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TAX ADVICE When you begin a job your agency or employer should pass your details on to their tax branch. (When dealing with the tax department you need to speak to the tax branch of your employer or agency because they will hold your records). The tax department will issue you with a tax code. A tax code is made up of both numbers and letters. The numbers represent how much tax is due from your employment. It basically indicates how much free pay you are entitled to. The letter indicates how you will be affected by tax changes e.g. 'L' represents the basic personal allowance tax code If you are ever unsure about your tax discuss it with both your agency and their tax branch. The tax branches are surprisingly helpful and should give you some idea of your position so you can chase your employer or agency.
P46, 45 & 60
PAYE Scheme
You are paid in the same way as a "permanent employee". Tax and National Insurance is deducted from your salary at source, so you receive the net amount weekly or monthly. Working under the PAYE scheme, Income Tax and National Insurance contributions are automatically deducted from weekly or monthly pay packages by your employer. These deductions are calculated assuming you work for the whole financial year (April 6 to April 5), so should you take any extended time out to travel during the year, you may be eligible for a refund. What do I need to make a
PAYE tax rebate?
British tax is a funny beast. You pay no tax on the first £4385 (less any allowances), 10% on the next £1,520 and then 22% on the next £28,400 and 40% over £34,305. To check out UK tax rates further click here. Rates for 2001 are:
Taxable Bands
National Insurance If you’re thinking of
working in the UK, it is vital you sort out a National Insurance number as soon
as possible. There is work you can do without one (cash-in-hand stuff like fruit
picking, babysitting or building work), but if you want to get onto any kind of
payroll you’ll need an NI number. Simply put, National Insurance is the
contribution the state takes from your salary and puts towards such essential
services as the NHS. It is separate from tax, and everybody pays it (its not a
huge sum by the way!). Having a number helps ensure you get the right “tax
code”, and are thus taxed at the appropriate rate for your salary. Without
this, you will be taxed at the horrifically high “emergency” tax rate,
although you will be entitled to a rebate once you have the correct tax code.
Once you have done all this, getting a number should be no problem. At the meeting, you will receive a temporary number to use until yours comes through. They all follow the same format and look something like this: TN661125M. The TN (stands for temp. number) YYMMDD (date of birth) M or F (for male or female). This is the number you use until yours comes through. Once you have been to the meeting, you will need to wait approximately 3 or 4 weeks. You will then receive a letter stating your number. Six weeks after that, you will receive your NI card in the post. Make sure you give your employer the number, as soon as you get it. Simple, huh? Now you can start earning. A national insurance contribution (NIC) is also deducted from you pay in a method similar to the tax described above. The most common rate is 10% on income from £67 to £535 per week. To investigate this tax further click here. Once you get a job in the UK you need a NIC number to give to your employed. The Catch is you can not get a NIC number until you have a job. To get a NIC number you must meet in person at the local national insurance branch. Arranging a NIC number can be a very frustrating and time consuming task because even after you have completed all the application requirements the wait can be up to 6 weeks for the number to arrive. In the mean while employers can deducted money from your pay for NIC at a higher rate than appropriate until the number arrives. Your NI contributions are automatically deducted from your salary. To get an NI Number and card, you need to visit your nearest Dept of Social Security (DSS) office. Go there with your passport and a letter from your employer/agency saying you are employed. Phone beforehand in case they require anything else. If tax wasn't enough you will also be expected to pay National Insurance. NI is a deduction from your wages to fund social services like healthcare, unemployment, social security benefits and state pensions. Everybody has to pay it. For earnings below £76 per week - Nil Like tax, NI payments are calculated in bands. Currently, the rates are as follows: For earnings between £76 and £535 per week - 10% Earnings above £535 per week do not attract a National Insurance charge. If you were earning £30,000pa (equivalent to £577 per week), the National Insurance deduction for the year would add up to £2,386.80 (£45.90 x 52). Including tax payments, your total take home pay would have been reduced by approximately 28%! Remember:
By the way, if you require medical attention prior to obtaining your NI number, don't worry. You'll be treated no differently than if you already have it. National Insurance (NI) contributions, which are deducted from your salary or wages, help to fund the National Health Service. Once you have begun work or registered with an agency, you must register for a NI number. National Insurance is a payment deducted from your wages to fund social services like healthcare, unemployment, social security benefits and state pensions. Everybody has to have a number and to apply for one you need to go in person to the nearest Department of Social Security office. However, to get a National Insurance number you need to be working or signed with an agency. To register you must set up an appointment at the nearest office of the Department of Social Security (DSS) - check here for your Local Office. Make sure you know exactly what documents they require, and on arrival at the office be prepared to wait in a queue. You need to provide your passport, proof of address, a letter from your employer or agency and a payslip. The DSS will process your application and post out your number on a blue and white card in about six to eight weeks time. Until you receive your National Insurance number you will be given an emergency number that taxes you at a higher rate until your number is issued. This tax can be claimed back at the end of the financial year. Your emergency number will be made up from the numbers of your birthday. To apply for a National Insurance number you need to go in person to the nearest Department of Social Security. Dial (192) and ask the BT operator to help you find the office nearest to you. When you've been granted a NI number, a red and blue credit card with your number on it will be sent to you. This can take several weeks or even months, depending on backlogs. If you plan to work in London you will need to get a National Insurance number. This ensures that the correct amount of tax and National Insurance is deducted from your salary. Without a National Insurance you will be deducted the emergency rates and this is much higher than the norm. To get allocated a National Insurance number you must arrange a meeting at your local office. Below is a list of inner London offices. If your area is not listed or if you are at all confused, call the National Insurance Hotline. Ph 0181 258 8855. The employee's
National Insurance contributions (NIC), which are deducted at source by the
employer, fund the state earnings related pension scheme (SERPS). Obtain a National Insurance number to avoid paying tax at the higher, emergency rate. Call the National Insurance Number enquiry line on 020 7200 6000 DSS National Insurance
Enquiry Line: 020 7712 2171.
Claim your Tax back For Kiwis on a two year working visa it is important to remember to claim your tax back. With a National Insurance number you are taxed at the standard rate. If you are yet to get a national insurance number you are taxed at an emergency rate, which is much higher than the normal rate of taxation. Most Kiwis on a two year working visa intend to travel, hence you are not working full time. Because you are taxed on your projected annual income you’re actually being taxed for an annual income you’re not actually making. Therefore the tax rate is quite often too high. By contacting an accountant or one of the companies listed below, they can help you with your tax rebate and help you get money back. You will be surprised how much money some people have received back. Fistly you need your P60 (which your employer must give you at the end of the tax year), or a P45 (which your employer must give you when you leave your job). Then find out which is your tax office. Your employer can tell you, or you can phone the general tax office, give them your tax office code, and they will tell you. Then write to your tax office, saying that you believe you're due a refund. They will send you some forms which you need to fill in and return with the original of your P60 or P45. Keep copies of all correspondence in case anything goes missing in the post. If you can manage up to this stage, don't bother with going through an agency - they are obviously playing the game to make money. It's dead easy to do it yourself. When you receive your P45 or P60 (after the end of the tax year - ie the 1st April) from your employer, send the original to the tax office (the name will appear on the P45/P60, ring your employer to ask for the address or you will find all the addresses on the Inland Revenue website)along with a letter which says 'I think I am entitled to a refund.' they will work it out for you and eventually they will send you a big cheque! Its very simple really, I heard several people did it and got £500+ tax back. Good luck! You will need to send your P60
(certificate indicating taxes that have been paid during the financial)
and P45 (termination form) forms in to the Inland Revenue in order to
claim back your taxes.
Self Employed
Accurate records must be
maintained for all income and expenditure. Annual accounts need to be prepared
and submitted to the Inland Revenue along with a personal self-assessment tax
return. It is also necessary to make interim tax payments during the year. See
Tax Returns & Rebates. f you are self-employed you must keep stringent tax records and submit an annual self-assessment tax return. If you are self-employed, seek professional advice before you start work in the UK to clarify exactly what payments need to be made and when. Self-employed individuals who are classified as sub-contractors (SC60) - this is applicable to the construction industry - usually get quite big tax rebates. Companies you sub-contract for should give you a SC60 form which certifies gross earnings and tax deductions. As of April, National Insurance obligations changed and all self-employed people pay a flat rate of £2 a week in National Insurance, but if the profits range from £4385 to £27,820 they will pay seven percent of their profits in NI on top of the £2. Profits over £27,820 will be exempt from NI.
Limited Companies In the past Kiwis on their Big OE have come over to the UK and in order to save money on tax and have more money for traveling, have set up limited companies. In April 1999, a new rule was introduced by the home office that said any visitor to the UK on a 2 year working visa is no longer allowed to open a limited company. Therefore the tax savings you were able to make no longer existed. There were several companies that helped set up limited companies for Kiwis and these companies have continued to operate and looked for loop holes in the system. Setting up a Limited Company You can buy an "off the shelf " company from a number of accountancy service companies. Monthly charges around £30-£75. Should you wish to purchase a company with a name of your choice this can take longer. The cost range is from £50 - £100, the service company will set the company up and provide all the necessary documentation. The charge is anything from £30-£75 a month to administer the company. If required they will produce your yearly accounts for a yearly charge. How you pay yourself your decision. As a limited company you would pay yourself a salary and then draw dividends on a monthly or quarterly basis from the remainder earnings in the account. Your company must submit accounts to the Inland Revenue every calendar quarter showing both the dividends and the Advanced Corporation Tax (ACT) it has paid. Numerous accountancy companies provide advice on IR35 (See below) contracts, company formations, accountancy, tax planning, business banking arrangements, international solutions, out-sourced and in-sourced payroll services, insurance schemes, umbrella services, industry changes, plus independent advice on protection policies, mortgages, investments and general advice. Contracting Through A CompanyThe rules were first proposed in the 1999
Budget press release numbered IR35. They have since become commonly
referred to as "IR35". Remember - there will be various adverse tax consequences including penalties and interest if you get this wrong!
Composite Companies ("Umbrellas Companies") This is an organisation that facilitates you to contract through them. In return for a fee, they will do your accounting, invoicing, VAT returns and payroll, etc. Contracting through an umbrella company is ideal if you are not certain of your long-term prospects or intentions within the contracting market. It is also a good way to find out what contracting is all about before setting up your own limited company. Operating through an Umbrella company may reduce your administration compared to having your own Limited Company as the Accountancy firm you would use would take on this service as part of their fee. As option 1, you are classed for tax purposes as an "employee" of the umbrella company. Should be avoided at all costs.
These were initially set up as a way of Essentially, a contractor would be
a shareholder of a company, as opposed to being a IRD and the Government takes a dim view of these companies, and make it clear that they regard Composite Companies as illegal. Tax evasion is a criminal offence, whichever way you dress it up and you will be prosecuted if proved to be shown to avoid paying tax. Aside from this, many of these operators charge a percentage of your wage to cover their 'risk' which reduces it's appeal when you are looking for the best avenues for managing your income. Our advice? Avoiding your tax obligations is not a game - to try and do so is risking prosecution. Paying into Off-Shore Accounts Not a lot to be said about this option either. Let's just say that IRD and the UK Government are aware of these institutions and are not turning a blind eye. Many people use these companies as a smoke screen tactic to avoid their taxation obligations. Supposedly the onus is on you to pay your taxes, NOT the offshore institutions you're invoices get paid through - they just charge a minimal percentage of your earnings for using their 'service'. The IRD are currently investigating many of these islands and will prosecute if you are found to be negligent or fraudulent in your dealings. NOTE:
the IRD of the UK now has offices based in South Africa, Australia and Corp Tax
Please contact ús & we will be happy to inform you of companies that specialise in accounting for contractors.
The IR35 legislation was implemented within the Finance Act 2000 which became law in August 2000. Please seek professional advice from your accountants on the implications of this legislation. IR35 was originally
conceived to tackle the problems of tax and NICs avoidance We have summarised some main IR35 points for your information: 1. The legislation only affects contractors who
work through limited company and umbrella companies NOT those paid PAYE.
For More Information Contact:info@kiwikingdom.com
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