Posts Tagged ‘hmrc’

2012 – 2013 UK tax graphs for income tax and NI

Wednesday, April 18th, 2012

I’ve been publishing UK tax graphs since the 2008-2009 tax year. It is easy to find tax information in the official government tables, but it is very hard to find simple graphs that show that the numbers mean in simple terms which is why I make these graphs. I missed out last years graphs so this year I will include the 2011-2012 and the 2012-2013 tax years. The 2010-2011 tax year is also included for comparison.

First of all here is an overview of the overall percentage of tax paid for salaries up to £200,000. The percentage for the 2011-2012 and 2012-2013 years jump mainly because of the national insurance rate increasing from 1% to 2% for earnings above the upper earnings limit.

percent tax vs gross salary 2012 2013 2

At the more average end of the salary scale the change between the years is more affected by the increase in the personal allowance.

percent tax vs gross salary 2012 2013 1

Here is a closer look at the income tax. It shows that the changes between these years have been fairly minor. There is always a lot of talk about tax changes in the budget, but in reality things don’t change much.

income tax 2012 2013 2

income tax 2012 2013 1

The national insurance graphs show a larger change for higher earners since the 2011-2012 tax year because of the 1% rate increase.

national insurance graph 2012 2013 2

national insurance graph 2012 2013 1

And finally two charts showing the absolute change in pounds paid as tax during these two tax years. These show that taxes for average earners have been decreasing, and taxes for higher earners have been increasing.

uk tax change 1011 1112

uk tax change 1112 1213

More next year…

Salary vs Dividend graphs for a one man limited company

Tuesday, April 17th, 2012

Just for fun (and because I couldn’t find these anywhere) I’ve made some graphs showing the effects of different salary and dividend combinations on the amount of money you can move from your limited company into your personal account.

There are some assumptions I’ve had to make.

  • This is for the 2012-2013 tax year.
  • These figures are for a VAT registered company (standard VAT scheme, not flat rate), so turnover is net of VAT.
  • No expenses or pension contributions are accounted for.
  • You withdraw all retained profit (after paying salary and corporation tax) as dividends.
  • Corporation tax is deducted at the small companies rate of 20%.
  • You are under 65 and have the default personal allowance of £8105.

I’ll point out that I’m not an accountant so I don’t guarantee any kind of accuracy, but I’ve cross checked some of the figures against a few of those tax calculators that many accountancy companies have on their website and they seem to fit.

Salary vs money extracted from company

This graph shows how much money you could get out of your company depending on turnover and what salary you set yourself. By ‘take home money’ I mean the salary plus dividend remaining after all taxes have been paid. In other words the money that is left for you to spend.

contractor take home pay vs turnover

The lines stop at the point where the maximum amount of money has been extracted from the company.

Here is a simplified version just showing a turnover of £60,000. Note that the y-axis starts at £30,000.

contractor take home pay vs salary

You can see that your extracted money goes up at first as your salary increases because you are making use of your personal allowance. Then it hits a very obvious peak after which income tax and national insurance kick in.

The maximum amount of money extracted is reached by paying salary at the national insurance secondary threshold level which is £144/week or £624 per month giving an annual salary of £7488.

In the above graph you can see that someone can take nearly £47,000 net out of the company. By doing this they dodge all national insurance payments, but as they are paying a salary above the lower earning limit they still get a full national insurance contribution record for the year. Their contribution is therefore subsidised by other workers who are paying national insurance. Is this a fair system? Probably not; a standard full time employee would have to earn about £69,000 gross and pay over £4500 in employee national insurance contributions to get this level of net income. However as long as this form of tax avoidance is legal you can’t really blame people for doing this.

Perhaps linking national insurance contributions to income with an upper cap would be a more effective way for HMRC to collect their NI money from everyone who can afford it.

Dividend vs salary with all taxes

This chart shows all the PAYE, corporation and dividend taxes. You might spot that the ‘Take home money’ and the ‘Total Tax’ are perfect mirror images of each other, and the two together add up to the turnover.

contractor tax salary dividend

The dividend is the declared dividend paid to you which doesn’t include the 10% tax credit. At the start of the graph the dividend is above the ‘take home money’ because part of the dividend is then taxed at the higher rate.

And because the taxes are squashed at the bottom here is a more zoomed in version.

contractor tax breakdown

The total tax is including the employee PAYE, the employer NI, and any extra tax due on dividends. You can see that if you increased your salary from the secondary threshold level of £7488 to £15,000 you and your company would be paying an extra £1500+ of tax.

The final graph shows the income tax and national insurance.

contractor paye taxes

I hope this is all correct – if you spot any mistakes do let me know and I’ll fix them.

Filling in the Inland Revenue self assessment online tax form

Thursday, April 22nd, 2010

If you need to file a self assessment tax form in the UK to work out your income tax you have a number of options. You can fill in a paper tax return, do the online return, use some 3rd party tax software, or pay someone else to do it for you.

I’m going to show you what the HMRC online self assessment forms are like, from the beginning to the end.

To start off you log into the system and choose the option to ‘File a return’.

01 self assessment overview

You’ll get an explanation of who can use the online self assessment, and who can’t. As long as your financial isn’t too exotic you should be able to use the online tax forms.

02 self assessment welcome page

To get started you’ll need to confirm some personal details about your name, national insurance number, etc. Most of these should have been filled in for you already, so you only need to update them if necessary.

03 self assessment tell us about you

In the ‘Tailor your return’ section you need to enter some high level details about your financial situation, such as whether you are employed, self-employed, have received bank interest, have other income, and more. The answers to these questions will set up which parts of the form you’ll see later on. Don’t worry too much about getting your answers correct first time. Up until the point that you make the final submission, you can go back and change any parts of the self assessment form later.

04 tailor your return

06 3 tailor your return

If you are stuck on any section you can click on the green question marks next to the boxes, and you’ll get a pop-up with help messages in it.

05 help screen

Got to the next page (1 | 2 | 3)

Self Assessment and clever PDFs

Thursday, August 23rd, 2007

For 05-06 I was able to use the HMRC free online self-assessment tax form which proved to be very easy to fill in and which did most of the tax calculations automatically. This year I wasn’t able to do this as I needed to fill in the Capital Gains Tax supplement. This supplement isn’t included in the sections available on the HMRC free online tax software.

There were therefore two option:

  1. Fill in the paper forms. Complicated, not fun, and easy to screw up.
  2. Investigate some 3rd party software to fill in the tax return.

The Inland Revenue has a list of approved software listed on their website. The software from ftax looked the best to me – they have a demo on their site if you want to see. The look and feel is identical to the paper forms. It allows you to fill in the main form and all the supplemental sections.

I purchased the software and downloaded it to my desktop. I went to my desktop and was expecting to find an exe or a zip file. I could find anything that looked like an installable application so I went back to the ftax site and downloaded it again.

Once more I could see nothing that looked like an install file for this software. I did however spot a PDF called SA2007. I was puzzled as I was expecting some software to be downloaded, not a PDF.

I opened the PDF and it became clear. This is no static, dumb PDF. This is the King of PDFs. You can fill in fields, save the data and press buttons to calculate your tax figures, and to submit your final return. It really is an amazing use of the PDF file format, I never realised PDFs could do this kind of thing. Many of the tax calculations are automatically done for you which makes it really easy to fill in. There is a lot of field validation in there as well, so you don’t mess up the form as you can easily do with the paper version.

The official (and free) HMRC software also does automatic calculations and validation, but if you need to fill in any supplemental pages that aren’t covered by the free software then I can definitely recommend a package like this. I haven’t yet submitted my return so I won’t be fully convinced until I have my submission receipt from HMRC but it is looking good so far.

Update 2010: The online self assessment tax forms from the HMRC do now allow you to declare capital gains.