Income Tax

Taxable Income

The following are the most common forms of income taxable on UK residents. Bear in mind that the list is not exhaustive and may not include all items of taxable income. Some items may have certain conditions that apply to them:

Employment

• Income from office or employment (per P60/P45)

• Income from tips

• Certain lump sum and compensation payments and benefits

• Assessable benefits in kind

Share schemes

• Approved savings-related share options

• Approved discretionary share options

• Unapproved share options

Self-employment

Income, after deduction of allowable expenses, from self-employed trade, profession or vocation (including income from construction industry)

Partnership

• Share of profit/(loss) from partnership

• Share of other partnership income, including:

• Untaxed UK and foreign income

• UK land and property

• Taxed income (interest etc)

Land & property

Rental income (minus allowable expenses) from

• Furnished holiday lettings

• Rents and other income from land and property

• Chargeable premiums

• Reverse premiums

Foreign

Overseas income from:

• Interest and other savings

• Dividends

• Pensions

• Social security benefits

• Income from land and property

• Income received by an overseas trust, company and other entity

• Capital gains

Trusts

Income from trusts and settlements

Certain income from estates of deceased persons

Capital gains

Certain gains made on disposal of share holdings

Gains made on disposal of other capital assets (including property which is not your main residence)

Income from UK Savings & Investments

• Interest from UK banks, building societies & deposit takers - net and gross interest

• Interest distributions from UK authorised unit trusts and open0ended investment companies

• National savings interest (other than first £70 of National Savings Ordinary Account interest)

• Dividends & other qualifying distributions from UK and overseas companies (including scrip dividends)

• Dividend distributions from authorised unit trusts and open-ended investment companies

Pensions & Benefits

• State retirement pension

• Widow's pension

• Widowed Mother's Allowance

• Industrial Death Benefit Pension

• Jobseeker's Allowance

• Invalid Care Allowance

• Statutory Sick Pay & Statutory Maternity Pay paid by DSS

• Incapacity Benefit (some elements may be taxable)

• Pensions and retirement annuities

Other Income

• Certain maintenance or alimony payments

• Gains on UK life assurance policies

• Gains on void Individual Savings Accounts

• Refunds of surplus funds from additional voluntary contributions

Taxable Deductions

The following list contains the most common forms of allowable expenses for UK residents. The list is not exhaustive and may not include all allowable items. Some items may have certain conditions that apply to them:

General

• Contributions into personal pension plans

• Contributions into retirement annuity schemes

• Contributions into employer's pension schemes not deducted at source from pay

• Gross amount of free-standing additional voluntary contributions paid

• Payments made for vocational training

• Maintenance or alimony payments made under a court order, Child Support Agency assessment or legally binding order or agreement

• Subscriptions for Venture Capital Trust shares (up to £100,000)

• Subscriptions under the Enterprise Investment Scheme (up to £150,000)

• Charitable covenants or annuities

• Gift Aid and Millennium Gift Aid

• Post-cessation expenses and losses on relevant discounted securities

• Payments to a trade union or friendly society for death benefits

Expenses incurred in doing your job (employment)

• Travel and subsistence costs

• Fixed deductions for expenses

• Professional fees and subscriptions

• Certain other expenses and capital allowances

Land & Property

• Rent a room relief

Allowable deductions from rental income include:

• Rents, rates, insurance, ground rents

• Repairs, maintenance and renewals

• Finance charges, including interest

• Legal and professional costs

• Costs of services provided, including wages

• Wear and tear allowances

Benefits in Kind

Benefits in kind are assessable on the employee. They are reported at the end of each tax year on a form P11D.

In addition to income tax being due on all the benefits, Class 1A National Insurance Contributions (NICs) are due on the car and fuel benefits. The NICs are payable by the employer. With effect from 6th April 2000 NICs will also be due on the other benefits (e.g. private medical care, cheap loan etc). Again this will be payable by the employer.

Below are lists of benefits that are taxable on all employees, taxable on certain individuals and those that are not taxable. There are individual rules relating to each one:

Summary of benefits taxable on all employees

Unapproved share option schemes

Non cash vouchers

Living accommodation

PAYE due on non-cash items (eg cash voucher)

Summary of benefits taxable on employees earning over £8,500pa and directors

Company cars available for private use

Vans available for private use

Interest free and low interest loans (Applies to balances over £5,000)

Certain scholarships

Gift/loan of assets from employer

Private medical insurance

Summary of non-taxable benefits

Free or subsidised canteen meals if made available to all employees

Car parking spaces at or near work

Certain home to work travel expenses

Relocation packages up to £8,000

Certain workplace nurseries

Living accommodation in specific circumstances

Training courses

Christmas parties and similar functions within set monetary limits

Long service awards

Awards under staff suggestion schemes

Certain sports facilities

Pension provision

Car Mileage Rates

The table below sets out the Inland Revenue's authorised mileage rates for cars owned by employees:

Income tax year	Car engine size (cc)	Rate pence per mile
		First 4,000 business miles	over 4,000 business miles
1997-98 to 2000-2001	up to 1,000	28p	17p
	1,001 – 1,500	35p	20p
	1,501 – 2,000	45p	25p
	over 2,000	63p	36p
1996-97	up to 1,000	27p	16p
	1,001 – 1,500	34p	19p
	1,501 – 2,000	43p	23p
	over 2,000	61p	33p

Where employers pay different mileage rates for cars of different engine sizes, the Fixed Profit Car Scheme profit is calculated by matching the above engine size bands as closely as possible within the engine bands used by the employer.

Where the employer pays the same rate of mileage allowances irrespective of the size of the car that the employees use for business, the average of the middle two bands is used as the relief rate (i.e. for 2000/2001, 40p for first 4,000 miles, 22.5p thereafter).

Penalties

Late payment of tax

Penalties and interest will be charged by the Inland Revenue in respect of payments of tax which are made late.

The penalty ranges from a 5% surcharge if tax remains outstanding for up to 6 months to 10% for over 6 months.

Interest will be charged on any outstanding balance of tax, from the date the payment was due to the date payment is made.

Late submission of a tax return

Penalties will be charged where the self-assessment tax return is not submitted by the due date (being 31st January following the year of assessment).

If the return is late by up to 6 months the penalty will be £100. If it remains outstanding for over 12 months the penalty will be £200 plus 100% of the tax unpaid for the year concerned.