Claim Payment Protection Insurance

4 Steps To Claim Payment Protection Insurance Refund

Table of Contents

If you’ve ever taken out Payment Protection Insurance (PPI) on loans, credit cards, car finance, or even mortgages, you may still be eligible to claim back income tax on the compensation you received—especially if you haven’t checked your refund status in previous years.

PPI was designed to cover repayments on various types of credit if you were unable to make payments due to illness, unemployment, or other unforeseen circumstances. However, many were mis-sold PPI, leading to a wave of compensation payouts.

In this 2024 guide, we’ll walk you through how to claim back overpaid income tax on your PPI compensation, with the latest legal updates, tips for individuals and businesses, and answers to frequently asked questions.

What Is PPI Claim?

PPI (Payment Protection Insurance) was an insurance product that covered repayments on financial products like loans, overdrafts, mortgages, or car finance in case of illness, accidents, unemployment, or other life events. However, PPI policies were often mis-sold, which led to widespread claims and refunds.

If you received a PPI compensation payout, a portion of it might have been taxed, particularly the statutory interest. You may be entitled to claim some or all of this money back, depending on your tax situation.

The PPI Compensation and Tax Refund Process

Your PPI compensation generally consists of three parts:

  1. Refund of PPI premiums: The money you paid for the PPI policy itself.
  2. Statutory interest: An 8% annual interest is added to compensate for the time you were without your money.
  3. Refund of additional loan interest: Compensation for any extra interest you were charged due to the PPI policy.

HMRC automatically deducts 20% tax from the statutory interest portion of your PPI compensation. However, depending on your total income and savings, you might be able to claim some or all of this tax back.

Eligibility To Claim Tax Back On PPI

To determine if you can reclaim tax on your PPI compensation, review the following factors:

a) Personal Savings Allowance (PSA)
  • If you are a basic rate taxpayer with a total annual income (including your PPI payout) under £1,000 in interest, you might have overpaid tax and be eligible for a refund.
  • For higher-rate taxpayers, the PSA is £500. Additional rate taxpayers do not receive a PSA. It’s important to check your tax band and how much interest you’ve received.
b) Tax-Free Allowances
  • If your total income (including your PPI payout) falls within your personal allowance (£12,570 for the 2024 tax year), you may be due a tax refund.
c) Previous Year Adjustments
  • If you received a PPI payout in the last four years and haven’t claimed a refund, HMRC allows you to claim for overpaid tax going back up to four years from the current tax year. It’s worth checking if you can get money back for previous payments.

Steps To Claim Tax Back On Payment Protection Insurance

Step 1: Gather Documentation

Collect all relevant paperwork, such as your PPI payout statement, tax forms, and details about the statutory interest deducted. This includes documents from your bank, building society, or financial advisor. If your PPI complaint was handled by a third party, check their commission charges and whether they provided adequate records.

Step 2: Complete Form R40 or Self-Assessment

If you’re an employee or not self-employed, you’ll need to fill out the R40 form to reclaim overpaid tax. For self-employed individuals or business owners, include PPI compensation details in your Self-Assessment tax return. HMRC’s website provides an easy-to-follow online system for submitting these forms digitally in 2024.

Step 3: Submit to HMRC

Submit your completed R40 form online or through the Self-Assessment portal. Ensure your contact details are accurate, as HMRC may need to follow up for additional information. If your documentation is in order, HMRC will process the claim and send your refund directly to your bank account.

Step 4: Wait for a Response

HMRC typically takes a few weeks to process tax refund claims. Keep an eye on your email and post for any correspondence. In some cases, you might receive interest on the refund, though this additional interest will also be taxable.

Payment Protection

Tips To Claim PPI Repayment

For Small Business Owners:

  • Expenses and Deductions: If your business had PPI on a loan or credit card, that cost may have been deductible as a business expense. When receiving a refund, adjust your taxable income for the relevant tax year. Consult with a tax advisor to ensure accuracy.
  • Digital Record-Keeping: With HMRC’s Making Tax Digital (MTD) requirements in full effect for 2024, use accounting software to track your PPI claims and tax refunds. This will help you remain compliant and streamline your tax reporting.

For Self-Employed Individuals:

  • Self-Assessment Adjustments: Include any statutory interest from your PPI compensation in your Self-Assessment tax return. If you’ve overpaid, submit a claim for the refund using either the R40 form or by adjusting your tax return.
  • Business Loans & PPI: If you had PPI on a business loan, your refund may affect your taxable profits. Ensure your business accounts accurately reflect this change.

General Advice for Individuals:

  • Be Mindful of Tax Bands: If your PPI compensation pushed you into a higher tax bracket, your overall tax liability could be affected. Review how this impacts your allowances and whether you might be liable for additional taxes.
  • Check for Missed Claims: Don’t forget—you can still claim back taxes for previous years’ PPI payouts up to four years after the tax year in which the payout occurred. In 2024, this means you can claim for payouts from 2019–2020 onward.

PPI Tax Refund Claims Cover

A PPI tax refund specifically reclaims the 20% tax deducted from the statutory interest portion of your compensation. This is where the majority of your refund will come from. Here’s what you need to know:

  • Statutory Interest: This compensates you for being without your money. HMRC automatically deducts 20%, but depending on your PSA, you may be eligible for a tax refund.
  • Interest on Refunds: If HMRC adds interest to your tax refund, this too is taxable and should be included in your income for the relevant tax year.

What Is PPI Policy?

A Payment Protection Insurance (PPI) policy was designed to cover repayments on loans, credit cards, mortgages, or other forms of credit if you were unable to work due to illness, accident, or unemployment. It was sold widely in the UK, often without customers being fully aware of what they were purchasing, leading to many cases of mis-selling.

Key features of a PPI policy typically include:

  • Coverage Scope: PPI was intended to cover monthly payments for a set period, usually 12 to 24 months.
  • Eligibility Criteria: Many policies had stringent conditions, meaning claims could be rejected if you were self-employed, had pre-existing medical conditions, or were of a certain age.
  • Cost: The premiums for PPI were often high and added to the overall cost of the loan or credit product.

If you believe you have mis-sold a PPI policy, you may have already pursued a refund through the financial ombudsman service. However, understanding the details of your policy can help in ensuring that you’ve claimed everything you’re entitled to, including any tax back on compensation.

PPI Payouts: What Do They Include?

When you successfully claimed compensation for a mis-sold PPI policy, the payout typically included three components:

  1. Refund of PPI Premiums: This is the amount you paid for the PPI policy itself.
  2. Refund of Associated Interest: This covers any additional interest you were charged on your credit due to the PPI policy.
  3. Statutory Interest: This is an additional 8% interest added by the lender to compensate for being deprived of your money. This portion is taxable, and it’s from this part of the payout that HMRC usually deducts 20% tax automatically.

It’s crucial to understand that while the PPI premiums and associated interest are refunded without tax deductions, the statutory interest is taxed. Therefore, checking if you’re eligible to claim some of this tax back is essential, especially if your total income for the year, including the payout, remained below certain thresholds.

Claim Payment Protection Insurance

PPI Deadline: Can You Still Claim?

The final deadline to submit PPI claims was 29th August 2019. This deadline was set by the Financial Conduct Authority (FCA) as the final date for customers to complain about the mis-selling of PPI.

However, there are a few scenarios where you may still be able to claim:

  1. Exceptional Circumstances: If you were unable to submit a claim before the deadline due to exceptional circumstances (such as severe illness or other unavoidable reasons), some financial institutions may still consider your claim. This is rare and often requires substantial proof.

  2. Claiming Tax Back on PPI Payouts: Even if you missed the deadline to claim PPI itself, you can still claim tax back on the statutory interest part of a PPI payout you received before the deadline. You can claim for up to four years after the end of the tax year in which the interest was paid.

  3. PPI Claims from a Different Country: If you lived abroad or had a foreign address at the time of the deadline, and did not receive adequate information about the PPI claims deadline, you may be able to submit a claim even after the deadline. Consult with a legal advisor or financial expert specializing in international claims for more guidance.

Why PPI Deadline Matters?

The PPI deadline marked the closure of a significant chapter in UK financial services. Before this deadline, millions of people submitted claims, resulting in billions of pounds being paid out in compensation. If you’ve received a PPI payout, it’s essential to ensure you’ve reclaimed any overpaid tax on the statutory interest. Missing out on this could mean leaving money on the table that’s rightfully yours.

Action steps if you missed the PPI deadline:

  • Check for Existing PPI Payouts: If you received a payout before the deadline and haven’t checked if you can claim back the tax, do so now. Use the R40 form or amend your Self-Assessment tax return.
  • Seek Professional Advice: If you believe you have valid reasons for missing the deadline, consult with a financial advisor who can assess your case and potentially guide you in submitting a late claim.

Living Overseas

If you are a UK taxpayer living abroad, you can still claim tax back on PPI payouts. The process is similar, but you may need to provide additional documentation to confirm your tax residency status.

Frequently Asked Questions

=> CAN I STILL CLAIM PPI IN 2025?

No, the final deadline to file a PPI complaint was in 2019. However, you can still claim tax refunds on statutory interest for payouts received before that deadline.

=> HOW DO I CLAIM TAX BACK ON PPI REFUNDS?

Gather your payout documents, fill out Form R40 or adjust your Self-Assessment tax return, submit it to HMRC, and await a response. It’s possible to get money back even if your payout was years ago.

=> DOES CLAIMING PPI AFFECT MY CREDIT RATING?

No, claiming PPI or a tax refund does not affect your credit rating. It is unrelated to your credit report or creditworthiness.

=> CAN I CLAIM TAX ON PPI PAID ON A PENSION OR CAR FINANCE?

Yes, PPI refunds can apply to pensions, car finance agreements, or other loans if you were mis-sold a PPI policy. Make sure to include statutory interest in your tax refund claim.

=> CAN I CLAIM PPI TAX REFUNDS IF I HAD PPI ON AN OVERDRAFT?

Yes, if you were mis-sold PPI on an overdraft and received compensation, you may be eligible to claim back the tax deducted from the statutory interest. Simply gather your documents and follow the steps to claim any overpaid tax from HMRC.

Conclusion

Claiming back tax on PPI payouts can be a straightforward process if you understand the rules and gather the necessary documentation. With the Personal Savings Allowance and varying tax bands, it’s worth checking whether you’re due a refund, especially if your income fluctuated in the year you received the payout.

For personalized advice, consult with a tax specialist or accountant who can guide you through the process and help maximize your claim. If you need further assistance, feel free to contact our experts at MH Services for a comprehensive review of your circumstances and potential refund.

Company Tax Allowances

Understanding Company Tax Allowances And Tax Rates

Table of Contents

Corporation Tax Reliefs And Allowances

In the UK, company tax and allowance are complex and ever-changing. It can be difficult to keep up with all the changes, so we’ve put together this brief to help you understand how they work. In this brief, we’ll cover the basics of business tax and allowances, as well as how to stay compliant with the latest changes.

What is Tax?

Tax is a compulsory payment to a government, typically levied on income, profits, or wealth. Taxes are used to fund public services and amenities, such as roads, schools, and hospitals. Tax systems can be progressive, proportional, or regressive.

Company Taxes Rates

The corporation tax rates are determined by the company’s profits:

1. Main Rate
  • Rate: 25%
  • Applies to: Companies with taxable profits over £250,000
  • Description: This is the standard rate of corporation tax for larger companies and reflects the increase from the previous flat rate of 19%
2. Small Profits Rate
  • Rate: 19%
  • Applies to: Companies with taxable profits up to £50,000
  • Description: This lower rate is intended to support smaller businesses by reducing their tax burden
3. Marginal Relief
  • Rate: Effective rate varies between 19% and 25%
  • Applies to: Companies with profits between £50,001 and £250,000
  • Description: Marginal relief provides a gradual increase in the tax rate from 19% to 25% for companies whose profits fall between these thresholds

Other Tax Rates In The UK

Understanding the various tax rates that might affect your business is crucial. Here’s a breakdown of some of the main taxes:

a) Income Tax

This is a tax levied on the income of individuals and some types of business profits.

  • Basic Rate: 20% on income up to £37,700
  • Higher Rate: 40% on income between £37,701 and £125,140
  • Additional Rate: 45% on income over £125,140

b) Capital Gains Tax

This tax applies to the profit from selling certain assets. The rates depend on the taxpayer’s income band:

  • Basic Rate Taxpayers: 10% (18% for residential property)
  • Higher/Additional Rate Taxpayers: 20% (28% for residential property)

c) Dividend Tax

Dividend tax rates vary based on the income band of the recipient:

  • Basic Rate: 8.75% for dividends falling within the basic income tax band
  • Higher Rate: 33.75% for dividends within the higher income tax band
  • Additional Rate: 39.35% for dividends within the additional income tax band

Value Added Tax (VAT)

While not directly related to corporation tax, businesses should also consider VAT, which affects many companies, particularly limited companies:

  • Standard Rate: 20% on most goods and services
  • Reduced Rate: 5% on certain goods and services, such as children’s car seats and home energy
  • Zero Rate: 0% on specific items like most food and children’s clothes

Tax reliefCorporation Tax Allowances

These are deductions that businesses can claim on their taxable profits to reduce their tax liability. These allowances are designed to encourage investment, research and development, and other business activities that contribute to economic growth and job creation.

1. Annual Investment Allowance (AIA)

The Annual Investment Allowance allows businesses to deduct the full cost of qualifying plant and machinery from their profits before tax.

=> Current Limit: The AIA limit is set at £1,000,000 per year (as of April 2024). This generous allowance encourages businesses to invest in assets that contribute to their growth.

=> Qualifying Expenditures:

  • Plant and Machinery: Includes office equipment, machinery, commercial vehicles (e.g., vans and lorries), and certain fixtures like kitchen fittings
  • Exclusions: Cars, buildings, land, and items used for leasing are typically excluded

2. Capital Allowances

Capital allowances allow businesses to write off the cost of certain capital assets against taxable income.

=> Main Pool: Assets that do not qualify for the special rate pool are typically included here, with an 18% writing-down allowance.

=> Special Rate Pool: Includes assets such as long-life assets, integral features of buildings (e.g., lifts, heating systems), and thermal insulation. The writing down allowance is 6%.

=> First-Year Allowance (FYA):

  • Offers 100% tax relief on qualifying investments in energy-saving technologies and water conservation
  • Enhanced Capital Allowances (ECAs): Promote environmental sustainability by providing tax relief for energy-efficient equipment

=> Structures and Buildings Allowance (SBA):

  • Applies to new commercial structures and buildings. The annual deduction is 3% of qualifying costs

3. Research and Development (R&D) Tax Relief

=> Description: R&D tax relief supports companies that work on innovative projects in science and technology.

=> Eligibility: Projects must aim to make an advance in science or technology and involve overcoming uncertainty.

=> Benefits:

  • SMEs: Can deduct an additional 86% of their qualifying R&D costs, leading to a total deduction of 186%
  • Large Companies: Can claim a Research and Development Expenditure Credit (RDEC) at 20% of qualifying R&D costs, with a net benefit of 16%

4. Patent Box Regime

=> Description: Encourages companies to commercialize patented inventions and retain their IP in the UK.

=> Benefit: A lower Corporation Tax rate of 10% on profits earned from patented inventions and certain other IP rights.

=> Eligibility: Companies must own or exclusively license the patents and actively participate in their development.

5. Super Deduction

=> Description: A temporary allowance was introduced to stimulate business investment post-COVID.

=> Benefit: Offers a 130% first-year deduction on qualifying plant and machinery investments, effectively reducing taxable profits by more than the cost of the asset.

=> Duration: Available for expenditures incurred between April 1, 2021, and March 31, 2024.

6. Employment Allowance

=> Description: Reduces the National Insurance contributions (NICs) liability for eligible employers.

=> Benefit: Up to £5,000 off the employer’s NICs bill per year.

=> Eligibility: Most businesses and charities, with some exceptions (e.g., if a director is the only employee).

7. Creative Industry Tax Reliefs

=> Description: Supports companies in the creative industries, such as film, television, video games, animation, and museums.

=> Benefits:

  • Film Tax Relief: Offers a payable tax credit of 25% on UK-qualifying core expenditure
  • Video Games Tax Relief: Provides relief on 80% of the core expenditure
  • Theatre Tax Relief: Allows companies to claim a deduction of up to 80% of qualifying production costs

8. Business Rates Relief

=> Description: Reductions in business rates for qualifying properties and industries.

=> Types:

  • Small Business Rate Relief: For businesses with a rateable value of less than £15,000
  • Retail Discount: Temporary relief for shops, restaurants, and other retail properties

9. Loss Relief

=> Description: Businesses can use trading losses to reduce tax liabilities.

=> Benefits:

  • Carry Back: Offset losses against profits from previous years, leading to tax refunds
  • Carry Forward: Use losses against future profits
  • Group Relief: Transfer losses to other group companies to offset their profits

10. Property Allowance

=> Description: Simplifies the tax calculation for individuals earning income from property.

=> Benefit: An allowance of £1,000 for property income, allowing individuals to deduct this amount or actual expenses (if greater).

11. Apprenticeship Levy Allowance

=> Description: Supports employers in funding apprenticeship training.

=> Benefit: Employers can reduce their apprenticeship levy payments by up to £15,000.

12. De Minimis State Aid

=> Description: Various tax reliefs that fall under EU state aid rules.

=> Examples:

business expenses

Allowable Expenses for Corporation Tax

Businesses can deduct certain expenses from their taxable profits, reducing the amount of Corporation Tax they owe.

  • Rent or Lease Payments: For business premises
  • Salaries and Wages: Paid to employees
  • Cost of Goods Sold: Including raw materials and inventory
  • Business Travel: Including transport and accommodation costs
  • Marketing and Advertising Expenses
  • Professional Fees: Such as accounting or legal fees
  • Depreciation on Business Assets: Though handled differently for tax purposes

The type of business you operate can influence which expenses are tax-deductible. Consulting an accountant can help clarify allowable business expenses. For instance, retail businesses can deduct the cost of goods sold, while service-oriented businesses can focus on wage-related expenses.

Register For VAT

If you are starting a business as a corporation, it is essential to register for Corporation Tax with HM Revenue and Customs (HMRC).

  1. Incorporate Your Company: Register your company with Companies House
  2. Register for Corporation Tax: Use the HMRC online service. You’ll need your company’s Unique Taxpayer Reference (UTR)
  3. Provide Necessary Information: Include details such as your company name, address, and the date you started your business

Registration is typically required within three months of starting to do business.

Filing Company Tax Return

Filing a company tax return is a crucial responsibility for business owners.

  1. Gather Required Documents: Have your financial statements, invoices, and receipts ready
  2. Stay Updated: Keep informed about the latest tax changes and regulations
  3. Seek Professional Advice: Consider consulting a tax advisor for complex tax matters
  4. File on Time: Ensure your tax return is submitted by the deadline, typically 12 months after the end of the accounting period

Paying Corporation Tax Bill

After filing your tax return, you’ll need to pay any Corporation Tax owed.

  • Payment Deadline: Nine months and one day after the end of your company’s accounting period
  • Online Payment: Use HMRC’s online services for quick and secure payments
  • Extensions: Contact HMRC if you need more time or if you have issues making a payment

Common Tax Mistakes Made by Businesses

Avoiding common tax mistakes can save your business time and money, especially regarding corporation tax reliefs and allowances.

Here are some to watch out for:

  • Late Filing: Missing tax return deadlines can result in penalties
  • Incomplete Returns: Ensure accuracy and completeness in your tax return
  • Not Claiming Allowances: Make full use of available tax reliefs
  • Outdated Tax Knowledge: Stay informed about changes in tax legislation
  • Overpaying Taxes: Double-check calculations and consult with a tax professional

Frequently Asked Questions

=> DO YOU PAY CORPORATION TAX ON SALARY?

No, in the UK, you do not pay Corporation Tax on salary. Corporation Tax is levied on a company’s profits, which can include trading profits, investment profits, and capital gains, but not on salaries. 

=> WHAT IS THE TAX ALLOWANCE FOR A LIMITED COMPANY?

In the UK, limited companies don’t receive a personal tax allowance like individuals do. Instead, they are subject to Corporation Tax on their profits.

– A main rate of 25% for companies with profits over £250,000.
– A lower rate, often referred to as the “small profits rate,” of 19% for companies with profits up to £50,000.
– For companies with profits between £50,000 and £250,000, a tapering relief is applied, which means the effective tax rate will gradually increase from 19% to 25%.

=> HOW DO I AVOID 25% CORPORATION TAX?

– Utilise Available Allowances and Reliefs

– Pension Contributions

– Capital Allowances

– Income Shifting

– Deferral of Income

– Claim Goodwill

– Charitable Donations

Conclusion

Company tax and allowance in the UK are complex, ever-changing, and can be difficult to keep up with. The tax laws governing company tax have changed significantly since 2007 when new legislation was introduced.

As a result of these changes personal, pensions or companies need to stay aware of their obligations if they want to avoid hefty fines or penalties from HMRC (Her Majesty’s Revenue and Customs).

Inheritance tax bill

Best 11 Tips to Reduce Inheritance Tax Bill UK

Table of Contents

Our guide will teach you everything you need to know about inheritance taxes to make sure your plans work out smoothly without any hiccups along the way. 

What is Inheritance Tax?

If you are a UK resident it is important to understand inheritance tax and how to plan for it. It is a tax on the estate of someone who has died, including their property, money, and possessions.

This tax is typically levied on estates above a certain threshold, currently set at £325,000 in the UK.

However, there are ways to reduce the amount of inheritance tax your estate will owe, such as making use of exemptions and reliefs. Consulting with a tax professional can help you create a plan to minimize the impact of inheritance tax on your estate

Inheritance Tax Threshold

The first factor to consider is the nil-rate band which is currently set at £325,000. This means that any assets below this threshold are not subject to inheritance tax. However, for assets exceeding this amount, the tax rate is set at 40% of the total value.

There are also additional considerations that may affect the amount of inheritance tax you have to pay, such as any exemptions or reliefs that may apply, as well as your relationship with the deceased individual. eg. if you are a surviving spouse or civil partner, you may be eligible for a higher nil-rate band.

The inheritance tax threshold rates in the UK are as follows:

  • Nil-rate band: £325,000
  • Residence nil-rate band (direct descendants, such as a child or grandchild): £175,000
  • Total combined nil-rate band for married couples and civil partners: £1 million

What is Nil-Rate Band?

The residence nil rate band (RNRB) is a new inheritance tax allowance that was introduced in April 2017. This allowance allows you to pass on an extra £100,000 tax-free to your heirs.

The nil rate band applies to estates that are left to children or grandchildren, and also it is available to married couples and civil partners who leave their property to each other.

To take advantage of the nil rate band, you must be living in the UK at the time of your death, and it should apply to the main residence. If you are not living in the UK, you may still be able to claim the nil rate band if your estate includes a UK property that is valued at £500,000 or less. 

11 Tips to Reduce Inheritance Tax Bill

There are several ways to plan ahead and reduce your tax liability in the UK, so it is important to understand how it works.

1. Give Away

Giving away assets and property before you pass. This will help to reduce the value of your estate and as a result, pay less tax amount.

2. Donation

Make charitable donations in your will. Charities are not liable for IHT bills, so by giving money to charities you can reduce your liabilities considerably.

3. Gifts

Consider making gifts to your loved ones during your lifetime. Each year, you can give up to £3,000 worth of gifts without incurring any IHT. You can also give small gifts of up to £250 to as many people as you like, reducing the total value of your estate.

4. Trust

Setting up a trust can help to protect your assets for future generations and can reduce your inheritance tax bill, ensuring part of your estate remains intact. Seek advice from a professional to ensure you set up the right type of trust for your situation.

5. Business Property

Investing in qualifying business property or holding shares in qualifying companies can attract Business Property Relief, which can reduce or eliminate your IHT liability on these assets.

6. Life Insurance

Consider taking out a life insurance policy that will pay out a lump sum on your death, which can help to cover the IHT bill and provide financial support for your loved ones.

7. Non-UK

Leave property to non-UK domiciled individuals. If you own assets overseas, IHT can be avoided by making sure your beneficiaries are not UK citizens.

8. Pass on Your Wealth

If you have a family business, inheritance tax IHT can be reduced by splitting the inheritance between family members.

9. Land

Transfer agricultural land or buildings under the terms of Agricultural Relief (APR).

10. Tax Relief

Make use of tax relief, which may be subject to inheritance tax laws. There are many inheritance tax IHT exemptions and reliefs that your accountant can help you take advantage of.

11. Spend – spend – spend in a tax year

iht bill

Type of Trusts 

Trusts can be a great way to protect your inheritance and ensure that inheritance tax is not payable. There are many different types of trusts available, so it is important to speak with an accountant or estate planner to see which trust would be best for you.

=> Discretionary Trusts

Offers trustees the flexibility to decide how and when to distribute the trust’s assets among the beneficiaries. It’s often used for estate planning to protect assets.

=> Family Trusts

Are established to manage and protect family assets, ensuring they are preserved for future generations. These trusts can offer tax benefits and help in the efficient transfer of wealth within a family.

=> Fixed Trusts

The beneficiaries and their entitlements are predetermined and specified in the trust deed. Provides certainty and clarity regarding who receives what portion of the trust’s assets.

=> Offshore Trusts

Created in jurisdictions with favourable tax laws, often to achieve tax efficiency and asset protection. Used by individuals and businesses to manage wealth internationally.

=> Charitable Trusts

Providing tax advantages to the donor. The assets are used for public benefit, often supporting causes like education, healthcare, and poverty alleviation.

Common Mistakes Made with IHT Bill

1.) Not filing a return at all – this is the most common mistake and can lead to penalties and interest.

2.) Filing a return that is inaccurate or incomplete – this can also lead to penalties and interest.

3.) Not paying inheritance tax when it is due – if you do not pay on time, you may face significant penalties.

4.) Paying IHT when it is not due – sometimes people mistakenly think they have to pay inheritance tax when they do not have to.

5.) Failing to take into account available exemptions and allowances – this can result in you paying more inheritance tax than necessary.

6.) Not keeping records up-to-date.

7.) Not taking into account changes in your personal circumstances e.g. If you get married, divorced, or have children, it is important to update your direct descendants, who are part of your estate.

Benefits of Married Couple

=> The main benefit for spouses is that it allows the surviving partner to inherit the estate tax-free, even if the estate exceeds the nil rate band. This means that they will not have to pay any tax on the assets and property that they inherit from their deceased spouse or partner.

=> Another benefit of inheritance tax IHT is that it helps to protect the inheritance of the surviving spouse or partner. This can be important if the surviving registered civil partner needs money to live on after their partner has died.

FAQ – Pay Inheritance Tax

=> HOW TO PREPARE FOR INHERITANCE TAX?

  1. A financial adviser can provide valuable guidance on how to prepare for inheritance tax, ensuring the unused allowances are considered. They can assist in assessing your current financial situation and offer tailored advice on minimizing tax liabilities.
  2. Understanding the rules around inheritance tax on gifts is crucial. Knowing how and when to gift assets can significantly reduce the amount of tax your loved ones may have to pay in the future.
  3. Seeking legal advice is recommended to ensure your estate planning aligns with inheritance tax laws. Consulting with a solicitor can help you create a tax-efficient will that maximizes the inheritance left to your beneficiaries and helps you make a plan for probate.
  4. Proactive planning helps mitigate the effects of inheritance tax. By taking steps to organize your assets and investments, you can minimize the tax burden on your estate and ensure your beneficiaries receive the maximum benefit from your legacy.

=> HOW TO PAY INHERITANCE TAX? 

The IHT is usually paid by the executor of the deceased person’s estate. Complete and submit an inheritance tax return within 12 months of the death, as the estate may be subject to inheritance tax. Once the inheritance tax has been paid, the executor can apply for a clearance certificate from HMRC, facilitating the probate process.

Financial advice should always be sought when dealing with inheritance tax to pay or before making any payments to HMRC. 

=> CAN I LEAVE A HOUSE IN A TRUST TO AVOID AN INHERITANCE TAX BILL?

Trusts can be a great way to protect your inheritance and ensure that inheritance tax is not payable. When you put your house or other assets in a trust, the property is transferred to a trustee who will be responsible for managing it on your behalf.

As the trustee is not the owner of the property, they will not be liable for inheritance tax purposes. This can be a great way to protect your family home from estate taxes and ensure that it goes to your heirs without any additional costs.

=> HOW TO PROTECT YOUR ESTATE?

One of the simplest and most effective ways is to plan ahead. Another way is to make sure that you are aware of all the exemptions and allowances that are available, which may be subject to inheritance tax. Many different types of properties are exempt from inheritance tax, so it is important to understand what these are.

Conclusion – Planning Advice

Inheritance tax can be complex, comes down to individual circumstances and may require the help of an accountant to understand how it works, especially if the total value of your estate exceeds the nil rate band.

It is very important to make plans ahead for your estate value so that you are not faced with unexpected taxes or penalties because you did not know about them before they came into effect.

There are many ways to protect your family wealth and business assets, but only if you plan in advance by understanding what IHT exemptions exist and how best to use them wisely.

If all this sounds overwhelming, let us know – our team of experts at MH Services will gladly assist with any questions related to taxation services, including those about inheritance tax your loved ones may need to consider.

sme accountant

Accounting vs Bookkeeping Service | 6 Key Differences

Table of Contents

Accounting vs Bookkeeping

Accounting vs Bookkeeping services are two different processes that are often confused. While the importance of accounting is the system of recording, classifying & summarizing financial transactions, the fundamentals of bookkeeping is the practice of recording & maintaining these transactions in a specific way.

Key Differences

1) Accounting provides an internal overview of a company’s financial status while bookkeeping tracks individual dealings.

2) Accounting is used to make business decisions, while bookkeeping is used to track accurate financial information.

3) Accounting uses Generally Accepted Accounting Principles (GAAP), while bookkeeping may use other methods.

4) Accounting must be audited, while bookkeeping does not need to be.

5) Accounting records money coming in and money going out, while bookkeeping tracks individual transactions.

6) Accounting is mainly used for larger companies, while bookkeeping can be used for any company.

What Is Accounting?

Part of the accounting process is recording, classifying, and summarizing financial transactions to provide information that is useful in making business decisions. This information can be used internally by businesses or externally by authorities and other interested parties.

The financial accounting process begins with the recording of transactions. This can be done manually or electronically. Once the operation has been recorded, they are then classified according to their type.

For example, money, credit card and invoiced transactions would all be classified as income, expenses, assets, or liabilities. After the transactions have been classified, they are summarized into financial statements. These reports show a company’s financial position, performance, and cash flow at a specific point in time.

How Accounting Can Help Your Business?

By completing transactions, businesses can keep a trail of their expenses and revenue, which can help them to make informed business decisions. Also, financial accounting uses (GAAP), which allows businesses to compare their performance.

Additionally, accountancy can help businesses prepare tax returns, which can save them tons of money. Overall in the long term, accounting is a valuable service for businesses of all sizes.

What is GAAP?

Is a set of cost accounting standards that are used in the United Kingdom. These standards provide a framework for financial reporting and help businesses compare their performance. They are also used by tax authorities to ensure that businesses are reporting their finances accurately.

Accounting

Types Of Accounting

There are four main types of accounting: financial accounting, management accounting, public accounting, and government accounting.

1. Financial Accounting

Is the activity of recording, classifying, and summarizing a company’s economic transactions to provide information that is useful in making business decisions. This information can be used internally by businesses or externally by investors, creditors, and other interested parties.

2. Management Accounting

Is the activity of providing reports to managers so that they can make informed decisions about how to run the business. This information includes things like budgeting, performance measurement, and forecasting.

3. Public Accounting

Is the activity of providing financial accounting services to clients such as individuals, businesses, or non-profit organizations. Public accountants may work for accountancy firms or they may work for accounting departments in larger companies.

4. Government Accounting

Is the activity of providing accounting services to governmental entities such as state, local, and federal governments. Government accountants may also work for accounting firms or they may work for accounting departments in larger companies.

What Are Financial Statements?

A financial statement is a summary of a company’s financial performance over a specific accounting history.

1. Balance sheet

The balance sheet shows a company’s assets, liabilities, and shareholders’ equity at a specific point in time.

2. Income statement

Shows a company’s revenues and expenses over some time.

3. Statement of cash flows

Shows how a company’s cash has changed over a period of time.

4. Statement of changes in equity

Shows how the company’s shareholders’ equity has changed over a period of time.

5 Accounting Mistakes To Avoid

1) Not keeping track of your fixed and variable expenses. If you don’t track your expenses, you won’t know how much money your firm making (or losing).

2) Not preparing a written budget is critical, it helps you follow your expenses, forecast future income statement and make sound financial decisions.

3) Not keeping accurate financial reporting can lead to a number of problems for your firm, including inaccurate tax returns and difficulty securing loans or lines of credit.

4) Not paying attention to cash flow data could lead to financial instability.

5) Not treating employees fairly can put a serious damper on the business and accounts. Employers have to treat them fairly and in return, you’ll have a productive workforce that will help your business grow.

What Qualification is Needed to be an Accountant?

The simple answer is no, you don’t need a degree to be an accountant. Postgraduate education is beneficial but not necessary, just like other professions. Instead, the majority of people in the sector have completed an AAT (Association of Accountants Technicians) course.

This certificate is often the min. requirement for accounting entries or for certified public accountants, which trains you the basics up to expert skills, across three levels. With this certificate, you’ll be able to pursue a career in accounts in a variety of interesting sectors like forensic accounting, public sector, private sector etc.

What Is Bookkeeping?

Bookkeeping is the recording of individual financial transactions. It can be done manually or using cost accounting software. The aim of bookkeeping is to ensure that financial records are accurate and up-to-date.

Bookkeeping is essential for businesses, as it helps them follow their financial position and make sound decisions based on accurate data. It also helps businesses prepare tax returns and manage their cash flow.

types of bookkeeping

Types Of Bookkeeping

There are two types of bookkeeping, single and double-entry bookkeeping.

Single entry system

Single-entry bookkeeping is a simple method where each financial transaction is recorded only once, either as a debit or a credit. This method is typically used by small businesses and individuals who have basic accounting needs.

Double entry system

Double-entry bookkeeping is a more advanced method where each financial transaction is recorded twice, once as a debit and once as a credit. This method provides a more accurate picture of a company’s financial health and is recommended for larger businesses with more complex accounting needs.

5 Bookkeeping Mistakes To Avoid

1) Not keeping track of expenses is one of the most common bookkeeping mistakes.

2) Reconciling your bank statements is essential for ensuring accuracy in your financial records and history.

3) Not tracking inventory and sales makes it difficult to determine how much money your company is making or losing.

4) Not registering transactions on time makes it difficult to keep track of your business’s financial data.

5) Not using double-entry bookkeeping. This involves using debits and credits to make sure that the accounting period are accurate. For example, can help prevent human error. It can also help make sure that transactions are accurate and complete, which is important when it comes time to file taxes.

What Qualifications do you Need to be a Bookkeeper?

You don’t need a degree or years of experience to apply for an entry-level position. However, you should have good math skills, a basic understanding of accounting or bookkeeping practices, and software knowledge of programs like QuickBooks, Xero, Kashflow or FreshBooks.

The best guide to obtaining a qualification in bookkeeping is through AAT. This gives you a strong overall grasp of accounting courses including bookkeeping, economics and account preparation.

Also, get some practical experience “bookkeepers work” or training before you choose a career to become a certified public accountant and look for an accountant or bookkeeper role in accounting firms, companies or professional bodies.

Conclusion

The difference between accounting vs bookkeeping is the processes. Bookkeeping is simply the process of recording the financial transaction in a specific way, while accountancy takes these recorded transactions and interprets them to provide useful information for making company decisions.

Accountants and bookkeepers can be invaluable partners if you’re looking for help with your financial analysis or want someone to manage your books. They’ll focus on everything from generating budgets to filing taxes so you have more time on other important tasks! Contact MH Services today.

pay less tax

6 Tips How To Pay Less Tax in UK Legally

Table of Contents

Pay Less Tax In UK Legally

In these difficult economic times, it’s no surprise that more and more people are looking for ways to pay less tax. The UK has one of the highest tax rates in the world, so most people are looking for ways to legally reduce their tax bills.

6 Ways To Save Paying Tax

These are the following tips you can apply before your tax return to pay less tax in the UK. Plus, we have a bonus paragraph on how to find an accountant or bookkeeper?

1. Tax code

Back to basics. How to pay taxes? Our tax advice is, to first check your tax code and ensure it is correct, otherwise, you could face a higher tax bill. If you get it wrong it could end up costing you over £100 a month.

2. Allowances

There are a number of tax allowances that you may be able to take advantage of in order to avoid paying too much tax, which may include the personal allowance, the marriage allowance, the capital gains tax allowance etc.

3. Pension contribution

Paying more pension contributions is one of the best ways to save tax. By contributing to a pension, you can take advantage of tax relief on your contributions, which means you pay less tax overall. In addition, many employers offer matching contributions, so you can get even higher value for your money.

4. Charity or gifting

Giving to a charity does more than make you feel good; it also saves tax money and lowers your self-assessment tax return burden, however it is only accessible by adding Gift Aid to the donation. In addition, you must keep all records of the charitable donations to reduce your taxable income.

5. Sacrifice income

If you’re looking for a way to pay less tax this year, sacrificing your salary might be an option and it is absolutely legal. There are many different types of arrangements in which employers and employees can agree so that both sides can benefit without having any financial loss e.g. medical insurance, gym membership, child care, car leasing etc.

Contact your payroll department for more details or our accountant for tax planning.

6. Employ a companion

In the UK, the personal allowance (£12,570) is a limit on how much you can earn to not pay taxes. If you are a self-employed or business owner and your spouse or partner doesn’t work or they’re unemployed you might consider employing them and dividing the salary of ‘Yours’ between the two people. By doing that, you can reduce your tax bill.

pay less tax

How much is the income tax rate?

Income tax is paid at a rate of 20% for most people. This means that for every £1 that you earn, you have to pay 20 pence in tax. However, higher earnings will result in higher tax payments.

How to find accountants or bookkeepers?

When it comes to accounts and bookkeepers, it’s important to find professionals who can help you keep your company finances in order.

Here are a few tips on how to find a good accountant and bookkeeper:

=> Check with the Better Business Bureau to see if any complaints have been filed against potential accounting or bookkeeping firms.

=> Interview several accounting or bookkeeping firms before making a decision. Be sure to ask about their experience and what services they offer.

=> Make sure the bookkeeping or accounting firm is licensed and insured.

=> Ask for a free consultation so you can get a feel for how the bookkeeping or accounting firm works.

=> Make sure you are aware of and understand the firm’s fees and billing practices before starting work.

=> Get referrals from other businesses.

Conclusion

In this article, we’ve outlined several ways that you can pay less personal tax in Manchester or in the United Kingdom. These include taking advantage of tax allowances, making pension contributions, donating to charity, and sacrificing income tax.

We’ve also provided tips on how to find good tax accountants or bookkeepers. By following these tips, you can save yourself hundreds or even thousands of pounds each year. Let us know in the comments if you have any questions about tax planning or how to reduce your tax bill.

 

1 2 3