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This page is not to be used as a complete source for an individual to complete accounts or tax returns themselves, only to take guidance from HMRC and accounting bodies and make it deliverable to the average person.

24/08/2022

There are many reasons why taxation is an important part of most societies, here are 4 of the main objectives achieved or attempted by taxation.

Revenue for public funds

Each year we get a letter stating how much of our PAYE paid in the year went to what, pensions, benefits, interest, defense spending, it’s on there. One of the main way these are paid for is through taxes. The structure of taxes should be used to finance normal governmental activity or the expansion of. Taxation should always be able to pay for pensions, benefits, everything that mkes this country work day to day, week to week.

Regulatory purposes

Where there are items that are legal but not necessarily healthy or good for the environment or something to be discouraged, taxation in the form of duties can be applied. This would apply to alcohol, gambling, fuel. This is not a hard ban on these items, but and financial incentive to discourage bad social and economics consequences. The ability to claim for use of home has been severely restricted lately, with the rhetoric around getting people back into the office, it wouldn’t be a hard to conclude this change is to discourage people from working from home regardless of capability.

Incentive purposes

There are many ways to apply taxation to incentivise certain behaviours by the population of society and in recent years there has been an emphasis on “incentive taxation”. One such scheme is the SEIS, where certain start-up companies can offer to sell shares to investors where those shares provide great tax benefits. These are high risk companies and most fail to survive, however with the tax incentives and spreading your investments these can possibly be very lucrative.

Reduction of Inequalities

Taxation can be used as a way to regulate the socio-economic environment of the nation. Currently in the UK the taxation system has bands for income tax where those that earn more money pay a higher effective rate of tax. Where some may find this unfair, the absolute amount of take home is also more for those lucky individuals. The aim is reducing glaring inequalities of income & wealth and securing social justice for the poorest of society.

There are other purposes of taxation, and a lot do overlap and are interlinked. We must always be vigilant as to what a change in taxation is trying to achieve, what it actually achieves and not just what people say it will achieve. Also the environment in which a tax rule was brought in, may not be the same and have a different effect to what it was achieving before.

18/02/2021

A few weeks ago, I included some information regarding the total amount of tax revenue each tax generates for HMRC for the tax year 2018-19.

HMRC annual report and Accounts for 2018-19 shows income tax is the largest revenue for HMRC. Here are the figures in billions.
Income tax 194.0
VAT 135.6
National Ins 135.0
Corp tax 53.5
Duties 49.3
Stamp taxes 15.7
Capital gains tax 9.3
Insurance premium tax 6.4
Student loan 2.5
Fines & penalties 1.1
Other 25.5

I have now included this as its own post as this helps see the bigger picture of which taxes effect your life (and death) most. It's worth noting that inheritance tax, although the most hated by the general populace, doesn't even generate enough to even have it's own line.

27/01/2021

We got 4 days to go until the filing deadline for tax year 2019/20, so I thought I would share some interesting little bits and pieces.

For this tax year, we are lucky enough to have the filing deadline extended to 28th February 2021 due to the coronavirus. Payment still needs to be made by 31st January, which may seem silly as the filing deadline is extended.

On 31st January 2020, 735,258 returns were filed, which comes to 6.79% of all returns filed on one single day. 2 of those were filed by me. 60,000 of those were received during the peak filing hour, 4-5pm. Who says that accountants work to the clock.

HMRC annual report and Accounts for 2018-19 shows income tax is the largest revenue for HMRC. Here are the figures in billions.
Income tax 194.0
VAT 135.6
National Ins 135.0
Corp tax 53.5
Duties 49.3
Stamp taxes 15.7
Capital gains tax 9.3
Insurance premium tax 6.4
Student loan 2.5
Fines & penalties 1.1
Other 25.5

Therefore individuals are paying the majority of the tax to HMRC.

Finally, I named this page after the audit term "the expectation gap", after all the corruption and attitude of the 90's destroyed any faith in the audit and accounting profession. All accounting and tax bodies have been trying to repair this ever since and this is my little page doing its part.

15/01/2021

As we get closer to the deadline for filing and paying your personal taxes, it might be a good time to discuss something that may go into a tax return. Now I could write a book on everything that goes I to a personal tax return, but that's not my purpose here, I aim to simplify and make the information deliverable to the average person.

Self employed income.
The average person is more likely to have employment or self employed income and as those who work purely under PAYE don't have to do a tax return, let's do self employed income.

First you have to determine whether or not it is a trade. Sometimes it's really obvious, sometimes you start something as a hobby and it grows, you make money from it and at some point it crosses a line and you have to include it in a tax return and pay tax (maybe) To determine this HMRC have badges of trade, the more you have the more likely you are trading instead of hobbying. This includes a profit seeking motive, regularity of transaction etc.

So then you determine you are trading and need to report this to HMRC. Next you need all those piece of paper and have an invoice party. Basically you have keep your records for 6 years plus the current one. You can list your sales and purchases in a spreadsheet, a software or just keep everything in a shoe box, but of course the more work you do the less your accountant (or you at the end of the year) hopefully has to do and the cheaper it is to get your tax return done 👍.

How do you get to a profit figure. Simple, read this post. Income should be included as you earn it, so usually when it's invoiced. As a self employed person you can claim for any cost that is wholly and exclusively for the business. This includes:
Materials
Travel (if using own car can claim 45p per mile for qualifying travel)
Professional fees
Rent (if you work from home or use it as storage then you can claim use of home)
Wages/subcontractors
Stationery

You get the idea. If your costs come to less than £1,000 (side eyes my business), then you can claim that as against your sales instead.of your costs. This is aimed at those who have side hustles or have literally just turned a hobby into a job. HMRC don't want these small earners caught out because of ignorance (even though it's not an excuse), these are not the fish they want to fry.

After all this work you get your tax bill. Unfortunately for most self employed individuals they have the lovely added bonus of paying payments on account. I have had so many questions and even some clients get really upset about these as they didn't know. It's a payment in advance of the next tax year, estimated on the tax year you've just filed. So say it's your first year your filing now (2019/20) and your tax liability is £2,000. On 31st Jan 2021 you will have to pay the £2,000 due, but also make a payment of £1,000 for the tax year 2020/21 and then another £1,000 July 2021. The next year your liability is £2,200, you only owe £200, but you also need to add the £1,100 payment on account due making it £1,300 due.

I think the name of this is misleading, it is technically a payment on account in terms of when the tax is normally due (31st Jan), but actually you're paying the tax closer to the date of when you earned the profits whereas those under PAYE, pay tax as they earn the income. This may change however with the push to "Making Tax Digital", it is expected we'll be making quarterly personal tax returns in the not too distant future. Who really knows.

14/01/2021

Hi all, every now and then I get it in my mind that there's a particular element of tax, business or accounting that is either in news or relevant that the average person wouldn't understand. Whether this is because it's one of those things that keeps changing (damn you tax) or wasn't taught in schools, or just was never relevant so you never learnt it yourself.

Well good news, I decided to make a page so if you wanted to, you'd never see a post from me on this sort of stuff again and if you did want to you can follow this page.

If there is anything anyone wants me to cover, feel free to message me.

I would also like to say that all posts are based on current rules and oversimplified to keep posts short and simple and applicable to the majority of cases.

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