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Watching Out For Rises In Tax

The tax system has changed and evolved a lot over the recent years but I think that as a taxpayers, we are going to be facing the biggest changes in how we much tax we are going to be liable to pay each year. With the Government increasing our tax rated in order to try and redeem the lost revenue as a result of the credit crisis and recession. I think its safe to say that even if the UK is officially out of the recession, as tax payers, we are still going to be in a recession.

In 2005, as a result of the formation of HM Revenue and Customs (HMRC), the tax system was getting closer to the point that it needed to be at. HMRC were staring to now put in place tax procedures and help make the administering of the tax system uniform and a lot easier to handle and hopefully manage. The HMRC were introduced to provide more support to those small to medium sized businesses that were actually feeling the pinch as a result of the recession.

However, the main reason for the changes is so that all taxpayers (especially business owners), have a good awareness of their financials, including taxes, keeping records, and providing their tax advisor with as much information as possible to determine a correct return and therefore calculation of the correct amount of tax to pay. This first change is actually in relation to this and directly related to loyalty and honest when stating income. If the correct figures are not provided to calculate the correct tax, then a penalty fine of up to 30% can be charged for carelessness and understating the amount of return gained. If a penalty had been raised or applies for you, it's still beneficial for a taxpayer to own up and come forward to disclose this information on underestimates that they have stated on their returns. Honesty could lead to big discounts as well as a reduction in any penalties that apply or even a reduction in tax for making a carless mistake. Changes have also been made in other areas, including new tax rates and pension contributions for tax payers in excess of 150,000.

The tax changes have started to get people thinking and it has hopefully made people look deeper into the tax system including not only tax codes and what they mean but also personal allowance. The personal allowance for the tax year April 2009/10 is 6,475, and we recommend that you do use this entire amount (or allowance) each year, and the only way you'll realise if you have used the entire budget is by closely monitoring your wage slips and bank account each month.

If you are above the age of 65, then you can start cheering happy days straight away. The tax allowance for people over the age of 65 is a lot higher for earnings of up to 22,900 and 28,930, anything above the earning of 28,930 and you can start to worry as your tax allowance will reduce again. However, if you do find that you are earning above the allowable band, then you can donate some of your earnings to a charity and therefore, still keep the high tax allowance by bringing your final wage to the limit.

Small business owners, please remember to work closely with your tax advisers to ensure that you are being deducted the correct amount of tax on your earnings.

Eacotts are a Berkshire based chartered accountant and they offer a range of personal and business services.

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