Tax guide. Money matters. Make sure you re paying the right amount. AgeUKIG16

Transcription

1 Tax guide Make sure you re paying the right amount Money matters AgeUKIG16

2 We are Age UK. Our network includes Age Cymru, Age NI, Age Scotland, Age International and more than 160 local partners. This information guide has been prepared by Age UK and contains general advice only, which we hope will be of use to you. Nothing in this guide should be construed as the giving of specific advice and it should not be relied on as a basis for any decision or action. Neither Age UK nor any of its subsidiary companies or charities accepts any liability arising from its use. We aim to ensure that the information is as up to date and accurate as possible, but please be warned that certain areas are subject to change from time to time. Please note that the inclusion of named agencies, websites, companies, products, services or publications in this information guide does not constitute a recommendation or endorsement by Age UK or any of its subsidiary companies or charities. Every effort has been made to ensure that the information contained in this guide is correct. However, things do change, so it is always a good idea to seek expert advice on your personal situation. Date of publication: April 2013 Age UK 2013

3 Contents Introduction 2 Taxable income 3 Should I be paying tax? 6 Blind Person s Allowance 8 Married Couple s Allowance 9 Is my tax code correct? 10 State Retirement Pension and tax 11 Savings and investments 12 How to pay: Pay As You Earn 14 How to pay: Self Assessment 15 Rates and allowances 2013/14 16 Useful organisations 19 1 Tax guide

4 Introduction Nobody wants to pay more tax than they have to. Being able to spot whether you re overpaying can certainly be a good way to make your money go a bit further. So to help you make sure you re paying the right amount of tax, Age UK and Tax Help for Older People have joined forces to produce this guide. It won t stop you paying tax that is legally due, but it will explain how to see whether you re being incorrectly taxed. This includes underpaying as well as overpaying. Although underpaying may not seem like a bad thing, it can become a major problem if Her Majesty s Revenue and Customs (HMRC) catches up with you and seeks to recover thousands of pounds. This guide looks at Income Tax, tax allowances and tax codes. We don t cover Inheritance Tax or Capital Gains Tax, so contact HMRC (see page 20) for more information. You should also contact HMRC for more detailed information about tax rules. Call the HMRC tax helpline on (have your National Insurance number ready), or contact your local HMRC enquiry centre. Details should be in your local phone book, or visit and type your location in the search box. If you need face-to-face advice, contact Tax Help for Older People (see page 22) for free professional help if you are on a low income. If you want to employ a tax adviser, contact the Chartered Institute of Taxation (CIOT) to find someone professionally regulated. Call them on or visit All figures in this guide refer to the tax year from 6 April 2013 to 5 April Tax guide

5 Throughout this guide you will find suggestions for organisations that can offer further information and advice about your options. Their contact details can be found in the Useful organisations section (see pages 19 22). Contact details for organisations near you can usually be found in your local phone book. If you have difficulty finding them, your local Age UK should be able to help (see page 19). As far as possible, the information given in this guide is applicable across the UK. Key what next? This symbol indicates where information differs for Scotland, Wales and Northern Ireland. This symbol indicates who to contact for the next steps you need to take. Taxable income As you probably know, not all income counts towards Income Tax. You may have to pay tax on: income from employment or self-employment pensions, including State Pension, and annuities (except pensions administered under the War Pensions Scheme and Armed Forces Compensation Scheme) interest from savings accounts dividends from investments income from lettings some benefits, such as Incapacity Benefit and Employment and Support Allowance (they can be taxable or non-taxable). 3 Tax guide

6 You don t have to pay tax on: Pension Credit Universal Credit lottery or premium bond wins (or any other gambling wins) Winter Fuel Payments Attendance Allowance/Disability Living Allowance/Personal Independence Payment pensions administered under the War Pensions Scheme and Armed Forces Compensation Scheme industrial disability Individual Savings Accounts (ISAs) some National Savings and Investments products. what next? HMRC or Tax Help for Older People can provide further information about which types of income are taxable and which are non-taxable (see pages 20 and 22). 4 Tax guide

7 Although underpaying may not seem like a bad thing, it can become a major problem if Her Majesty s Revenue and Customs (HMRC) catches up with you and seeks to recover thousands of pounds.

8 Should I be paying tax? We all have a personal tax-free allowance (unless your income is above 100,000, when for every 2 you have over this amount, your personal allowance goes down by 1). If your total taxable income (see page 3) is more than your personal allowance (PA), then you ll have to pay some tax. If not, you re a non-taxpayer. Changes to the tax system mean people turning 65 in 2013 will no longer receive a higher personal allowance than people of working age. Everyone born after 5 April 1948 will get the same amount of personal allowance regardless of age. If you turned 65 or 75 before 6 April 2013, you will still be entitled to age-related allowances. However, they will stay at 2012 levels and will be gradually phased out as the basic personal allowance rises to the same amount. If you turn 75 during the 2013/14 tax year, your personal allowance will stay at 10,500. In 2013/14, the levels for PA are: everyone born after 5 April 1948: 9,440 everyone born between 6 April April 1948: 10,500 everyone born before 6 April 1938: 10,660 If you re 65 or older and entitled to age-related PA, the extra amount you get is reduced if your income is higher than a certain amount, set at 26,100 in 2013/14. It is cut by 1 for every 2 of income above that figure. 6 Tax guide

9 For example, if your income were 27,100 ( 1,000 over the limit) you would lose 500 worth of your age allowance. This means that at age 65, your allowance would be 10,000 not 10,500. However, your PA cannot be reduced below the basic allowance of 9,440 unless you have a very high income of over 100,000. Two other major allowances can affect your tax bill: the Blind Person s Allowance and the Married Couple s Allowance (see pages 8 9). If your taxable income falls below your PA, check your payslips and pension statements to make sure that no one is deducting tax from anywhere, and read the section in this guide on savings and investments (see page 12). what next? Go to to use our online tax calculator. Answer some simple questions about your income and savings to find out whether you re paying the right amount of tax. 7 Tax guide

10 Blind Person s Allowance The Blind Person s Allowance (BPA) increases your tax-free allowance by 2,160. In England and Wales, you have to be registered as a blind person with the local authority (or must have made an application) to qualify for the BPA. Contact your local authority for details of the registration procedure. You don t have to be totally without sight to meet the criteria for registration, but you do need to show that your lack of sight makes it impossible for you to perform any work for which sight is essential. In Scotland and Northern Ireland, where there s no register, you must be unable to perform any work for which eyesight is essential to qualify. Partially sighted people do not qualify for the BPA, but loss of sight is often progressive. Once your eyesight has started to deteriorate, have it tested regularly in case it becomes bad enough to claim the allowance. If your income is too low to benefit from the BPA, you can transfer it to your spouse or civil partner regardless of the state of their eyesight. This can be very valuable if they have a higher income than you, as you can ensure that the allowance is not wasted. Contact your tax office to ask for form 575 to transfer the unused part of the allowance. what next? Once you ve registered as a blind person with your local authority, phone HMRC on and ask for the BPA. It is not added automatically. As many as 300,000 registered blind people may not have claimed the BPA, so if you qualify, make sure you take up this allowance. 8 Tax guide

11 Married Couple s Allowance You can only claim the Married Couple s Allowance (MCA) if you re a married couple or civil partners and one of you was born before 6 April If this does not apply to you, skip this section. Unlike Personal Allowance and Blind Person s Allowance, MCA does not increase your tax-free allowance, but is deducted from your tax bill. In actual terms, it s worth 10 per cent of its face value, i.e. your bill is reduced by 10 per cent of the amount of the MCA. In 2013/14 the MCA is given at 7,915, which in practice means that up to 791 is taken off your tax bill. For couples who married before December 2005, the MCA is given to the husband in the first instance. For couples who qualified after that date, the MCA is given to the higher earner. The other spouse/partner has the right to ask for some of the allowance to be apportioned to them. If the first person s total tax bill is less than the full amount of the MCA, any remaining allowance can be transferred to the other person to reduce their tax bill, if he or she is a taxpayer. There may be other ways in which couples can try to make their financial arrangements more tax efficient, for example, by putting savings into one person s name to take advantage of any unused tax-free capacity. Contact Tax Help for Older People (see page 22) for further information and advice. 9 Tax guide

12 Is my tax code correct? Tax codes are how HMRC tells your employer or pension provider what tax to deduct before paying you under the Pay As You Earn (PAYE) system (see page 14). Tax coding can be complicated and is the single biggest cause of tax problems. Tax codes are usually made up of two or three digits and a letter. In most cases the letter is less important in understanding your tax than the number. But there s one exception that particularly affects people receiving a State Pension the K code, which is explained on page 11. You should receive a separate coding notice for each private or work pension you have, and for any employment, but not for the State Pension. The notice explains how the code has been worked out. It s your responsibility to check it and call the office number on the tax notice if you think it s wrong. Contact HMRC if you don t receive a notice for any of your income sources. Contact HMRC for more detailed information about tax rules. 10 Tax guide

13 State Retirement Pension and tax State Retirement Pension is taxable income, but is paid without any tax being deducted. The tax code that you re allocated for other income will usually treat your State Pension as having counted towards your tax-free personal allowance and then pass any remaining allowances on to your other pension or earnings. If your State Pension is greater than your personal allowance, there will be some tax due on it. If you have a private or work pension, HMRC can instruct the pension provider to collect the outstanding tax due on your State Pension, along with the tax due on the private or work pension. For example, if your State Pension is 1,000 above your personal allowance, and you have a personal pension of 3,000, HMRC will instruct the pension provider to deduct tax as if it were paying you 4,000. This is done by assigning a code that has the letter K followed by a number (e.g. K99). Where ordinary codes say what amount of tax-free income is left, K codes indicate that you should be treated as having more taxable income than that provider is actually paying you. The higher the number in the code, the more taxable income you ll be treated as having. If you re assigned a K code it s worth getting it checked by HMRC. If your State Pension is greater than your personal allowance but you don t have any other income, read the section on self-assessment (see page 14). 11 Tax guide

14 Savings and investments Savings include money held in accounts with banks and building societies and fixed-term bonds that produce income. The interest on these (or income from bonds) is taxable and this tax is usually deducted at source by the bank or other financial institution at a flat rate of 20 per cent. Higher-rate taxpayers have to pay a further 20 per cent later on. The exception to this is for savings held within Individual Savings Accounts (ISAs), which shelter your money from Income Tax and Capital Gains Tax during your lifetime, but are included in your estate for Inheritance Tax. If you aren t a taxpayer, you can sign form R85 so that the interest can be paid without deduction of tax. You can get an R85 form from the bank or building society and complete one for each account that you hold. If you have a joint account and only one of you is a non-taxpayer, this person can still sign the R85 and receive their share of the interest without tax taken off. To decide whether you re eligible for gross interest, add up all your taxable income (see page 3). You need to add up your gross income before tax not the net income you have received after tax. If your circumstances change and you become a taxpayer again, you must cancel your R85s. This could happen if a spouse or partner dies and the survivor inherits their pensions; if you release equity from your house and invest the money; or even when interest rates change. 12 Tax guide

15 Even if you re a taxpayer, you may be eligible to pay a reduced rate of tax on your savings. In 2013/14 up to 2,790 of savings interest can be taxed at 10 per cent instead of 20 per cent but only if your income is less than your total allowances plus 2,790. Tax is still deducted at 20 per cent and you have to reclaim the excess. If your income is no more than 2,000 or 3,000 above your PA, ask HMRC or Tax Help for Older People for further information (see pages 20 and 22). what next? Seek further advice from Tax Help for Older People if you re not sure whether you need to pay tax on your savings, investments or any dividends you own (see page 22). Savings include money held in accounts with banks and building societies and fixed-term bonds that produce income. 13 Tax guide

16 How to pay: Pay As You Earn Pay As You Earn PAYE is the system for paying tax as you earn income, including through your pension, using tax codes. Your tax code is allocated on the basis that you will be earning steadily throughout the tax year. Depending on how often you are paid, 1/12 of the annual tax is collected each month, or 1/52 of the tax each week. If your circumstances change during the tax year, the assumptions on which your tax has been calculated to that point will no longer apply and it will have to be adjusted. Any increase or reduction in your income may affect your liability for tax, for example, on retirement. You may be able to claim tax back or may have more to pay, and you may have to complete a self-assessment tax return to settle the remaining tax due. If you want to file online but don t feel confident about doing this, ask your local Age UK for help many offer training. 14 Tax guide

17 How to pay: Self Assessment Now that HMRC is encouraging people to file their return online, you may just get a letter telling you that you have to complete a self-assessment tax return. If you want to file a paper return, ask the tax office for the form or it will assume you ll be filing online. Your paper tax return needs to be in by 31 October. If you re completing it online, you have until 31 January. If you don t file by the deadline, you ll automatically be fined 100, even if you don t owe any tax or paid the tax on time. The penalty will increase the longer you delay. You can make the process easier by keeping good records and putting money aside throughout the year so you don t have to find a lump sum just after Christmas. If you want to file online but don t feel confident about doing this, ask your local Age UK for help many offer training sessions and advice on getting online for older people. UK Online Centres (see page 22) also help people who want to learn simple computer skills. Your local library might also offer computer training. what next? If you need help, contact an organisation like Tax Help for Older People (see page 22) in good time, around three or four months before the deadline. 15 Tax guide

18 Rates and allowances 2013/14 Personal allowances Everyone born after 5 April 1948: 9,440 Everyone born between 6 April April 1948: 10,500 Everyone born before 6 April 1938: 10,660 Note: The higher-age allowance is available for the whole of the year in which the 65th birthday fell. Blind Person s Allowance (BPA) 2,160 Married Couple s Allowance (MCA) 7,915 Note: Married Couple s Allowance (MCA) is only worth 10 per cent of face value and reduces tax due. It doesn t increase tax-free income. The maximum income you can have before your age allowance is reduced: 26,100 Age allowances are reduced 1 for every 2 of income above threshold until reduced to the basic personal allowance of 9,440. After that point, MCA reduces in the same way to a minimum of 3,040. Special rules apply to those with an income exceeding 100, Tax guide

19 Rates and bands First 32,010 of taxable income: 20% From 32,011 to 150,000 of taxable income: 40% Over 150,000: 45% Exceptions First 2,790 of savings interest (if other income at or below personal allowances): 10% Otherwise standard savings rate: 20% Note: Higher-rate taxpayers have a further 20% to pay. Dividends tax credit: 10% Note: Higher-rate taxpayers have a further 22.5% to pay. 17 Tax guide

20 If you need face-to-face advice, contact Tax Help for Older People for free professional help if you are on a low income.

21 Useful organisations Age UK We provide advice and information for people in later life through our Age UK Advice line publications and online. Age UK Advice: Lines are open seven days a week from 8am to 7pm. Call Age UK Advice to find out whether there is a local Age UK near you, and to order free copies of our information guides and factsheets. In Wales, contact Age Cymru: In Northern Ireland, contact Age NI: In Scotland, contact Age Scotland: Tax guide

22 Citizens Advice National network of free advice centres. Tel: for details of your local Citizens Advice Bureau (CAB). In Wales there is a national phone advice service on It is available in some parts of England on To find details of your nearest CAB in: England or Wales, go to Northern Ireland, go to Scotland, go to Visit for online information Gov.uk The website has information about the benefits and services for pensioners and people planning pensions. In Northern Ireland, visit NI Direct at HM Revenue and Customs (HMRC) For information about taxes, including Income Tax and Inheritance Tax, contact your nearest HMRC enquiry centre. You should be able to find contact details in your local phone book, or visit and type your location in the search box. Tel: (taxes helpline: have your National Insurance number ready) 20 Tax guide

23 Low Incomes Tax Reform Group (LITRG) The LITRG website contains a wealth of information on matters concerning all people on low incomes and guidance on taxation as it affects them. Money Advice Service Provides impartial information and guidance about money to help you work out what is right for you. Tel: (English) or (Welsh) enquiries@moneyadviceservice.org.uk In Scotland you can make an appointment to see a Money Advice Service worker face to face through your local Citizens Advice Bureau. Pension Service Provides details of State Pensions, including how to claim your pension. Tel: Textphone: Pensions Advisory Service, The (TPAS) Independent voluntary organisation backed by the Department for Work and Pensions to provide information and guidance on all types of pension. Tel: Tax guide

24 Tax Help for Older People Provides free professional help on personal tax to older people on low incomes who cannot afford to pay for such advice. Appointments are offered at tax surgeries held by tax advisers in Age UKs and similar venues across the country. Home visits are available for those who need them for reasons of disability or other difficulties. Advice is also available by telephone and . Pineapple Business Park Salway Ash Bridport DT6 5DB Tel: or (local rate) UK Online Centres UK Online centres help people make the most of computers and the internet. The Workstation 15 Paternoster Row Sheffield S1 2BX Tel: Search online for a local independent financial adviser. 22 Tax guide

25 Can you help Age UK? Please complete the donation form below with a gift of whatever you can afford and return to: RSXZ-KTTS-KSHT, Age UK, Tavis House, 1 6 Tavistock Square, LONDON WC1H 9NA. Alternatively, you can phone or visit If you prefer, you can donate directly to one of our national or local partners. Thank you. Personal details Title: Initials: Surname: Address: Postcode: Tel: By providing your address and/or mobile number you are agreeing to us contacting you in these ways. You may contact us at any time to unsubscribe from our communications. Your gift I would like to make a gift of: I enclose a cheque/postal order made payable to Age UK Card payment I wish to pay by (please tick) MasterCard Visa CAF CharityCard Maestro (Maestro only) American Express Signature X Expiry date / Issue no. (Maestro only) Gift aid declaration (please tick) Yes, I want Age UK and its partner organisations* to treat all donations I have made for the four years prior to this year, and all donations I make from the date of this declaration until I notify you otherwise, as gift aid donations. I confirm I pay an amount of UK income tax and/or capital gains tax to cover the amount that all charities and Community Amateur Sports Clubs will reclaim on my donations in the tax year. Date: / /. *Age Cymru, Age Scotland and Age NI We will use the information you have supplied to communicate with you according to data protection guidelines. Age UK (registered charity number ) comprises the charity, its group of companies and national partners (Age Cymru, Age Scotland and Age NI). If you would prefer not to hear from them or from carefully selected third parties, let us know by phoning MXDD10FL05W016

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27 Money matters You may be interested in other guides in this range Avoiding scams Can I afford to retire? Claiming benefits: a guide for people of working age Equity release Help with legal advice How to be an executor Lesbian, gay or bisexual Looking after someone else s affairs Managing your money Money matters More money in your pocket: a guide to claiming benefits for people over pension age Powers of attorney Save energy, pay less When someone dies Wills and estate planning Your consumer rights To order any of our free publications, please call Age UK Advice free on:

28 What should I do now? For more information on the issues covered in this guide, or to order any of our publications, please call Age UK Advice free on or visit Our publications are also available in large print and audio formats. The following Age UK information guides may be useful: Managing your money Money matters More money in your pocket: a guide to claiming benefits for people over pension age The Age UK Group offers a wide range of products and services specially designed for people in later life. For more information, please call If contact details for your local Age UK are not in the box below, call Age UK Advice free on Age UK is a charitable company limited by guarantee and registered in England and Wales (registered charity number and registered company number ). The registered address is Tavis House, 1 6 Tavistock Square, London WC1H 9NA. Age UK and its subsidiary companies and charities form the Age UK Group, dedicated to improving later life. ID /13