Tag Archives: tax free

Childcare Schemes

The Government are introducing two new Childcare schemes within 2017; Tax-Free Childcare and 30 hours free childcare. Through a single online application service called The Childcare Service you can apply for either or both of these schemes, .

There are differing criteria for each scheme, and while the two new schemes can be used alongside each other, there are certain other schemes or benefits which they are not compatible with. To qualify for the schemes, both parents must be in work and earning on average, at least £115 per week but not more than £100,000 per year.

Tax-Free Childcare
This scheme works by utilising a childcare account. Provided you qualify for the scheme a childcare account will be set-up for you and for every £8 you pay into the account the government will pay an additional £2 on top. The total top-up amount per child is upto £2,000 per year.

You cannot sign up for Tax-Free Childcare if you are using childcare vouchers, or in receipt of Universal Credit or tax credits.

In order to pay your childcare provider using your childcare account your provider must also be registered within the scheme.

30 Hours Free Childcare
From September 2017, working parents of 3-4 year olds may be entitled to an extra 15 hours of free childcare per week. Every 3-4 year old in England is already entitled to 15hrs a week, however under this new scheme the total hours can be extended to 30hrs per week.

Taking Interest

Personal Savings Allowance

For 2016/17 if you are a basic-rate taxpayer (i.e. your total income does not exceed £43,000) then you can earn £1,000 in savings interest without paying any tax on this. This is called the ‘personal savings allowance’. For higher-rate taxpayers (i.e. your total income falls between £43,001 and £161,000), the personal savings allowance is reduced to £500. For additional rate taxpayers (i.e. your total income exceeds £161,000) there is no allowance available.

If you have a joint account, the interest is deemed to be received equally by all the named account holders. If one account holder is a basic-rate taxpayer and another account holder is a higher-rate taxpayer, they will receive different personal savings allowances and potentially pay differing amounts of tax on the interest received.

If your taxable non-savings income does not exceed £5,000 then you can actually receive up to £6,000 interest income without paying tax. This is because the tax rate for these individuals is 0% for savings income up to £5,000. You then receive the additional £1,000 personal savings allowance on top of this.

If you earn interest in an ISA which is already tax-free, then this interest does not count towards your personal savings allowance.

You will probably have noticed that your bank is no longer deducting tax from your savings interest earned because of this new allowance. If you do owe tax on your savings income because it falls above the allowance, H M Revenue & Customs will seek to recover that tax by amending your PAYE coding notice. If you submit a self-assessment tax return, your interest income will be reported on this return and the tax paid with any other income tax due.

If you have received a PAYE coding notice from H M Revenue & Customs and you can see that they have reduced your personal allowance because they believe your interest income will be higher than your personal savings allowance, check that you are happy with their estimate. If you feel they have reduced your coding notice incorrectly, you can call them directly on 0300 200 3300 or submit your query using the HMRC’s online form.

If you have any queries at all with respect to the new personal savings allowance, please don’t hesitate to contact us on 01872 271655 or email me at lydia.william@kelsallsteele.co.uk

Rent-a-Room Scheme

UPDATE: As announced in the Summer Budget 2015, as of April 2016 the rent-a-room scheme allowance will increase to £7,500. This is the first increase to this allowance in 18 years.

If you provide furnished accommodation in your main home you may qualify for tax-free rental income under the Rent-a-Room Scheme.  If you receive £4,250 or less per year for the accommodation then you will not need to pay tax on the income.

If you receive £4,250 each year but there are 2 of you that own the property, the income will be split between you and also the allowance will be split so you will each be able to receive a maximum of £2,125 tax free.

This allowance most commonly applies to people who have a lodger in their main home or who run a Guest House or Bed & Breakfast from their home. You may not claim it if the room is not part of your main home and the room must be furnished. You cannot claim it if the room is in your UK home while you live abroad or if you let the whole of your home out and not just a part. You also cannot claim it if the room is used as an office or for business purposes although it is fine if your lodger works from your home in the evenings.

To calculate your income for the year, you must not only include the rental income, but also any amounts you receive for meals, goods and services such as cleaning or laundry. If your total income is less than £4,250 you pay no tax on the income but if it is higher than £4,250 you can choose how to treat it for tax purposes.

Your first option is to treat it as you would any other source of income by calculating the expenses you have incurred and deducting those from the income to arrive at a ‘net profit’ figure. This figure will be entered on your tax return and taxed at your marginal rate (e.g. 20% if your total income falls into the basic rate band and 40% if your total income falls into the higher rate band).

Alternatively, you may find that it is better to take the rental income for the year and deduct the £4,250 allowance. This figure is then entered on your tax return as rental income and taxed in the normal way. You cannot deduct any of your expenses if you use this method, but you may find that the overall income that is taxed is lower than using the standard method.

You can change the method you use each year, depending on which is most tax-efficient.

If your income less your expenses results in a net loss rather than a profit then it is best to use the standard method. This loss can be carried forward and offset against future rental profits, even if you choose to change your method in the next year.

For example, if you receive income of £5,000 from renting your room to a lodger, but incur expenses against that of £6,000 then you will have an overall loss to report on your tax return of £1,000. The following year, you may again receive £5,000 but only have £1,000 expenses to offset against this. Your net profit is therefore £4,000. It would be better in this case to use the second method and offset the £4,250 allowance against your £5,000 income so you only need to report £750 (£5,000 less £4,250) as your net profit. You have a loss of £1,000 brought forward from the previous year which you can offset against this £750 so your actual net profit will be £Nil and you will still have £250 losses to carry forward to the following year.

If you have any queries about the Rent-a-Room scheme or if you are not sure which method to use to calculate your net profit, please don’t hesitate to contact us on 01872 271655 or email Lydia.williams@kelsallsteele.co.uk