Tax on Arrears (Back-Payments) of State Pension The back payments are made if the Department for Work and Pensions has sent the wrong amount of pension into your account. If this happens to you, you need to recalculate your tax amount, as it might increase or decrease the amount of tax. The Department of Work and Pensions will also share the information on payback with the HMRC so that your tax information is updated, corresponding to your tax code. How to Check You’re Paying the Right Amount of Tax? It is always advised to check if you are paying the correct amount of tax, keeping in mind all your income types, with a pension, or if a state pension is your only source of income. For this purpose, you may visit the GOV.UK website to assess the right amount of tax and the method of tax filing. If you have moved to another country or you are planning to move, then you should consult the GOV.UK website to know what will happen to your state pension after you leave and if it will be taxed or not. The UK Government has also defined relief in the form of money purchase annual allowance on withdrawal of lump sum cash amounts. This allowance is applied to the withdrawal of taxable lump sum amounts. This allowance allows you to continue contributing to your state pension while enjoying tax relief. This includes tax relief and employer contributions. Conclusion There are different strategies for how are pension plans taxed in the UK. The pension is taxed as any other source of income if you start withdrawing it. If you withdraw your pension as a lump sum amount, the amount of tax imposed is greater; therefore, it is advised to withdraw it in small portions over a gap of at least a year to avoid greater taxation charges. Moreover, there are different tax rules if someone inherits your state pension. The tax should be recalculated if you come across a payback scenario from the Department of Work and Pensions. Reach …

What is a Webfiling Authentication Code?

George13/05/2025tax , Taxation

Each business, big or small, is liable to pay tax to the UK government through HMRC and register at the Companies House. The Companies House keeps a record of the companies in the UK and issues a unique code called the webfiling authentication code. This code is as important as the company tax number. This article gives detailed information on what is webfiling authentication code and why it is important for a company in the UK. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about webfiling authentication code. What is Webfiling Authentication Code? The web filing authentication code is a 6-character alphanumeric code. It is unique and issued by the Companies House to each company in the UK. The Companies House includes the webfiling authentication code in the official letter of the company. The Companies House sends the letter containing the webfiling authentication code to the address provided by the company owner. You must ask for the webfiling authentication code if you do not find it in the letter sent by the Companies House. This code serves multiple purposes for a company. This code serves as a digital password to the company’s information stored at the Companies House. The web filing authentication code is used to authorise someone to update the company information or view it at the Companies House portal. Web filing authentication code is similar to the signature of a company official and holds similar authenticity significance. The web filing authentication code of your company must be kept secure, and irrelevant persons or employees should not know what the web filing authentication code of your company, otherwise someone may change the company details. How Long will it Take to Receive My Company Authentication Code? The time taken to receive your web filing authentication code depends on how you form your company. If you are forming your company using the “inform direct approach,” you may get your webfiling authentication code on the spot. If you are incorporating your company through the Companies House, then you should receive your webfiling authentication code within 5 days of incorporation. How to Use Your Web Filing Authentication Code? The webfiling authentication code is used by the company or data-entering software to file the company information on the online Companies House webfiling portal. To file and update the company information on the Companies House webfiling portal, this unique 6-character alphanumeric code is required along with the company registration number and account password. The online webfiling portal is used for various important tasks such as Filing the annual return of the company, which is now known as the confirmation filing Update the confirmation statement on the Companies House webfiling portal Filing the annual accounts information. This includes information about the dormant company accounts. Updating the registered office address if you have moved to a new location Informing Companies House about the SAIL address Updating the information about newly appointed company officers or those who have resigned or fired. This involves company directors and secretaries. Updating the data of company officers at the Companies House portal. The webfiling authentication code is for the security of the company information and to avoid any unauthorised access to the confidential company information without consent from the company officials. Therefore, the webfiling authentication code must be kept confidential. How to Change or Cancel Your Code? It is a common observation that people usually forget their codes or passwords. This can happen with the webfiling authentication code as well. The company owner has the authority to change the webfiling authentication to something not easily forgettable, and he can easily guess while working on the Companies House portal. If the code is changed, you must inform the third party who is involved in updating and adding company information at the Companies House portal. If the stakeholders are uninformed, you may lose important information updates about your company, as without the webfiling authentication code, the company information is inaccessible. How to Look After Your Code? The security and secrecy of the webfiling authentication code are as important as the secrecy of your debit/credit card PIN. To keep your webfiling authentication code secure, you should take the following measures: The code should consist of mixed letters and numbers so that it is difficult to guess. Share the webfiling authentication code with the relevant and limited persons only, and make sure they are trustworthy. Change the webfiling code if you sense the code is not secure anymore and is known to someone you don’t trust. Change the code if the relevant officer or third-party software is no longer involved in adding and updating data at the Companies House portal. For example, if an officer leaves the company or your previous accountant. The UK government never asks for the webfiling authentication code. If you receive a call asking for your webfiling authentication code, you should immediately report it to the Companies House fraud report section. Will Companies House Change My Code? Companies House might change your webfiling authentication code. This happens if the letters sent by the Companies House eat the registered company address are not received and repeatedly returned to the Companies House office. The Companies House will change your webfiling authentication code to protect your company and staff details. The letters are returned to the Companies House if you change your office location without updating the Companies House. Retrieving your Webfiling Authentication Code You may forget and start recalling what is webfiling authentication code of your company. You should have a web filing authentication code that is associated with something memorable. If you have forgotten the webfiling authentication code, you can request a reminder from the Companies House. For this purpose, sign in to the Companies House portal and select the “request an authentication code” option. Conclusion As a company owner, you should know what is webfiling authentication code and what importance it holds for your company. This code is issued by Companies House …

How Does P11D Affect Tax Code?

George25/04/2025tax

Various forms are to be filled out while filing tax returns to the HMRC at the end of the financial year. The requirement to fill out forms depends on the income level and allowances availed by the individual. Individuals are required to fill out a P11D form for additional employment income while filing tax returns. How do you fill out a P11D form, and how does p11d affect the tax code? Read this article for a detailed overview. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about how p11d affects the tax code. How Does P11D Affect Tax Code? In the UK, a P11D form is used to report additional employment income or incentives given by employers. The form must be submitted to the HMRC by the employers. Employers submit this form for each staff member of their company who is awarded taxable incentives. The taxable benefits include company cars or vans, private healthcare, or season ticket loans. In the UK, while filing tax returns for the tax year 2025/2026, submitting a P11D form is mandatory, after which the employers will be paid. The incentive value mentioned on the P11D form is reviewed by the HMRC for assessing the overall tax affairs of an individual and checking that the correct amount is paid by the individual. The assessment by the HMRC is followed by an update in the tax code of the individual for the current tax year so that regular tax deductions will be done according to the liability of the individual. Benefits Included in P11D Form The benefits included in the P11D form are mentioned below A company car is allotted to the individual, and fuel is covered by the company. Company vans are provided for personal use to the employee. Medical insurance of the employee. Professional and private memberships in societies and clubs. Accommodation discounts in hotels, lodges, and resorts. Pecuniary bills paid by employer (accountancy, etc.). If the employer decides that some of the employer incentives should be paid in the monthly or weekly pay, then there is no need to mention these incentives in the P11D form. The P11D form must be submitted to the HMRC by 6 July every year. Additionally, employers are required to fill out and return the P11D(b). A P11D(b) calculates employer class 1A national insurance contributions, which are due on certain benefits. There are penalties set by the HMRC for the late or incorrect filing of P11D forms. The HMRC no longer accepts hardcopy submissions of P11D; all submissions must be made online through the HMRC portal. A copy of the P11D form should also be given to the employee to enable them to complete their income tax return, review their tax deductions, and/or allow them to prepare claims for tax relief. Tax Payable on Company Benefits In the UK, additional benefits from the employer are taxable in the same way as any other income type. The incentives are regarded as pay raises. When an employee fills out a P11D form, the tax code is reduced by the HMRC, indicating that the taxpayer allowance is dismissed, and now a higher tax amount is liable to the employee as PAYE deductions. For instance, a tax code of 1257L indicates that a person is availing of the basic personal allowance, whereas a code ending with M indicates that a spouse or civil partner has transferred a proportion of their allowance. The numeral figure is personal, except the zero means on the income of £12570, a person is availing an allowance. Larger company benefits and incentives are indicated by the letter K. According to HMRC, no allowance is given to tax codes ending in the letter K. Negative allowances are those allowances that reduce the actual tax-free amount. These are labelled as letter K tax codes, where the last digit is removed and one subtracted from the actual amount; for example, a tax code of K296 reveals the allowance of £2970. In case of code alteration, the HMRC must issue a notice of coding indicating that the company benefits are accounted for by the HMRC in a tax return. Common Tax Code Errors Linked to P11D Submissions If the HMRC has the previous air incentive information of the employer, the tax code might be wrong, and the employee might end up submitting the wrong amount of tax to the HMRC. An incorrect tax code can happen if the employee switches jobs, moves to a higher designation avails more incentives from the company and does not update the HMRC about the current employment status. A P46 form is used to submit information regarding the car given by the company in such cases. The tax office issues a new tax code according to the car types provided by the company, replaced or withdrawn. An employee should have a copy of the P11D form, and he should understand how P11D affect the tax code so that he has the information of all taxable assets he owns. Some of the company benefits have a cash value, which is already known, however, there are some assets whose value needs to be calculated for accurate tax assessment. It is also impossible that the P11D data of the employee record should match with the data HMRC has against his tax ID. Employees can use P11D worksheets to verify the values included in the P11D form, which can be later used for declaring assets on the P11D form. The HMRC sends a P800 form to employees for tax calculations. The employees can verify P11D information against the P800 form. Directors pay income tax against their high salaries and tax on any dividend they are getting, they also need a P11D form and pay tax according to the company assets they own. Conclusion Employees and employers should know P11D, and how does P11D affect the tax code? The tax code is updated by the HMRC, recording the information provided by the employer on …

What is a Tax Reference Number?

George22/04/2025tax , Tax Issues

While residing in the UK, everyone knows that they are liable to pay tax to the HMRC. For making timely payments to the HMRC, the residents have to file a tax return against a unique ID assigned to them by the HMRC. This is known as a tax reference number. What is a tax reference, and why is knowing your tax reference important for filing tax returns? Read this article to have an idea. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about tax reference number. What is a tax reference? A tax reference number is issued as a unique ID by the UK government to every taxpayer for filing tax returns and other payments to the HMRC. The tax reference number is also known as the PAYE reference number. This number consists of letters and numbers in a specific format assigned to employers and occupational pension providers by the HMRC. This number is compulsory for abiding by the rules and payroll taxation regulations of the UK government. In general, this number is formatted as 123/A45678, Consisting of 3 numbers separated by a letter followed by 5 specific numbers. Why Employers Need a Tax Office Reference Number? The tax reference serves as a tax ID for each person. The employers need the tax reference to ensure that accurate tax is paid for each individual and an accurate record is maintained by the HMRC. This number is also imperative for deducting the national insurance contribution of salaried persons. Compliance with Tax Office Reference Number regulations is important for avoiding penalties from the tax office handling the taxation matters, but it is also crucial for keeping efficient payroll management, tracking pension contributions, and effective record-keeping. How is PAYE relevant in this regard? The amount of tax paid by a taxpayer is based on the annual income. The HMRC gives a tax code to the employees. The tax code depends upon the difference in earnings of the employees. Employers of the companies use this code to calculate the amount of tax. The amount of tax is then deducted automatically from the account of the employee through PAYE. The tax code for the current year can be found on the pay slip of the employee or from GOV.UK. There is a limited amount of earnings that is exempt from tax; this is called personal allowance. In the financial year 2025/2026, the personal allowance on the basic tax rate is £12,570. For earnings above £12,570, you are imposed tax depending on the increase in taxable income. This simply implies that the more you earn, the more tax you pay to the HMRC. If the annual earnings of an individual in the UK are £125,140, then the person cannot claim the personal allowance. The HMRC has also set other criteria for personal allowance, such as the Marriage Allowance, the Personal Savings Allowance, and the Dividend Tax Allowance. What is a tax reference in the case of national insurance contributions? What is a tax reference in the case of national insurance contributions? It is the same number of national insurance contributions as well. In the UK, national insurance is a tax paid by the residents, which is used as funds for social security benefits by the UK government, such as state pensions or health benefits. National insurance is paid by all individuals, whether employed in a company or self-employed. The amount of national insurance imposed on an individual depends on the annual income. The HMRC has created classes for this purpose. An individual’s class of national insurance may depend on their employment status. The classes of national nsurance are labelled as 1,2 and 4 contributions. If you’re employed If you are employed, the national insurance is deducted as a Class 1 national contribution from your salary only if you are Below the age limit described by HMRC earning above £242 weekly by doing one job Employers only pay Class 1A and Class 1B national insurance for the benefits they have provided to the employee and the employee’s expenses. If you earn less than £242 a week from one job If an individual is earning less than £242 (between £123 and £242) per week from one job, then he is not liable to pay the national insurance; however, he is still eligible to enjoy certain benefits from the UK government, such as state pension and national health services. If the weekly earnings of an individual are less than £123 a week from one job, he may choose to pay Class 3 contributions of national insurance to cover the gaps in the national insurance record. If you’re self-employed The amount of national insurance contribution to be paid by a self-employed person is based on their annual profit. If you profit £6,725 or above To compensate for any missed National Insurance contributions, Class 2 National Insurance contributions are paid. In case a business is earning more than £12,570 annually, it is liable to pay Class 4 national insurance contributions. If you profit below £6,725 a year In such a case, you are not imposed any class of national insurance; however, you may choose to pay voluntary national insurance to avoid gaps. Directors, Landlords, and Share Fishermen Different national insurance rules are set by HMRC for directors, landlords, and fishermen. Directors are considered as employees in a company, and they must pay national insurance on annual income from salary and bonuses over £12,570. If you are a landlord and rent your property, then a class 2 National Insurance contribution is imposed if you are landlord by profession your multiple properties are rented out you’re buying new properties to rent out A share fisher is classified as self-employed in the UK and must register for national insurance at the HMRC. If you are a share fisher, you are eligible to pay a special rate of Class 2 National Insurance contributions. If the profits you earn as a share fisher are below the …

How Do I Cancel Road Tax?

George20/04/2025tax , Tax Issues

How do I cancel road tax? The asset you own in the United Kingdom brings you tax liability that needs to be paid at the end of the tax year to the HMRC. The assets included in the tax range are houses, land, or vehicles that you own. Among other taxes on assets, you need to pay tax if you drive the vehicle/vehicles you own. This tax is called road tax or, formally, vehicle excise duty (VED). However, this tax can be cancelled if certain conditions are met. If you are not updated about the recent road tax changes made by the UK Govt, and how do I cancel road tax, this article will provide all the required details. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help on how do I cancel road tax. Understanding of Road Tax Cancellation How do I cancel road tax? Road tax, commonly known as vehicle excise tax, constitutes a significant proportion of revenue for the UK government. While in the UK, it is essential to pay tax to the HMRC, even if no road tax is applicable; this tax is important for vehicle registration. The tax can be paid to the HMRC through debit or credit cards. The amount of road tax varies according to the region and vehicle type, involving the legal framework regarding vehicle taxation in the UK. Why Does Road Tax Need to be Paid? The road tax is regulated by the DVLA in the UK and was introduced in 1937. The road tax is used by the government to complete local projects, thus upgrading the transport infrastructure in the country. This helps provide better services for the public and improves traffic flow on the highways. In the UK, every car owner is imposed a road tax for driving on public roads and highways. If a person is caught driving an untaxed vehicle, they will be fined £80 by the DVLA, which is reduced to £40 if paid within 28 days of the fine imposition. This fine can increase up to £1000 if a person is caught driving an untaxed vehicle in a public area; in the worst-case scenario, the car may be seized as well. Reasons for Cancelling Road Tax The road tax imposed by the DVLA can be cancelled if the following conditions are met: If you have sold the car or transferred it to someone else. If you are not using a car on the road and declare it as an off-road vehicle (SORN). If the car is damaged and it is unsafe to drive it, the insurance company write off such vehicles. The repair cost of such a vehicle is more than its actual cost, which is totally uneconomical. If the car is stripped of its parts in other vehicles. The car has been stolen. If the car you own is exempt from road tax. You have exported the car to another country. How Do I Cancel Road Tax? The following steps need to be followed while applying for road tax cancellation: You will need a logbook for your vehicle (V5C). From the logbook, you will need the 11-digit number mentioned in the yellow section labelled as “Sell, transfer or part-exchange your vehicle to the motor trade” in the logbook. You may also need the 16-digit number mentioned on your V11 reminder form. Your vehicle registration number, name, and address. The road tax cancellation process is made easier by DVLA’s online service. You can select the scenario from the list provided and then follow the prompts that appear on your screen. There are different conditions for the options you choose, which may be: If the car is sold or transferred to someone else, you need to give the details of the new owner and other necessary paperwork to the DVLA. You need to declare the Car an off-road vehicle and update the DVLA. The DVLA should be updated if the car is scrapped. If the car is stolen, you should call the police about the theft, and the police will update the DVLA. The insurance should also be updated about the theft. The road tax can also be cancelled by other conventional ways, such as post or phone. Refund Eligibility and Process Below are the eligibility criteria for the road tax refund The amount of the refund will be calculated by the DVLA from the date you apply to cancel your road tax. This process is done automatically and does not need anything else from you. The road tax is paid annually in advance to the DVLA in the UK. The refund amounts will be for the remaining months of the year after you have applied for the tax cancellation. For example, if you apply for a road tax cancellation after six months in a year, you will get the refund for the remaining six months. The DVLA will not refund the charges paid, such as credit or debit card fees. If the tax is paid by direct debit, the DVLA cancels your regular payment. If the refund is requested on the first annual tax payment, the DVLA will calculate the difference between the first and second road tax payments and refund whichever is lower. Tax Refund Payment The amount of tax refund is paid by cheque by the DVLA. The tax refund will be sent to the name and address provided by the V5C logbook of your vehicle. The refund amount is received within 6 to 8 weeks of your request. If the name or address on the cheque is wrong, you can correct it by sending it back to the following address: Refund Section, DVLA, Swansea, SA99 1AL If the refund amount is not received within the mentioned period, you must inform the DVLA. Conclusion The road tax imposed by the DVLA is the tax that is paid by the car owner for the car that is used for driving. The amount of tax differs …

What is Taxable Pay on Payslip?

George18/04/2025tax , Tax Issues

Every employee requires knowledge about what is taxable pay on payslip as understanding taxable pay on a payslip enables you to determine which portion of your earnings are taxed plus the reasons behind specific deductions. Most workers review their payslips monthly but fail to interpret the listed information properly. Hence, what is taxable pay on a payslip? This article helps you to know about it, along with major differences from other terms mentioned on the payslip. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about what is taxable pay on the payslip. What is Taxable Pay on a Payslip? Taxable pay includes workers’ wages that workers must surrender to the Income Tax authority and National Insurance for government revenue. Tax condition depends on the level of income that exceeds the Personal Allowance and spans through each tax band. Several kinds of income possess tax-exempt status, which prevents them from being counted as taxable pay. During the tax year running from April 6th 2024, to April 5th 2025, the Personal Allowance stands at £12,570. Individuals who earn beyond £100,000 must experience a reduction of £1 in their Personal Allowance for every £2 they surpass this amount. The Personal Allowance is not provided at all to individuals with income exceeding £125,140. People who meet Blind Person’s Allowance qualification criteria are able to raise their amount of tax-free earnings. The total sum that employers subtract from your gross pay to determine your taxable income is taxable pay. Numerous approved payments, together with specified deductions, determine the amount that constitutes your taxable pay. These deductions include: Payment to a Revenue-approved pension Scheme leads to gross pay deduction before the tax computation process begins. Your taxable income decreases when you make approved income protection scheme payments through the Permanent Health Benefit (Income Continuance) Scheme. Employees choose to exchange parts of their gross salary for employer-provided cars or enhanced pension arrangements through Salary Sacrifice Arrangements. Taxable pay decreases because employees choose salary sacrifice arrangements to reduce their income amounts. Employees who make contributions to their Personal Retirement Savings Account experience tax deductions prior to the calculation of tax amounts. A Retirement Annuity Contract (RAC) receives a deduction from gross pay before tax applies to the remaining amount. Your taxable income decreases when you make these deductions; therefore, your income tax obligations also decrease. Income Tax Rates and How Tax Is Calculated? People pay taxes according to the following breakdown after their Personal Allowance has been deducted. Up to £12,570 – No tax (0%) £12,571 to £50,270 – Taxed at 20% (Basic Rate) £50,271 to £125,140 – Taxed at 40% (Higher Rate) Over £125,140 – Taxed at 45% (Additional Rate) What is Gross Pay? Before any tax or pension deductions, gross pay represents the entire wages an employee receives. Employers must provide employees with their complete wages and salary amounts before taxes, pension contributions or deductions occur. Gross pay includes: Notional Pay describes all employer-contributed employee perks that extend beyond cash benefits, such as health insurance, together with company cars and additional non-cash benefits. The compensation package includes presents made through shares or stock options. The foundation of employee compensation exists in full wages, together with salaries that do not include salary deductions or pension payments. Before any reductions are applied, the employee’s complete earnings can be found in gross pay. Not all the money received under gross pay deductions falls into taxable income categories. Gross Pay vs. Taxable Pay: What’s the Difference? Different terminology relating to your earnings appears on your payslip. The important payment terms in payslips are Gross Pay and Taxable Pay. The two figures share some similarities but operate differently to determine the tax amount. The distinction between gross pay and taxable pay demands your immediate attention since it shows exactly how much tax your salary triggers. The system enables you to comprehend the added value of making pension scheme contributions and other authorised deductions. Financial planning becomes easier because this knowledge shows you what amount of pay remains after taxes and other deductions. A review of your payslip shows both gross pay and taxable pay amounts, so you can understand the calculation methods and salary administration. Taxable Pay Gross Pay After specified deductions, your gross pay produces the taxable amount, which becomes subject to taxation. Before all deductions take place, employees receive their full gross earnings as their total compensation It includes: A government-approved pension plan The approved Permanent Health Benefit (Income Continuance) plan maintains participation status with the tax authority. A Salary Sacrifice Arrangement A Personal Retirement Savings Account functions as a PRSA. A Retirement Annuity Contract (RAC) It includes: The employer provides non-cash benefits, which make up notional pay. Share-based payments (like company stock options) The full salary before any pension contributions or salary sacrifice deductions Income vs. Capital: Understanding the Difference The distinction of evaluating between income and capital receipts serves to determine whether the amount falls under Income Tax regulations or Capital Gains Tax rules. The way an amount appears provides no assurance on its tax classification because tax laws determine how it should be classified as income or capital. Types of Taxable Income Different types of earnings fall under tax law categories that must be taxed according to the Income Tax regulation. Employment income (wages, salaries, bonuses) Pension income Certain welfare benefits Trading income (self-employment profits) Property income (rental earnings) Savings and investment income Miscellaneous income Some types of payment cannot be easily assigned to either employment or capital receipts classifications. Compensation payments, together with grants, may fall within the scope of taxable income according to specific circumstances. Capital gains taxation through tax rate schemes exists for the following types of payments, which classify as capital income receipts: Receipts from the sale of an asset Receipts for the destruction of an asset Receipts for restrictive covenants Single payments are treated as capital by the majority, yet this status may not always hold true. All payments that substitute …

How Much Dividend is Tax Free?

George14/04/2025Dividend Allowance , tax

How much dividend is tax free? The UK government makes changes to tax rates on dividends every year. Understanding these changes and how much dividends are tax-free is crucial for small and large business owners and investors. This article will give you a detailed overview of how much dividend is tax free. Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about how much dividend is tax-free. How much dividend is tax free? How much dividend is tax free? Dividends are the payments made by the companies at regular intervals to their shareholders. A dividend is basically part of the company’s profit that is divided among its shareholders. The dividend amount depends on the company’s performance and the number of shares owned by a shareholder. The UK government has imposed a tax on dividends received by shareholders. HMRC has set certain limits below which no tax is imposed on shareholders; this is known as a tax-free dividend allowance. The tax-free dividend allowance was introduced in April 2016 to all UK residents. This allowance replaced the previously practiced dividend tax credit system. Recent changes to tax-free dividends have lowered the limit, meaning more people will have to pay tax on their dividend amounts. How to Calculate Tax on Dividends? The following three steps are followed to calculate tax on dividends: Add your dividend profit to all your other income sources, such as your monthly salary or rental income. Calculate your tax band by adding all your income, that is rental income, monthly salary and income from other part-time or online jobs. You are liable to pay tax based on your highest tax band. How Dividends are Taxed? The HMRC has set criteria on dividends regarding tax imposition. If a shareholder is earning dividend income that falls under his personal allowance amount, then he is not liable to pay any tax on dividends. However, there is a dividend tax allowance set each year by the HMRC; shareholders only pay tax on the amount above the dividend allowance tax is paid on dividends from shares in an ISA. There are four different tax bands and different dividend tax brackets. Personal allowance This tax band ranges from an income of £0-£12,570. The income tax bracket on this band is 0%, and the dividend tax bracket is also 0%. Basic rate This tax band ranges from an income of £12,571-£50,270. The income tax bracket on this band is 20%, and the dividend tax bracket is 8.75%. Higher rate This tax band ranges from an income of £50,271-125,140. The income tax bracket on this band is 40%, and the dividend tax bracket is 33.75%. Additional rate This tax band ranges from an income of over £125,140. The income tax bracket on this band is 45%, and the dividend tax bracket is 39.35%. According to the above tax bands, the dividend tax rates are less than income tax rates, which makes dividends a more preferred form of income. The owners of small companies can take dividend profits from their company shares; this imposes less tax liability on them compared to other sources of income. Tax on Dividends from Investments In the UK, there is zero tax on dividends received on shares in stocks or shares ISA. The shareholders pay tax on other shares they own. This tax is assessed by the broker the shareholder has hired or the trading platform they are using. If shareholders have dividend payments above the unused personal allowance and dividend allowance, they should inform HMRC. Transfer Tax-Free Allowance to Share Dividend Allowance The liable tax amount imposed on an individual can be managed by transferring dividends to your spouse if the spouse falls into a lower tax bracket than you, however, it is not possible to transfer dividend allowance to your spouse. In the UK, the transfer of assets between spouses is not imposed with any inheritance tax; transferring assets to the lower-earning spouse means that they will pay tax on the dividends if they exceed their tax band. To manage the dividend tax, the transfer of dividends should be a genuine and unconditional transfer of “beneficial “ownership ship which means that the transferor will receive no benefit. The 2025-2026 Dividend Allowance The dividend allowance is the tax-free amount earned in a financial year. It is other than the personal tax allowance, so as long as your dividend share falls under your dividend allowance amount, you are not liable to tax. The tax-free dividend allowance for the financial year 2025-2026 is £500. The personal tax-free allowance can be used for most types of income, including dividends, How Do I Pay Dividend Tax? The UK government has set different criteria for taxation regarding dividends. The salary tax is paid by the individual as soon as they receive the salary. However, in the case of dividends, there are certain tax bands. If the dividends fall under the dividend allowance the £500, no tax needs to be paid. However, if the dividend profit is above £500 but below £10,000 in the current tax year, you should inform the HMRC. The HMRC will give you the option of either adjusting the tax code to pay the dividend tax or pay the imposed tax amount by the self-assessment process. If your dividend tax is above £10,000, then you can only pay the employed tax by the self-assessment tax return process to the HMRC. The self-assessment tax return must be filed for the tax year before the deadline, i.e. 31st October. For example, you must complete your online tax return for the 2025-2026 tax year by 31st January 2027. If the deadline is passed, you are fine by the HMRC. Conclusion How much dividend is tax free? The dividend is the profit received by the shareholders from the companies they invest in or buy stocks from. There are different tax bands set by the HMRC in the UK, and each tax band comes with different income tax and dividend tax …