This month, there will be significant focus on the looming Budget. But here LITRG draw attention back to the present, reminding you of issues to consider in June.
Look at your circumstances in the round
Tax, tax credits and benefits often interlink, as we have demonstrated on numerous occasions. For this reason, we always advocate that you look at your overall circumstances, so here we bring together a series of topical reminders which highlight issues to consider.
The article raises various points, giving links to additional sources of information at the end.
Leaving school, college or university?
Young people trying to enter the jobs market continue to face a difficult time. It seems that the new government has put getting people into work high on their agenda. So what should you do when you enter the world of work?
Employed or self-employed?
First of all, make sure you get your tax right by understanding the basis on which you are working – are you an employee or working for yourself as freelance/self-employed?
Make sure you are paying the right tax – employees
If you work as an employee, make sure you check your tax code to confirm you are paying the right tax. If it is your first job, you will probably be asked to fill in a form P46; or if you have already had a part-time job while you were studying, you should give your new employer your P45 from the old job.
Students who have worked only in the previous vacation this tax year (and not in term time) and who completed a P38(S) for that job, will not have received a P45. Anyone in that position taking on a new job will need to tick box B on the P46 and make sure the income they received under the P38(S) scheme is taken into account in the PAYE code for the new job. You will need to contact HMRC and tell them how much you earned under the P38(S) system so that they can adjust your code.
Becoming self-employed
If you set out in business working on a freelance/self-employed basis, you will need to notify HMRC, otherwise you could face a penalty.
Check if you are entitled to tax credits
A common misconception is that no workers under the age of 25 can claim tax credits, or that tax credits can only be claimed if you have children. This is not helped by poor advice from government agencies – even HMRC themselves – sending out the wrong message.
For example, people (whether with or without children) under 25 who work at least 16 hours a week and who qualify for the disability element may be entitled to tax credits.
Student loans
Students leaving college or university this year who have taken out student loans might be thinking about having to pay them back. The good news is that you get a bit of breathing space, as repayments do not begin until the April following the end of your course, and only then if your earnings exceed the £15,000 a year threshold.
Might you be due a tax refund?
There are various reasons why you might have paid too much tax in the past. For the last tax year, to 5 April 2010, employees and pensioners should by now have received forms P60 summarising their wages/pension and tax deductions. In a separate article, we advise on claiming repayments of tax deducted under PAYE.
Are you a student working in the summer vacation?
If you are a student working only in holiday time and think you will earn less than your personal allowance over the whole tax year (£6,475 for 2010/11), you can ask your employer if you can complete a form P38(S) which allows you to be paid without tax being taken off your wages. Remember, though, that National Insurance contributions may still be deducted depending on your weekly or monthly income.
If you think you might be able to use the P38(S) process, read our full guidance (link below) on working in the holidays.
In Self Assessment? Plan ahead for your 31 July tax payment
If you complete Self Assessment tax returns, 31 July is also the deadline for the second payment on account for 2009/10, if one is due. If you are not sure whether you need to make payments on account, how much they are, and how to reduce them, guidance is available on our website (link below).
If you think you will not be able to pay, HMRC should respond sympathetically if you apply for time to pay before 31 July. The Department is more lenient to those who ask for more time before a tax liability falls due, than to those who miss the payment date then ask for time to pay.
Gift Aid donations– time for a review?
If you make payments to charity or Community Amateur Sports Clubs under the Gift Aid scheme, remember to keep records of how much you pay and when (whether by standing order, cheque, debit/credit card, or cash). This information will be needed if you complete a tax return or repayment claim.
If you make regular Gift Aid payments, for example by standing order, you might want to keep a watchful eye on them, particularly if your circumstances change. If you are a non-taxpayer or only pay at the rate of 10% on savings, you could find your tax repayment is reduced if you have made Gift Aid payments. This can be a particular concern for pensioners.
Finally, if you give money to certain organisations within Europe, a recent change means that Gift Aid might now be available on those payments. HMRC published a questions and answers paper on the changes.
Tax credits
We are fast approaching a key date for tax credits – 31 July. This is the date for tax credits renewals, which means finalising your 2009/10 tax credits claim and renewing your claim for 2010/11. Don’t leave it until the last minute, however. The tax credits section in our May article (link below) explains why.
In that article, we also reminded about reporting changes in circumstances outside of the renewals process and urged those who do not currently claim tax credits to keep an eye on their situation in case they need to make a protective claim or are now eligible to claim.
Useful links
Guidance for low-income workers
Registering with HMRC as self-employed
HMRC factsheet on failing to notify them of a new liability to tax
Tax credits guidance, including the disability element
LITRG’s brief guide to tax for disabled people
‘Student loan repayment pointers’
Working in the holidays – student guidance
Self Assessment payments on account
HMRC information on problems paying your tax
Tax and tax credits – the new tax year (LITRG’s May reminders article)
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