For example, if accounts are prepared on figures up to 30 June each year - the accounting date is 30 June.

Allowances are standard tax-free amounts set by the government every year. They are given to any one whose personal circumstances meet certain criteria. Things like Date of Birth and Marital Status may be important here.

When an asset is sold though, the actual depreciation may be more than Capital Allowances claimed already. If so, a Balancing Allowance can be claimed. This will be equal to the actual depreciation less Capital Allowances already given.

These rules mean the profit on which you are taxed is not always calculated from one set of accounts, and the basis period can be different than the accounting period.

In grey areas where profit is made from what could be considered to be a hobby, each case must be looked at individually.

This usually comes in the form of sales or fees etc, but also includes all other sources of income, such as investments or capital gains.

If you are self employed losses can be used to reduce tax due on other income.

However, the value of the asset will decrease over time. An allowance to reflect this depreciation can be claimed instead. This is known as a Capital Allowance.

On its most simple level, CGT is the tax payable on the increase in value of an asset over the period it is owned, after making adjustments for inflation and other factors. (See Capital Gains Tax - Calculations.)

CGT is not strictly the same as Income Tax, although it is dealt with at the same time.

Unlike Income Tax though, the Basic Rate of Tax is 20%. That means 20p in the pound is paid in tax, rather than 22p. The higher rate remains 40%.

Adjustments are made to this amount to account for various factors, including cost of living increases, amounts spent improving the asset, and costs incurred buying or selling the asset.

After working out the profit, or Chargeable Gain, the annual exempt amount is deducted - this year’s limit has not yet been set (£7700 in 2002/3). Tax is payable only if the profit exceeds this amount.

This loss can be carried forward to set against future capital gains. In some cases, though not commonly, it can be set against other income in the same year.

Non-chargeable assets include your main home, your own car, investments held in PEPS, and personal assets worth less than £6000.

It previously handled National Insurance payments, but this has now been taken over by the Inland Revenue.

For tax purposes, Directors’ income is treated in the same way as other employees, although there are differences in the way National Insurance and company benefits are dealt with.

In the former, all income and expenses will be shown, to reflect the exact financial situation.

These accounts are prepared first and then used as the basis of the calculation of your profits for tax purposes.

In the former, some expenses will be shown which cannot be used to reduce taxable profits. These are disallowable expenses. When the tax accounts are prepared, they are added back on to profits.

Dispensations solve the problem. Quite simply, an employer reaches agreement with the Tax Office that valid business expenses will not be declared as income of the employee. The employee then does not need to make a claim.

It is important to note that employers do not have to tell employees about dispensations. It is possible under self assessment to claim business expenses that have been covered already. It may be best to ask if this applies to you.

This could be employment, directorship or self employment. Income from an occupational pension is treated in the same way as employed income in many respects.

However, because it is often beneficial for tax purposes to be considered self employed this can become a contentious statement, especially in grey areas, such as commission based salespeople. This needs to be looked at carefully if there is any doubt.

Although the enquiry must be taken seriously, they are usually just to clarify certain points on the return. It could also be a random enquiry.

If you are at all unsure, you should seek further advice.

The employee will be able to buy shares at a later date for the value at the date of the option.

The maximum value of these shares at the time of grant is £10000. The option must be exercised within 10 years.

To qualify, the employee must have been employed for at least 25 hours per week, or at least 75% of their working time, which includes self employment.

When the shares are sold, taper relief will apply from the date the option was granted on any Capital Gain

Rules specify whether the amount is shown in the company accounts or on an employee’s P11D as a taxable amount. Usually though, the individual should not suffer any tax as a consequence.

Unless all three points can be satisfied, the Revenue may not allow the expense.

The amounts paid are actually taxable, although an expenses claim can offset this. In many cases an employer will have a dispensation so that this is not necessary.

For small businesses, and only in the first year, up to 40% of the value can be claimed.
Furthermore, up to 100% of the cost of new technology can be claimed as a Capital Allowance, a measure introduced in April 2000.

This rate only applies if the taxable income exceeds the basic rate tax band. For example, if the basic rate band is £29900, no higher rate tax would be payable if taxable income was £28000. If the income rose to £30900, higher rate tax would be payable on only £1000 (or £30900 - 29900).

It is important because most of our current tax legislation is held in that Act.

Taper relief replaced Indexation allowance in 1999. However, if an asset is sold now that was owned before March 1998, indexation still applies up to that date.

Taper relief replaced Indexation allowance in 1999. However, if an asset is sold now that was owned before March 1998, indexation still applies up to that date.

If the value of the estate is below £242,000 in the current year no inheritance tax is due. If the estate is worth more, the excess will be taxable at 40%.

The reality is different. The staff are usually friendly, knowledgeable and helpful. Their aim is for you to pay the tax you are due to pay - no more, no less.

If a person really has no choice about incurring legal expenses in the process of generating taxable income the expense may be allowed. For example, a landlord may take legal proceedings against a tenant, in which case the cost may be available to set against the income from that property.

This is one area where further advice is fairly important as the matter can be fairly contentious with the Inland Revenue.

If the loan was made to the individual, the interest paid may qualify for relief.

However, if the loan was made by the individual, and he or she received interest on it, the amount received would be taxable.

For example, if a person’s self employed income is low, a loss may arise. This can be set against other income.

As a rule of thumb, if income from a particular source would be taxable, it is often possible that arises instead can be used to reduce tax in some way.

For example, with taxable income of £6000, the first £1920 is taxed at 10%, or £192, leaving £4080 taxable at the next rate, 22%.

Together they are a loose term for any items used in business on an ongoing basis. (As opposed to things like stock, raw materials and other disposables.)

Machinery includes such things as machines, cars and vans etc.

A tax deduction cannot be claimed for the purchase cost. Instead, the cost of depreciation is claimed, known as a Capital Allowance.

A claim for relief prior to 6 April 2000 can still be made.

Since then, tax relief on maintenance has been restricted, and no tax is payable on receipt of the payments.

Prior to April 2002, you could also claim the actual amount of the expenses if you wished.
First, an accurate figure for all expenses incurred was worked out, plus an amount for depreciation. This was then apportioned between business mileage and private mileage and a claim made.

Other than the way the payments are used by the Government, the essential difference between Tax and NI is that employers make NI payments on top of yours. This does not happen with tax (although companies do pay Corporation Tax).

The final difference is that the amount of income on which NI is paid is “capped”. This means that NI payments cannot ever exceed a certain amount.

Some NSB accounts have specific tax treatments. For instance, the first £70 of interest paid on ordinary NSB accounts is tax free, although these accounts offer low rates of interest.

This term is also used for some outgoings where tax relief is given when you make the payments. A good example is Personal Pension Schemes where the actual payment made is the total less tax relief due. So, for a total of £100, the actual payment you make would be only £78. The tax relief has been given, being 22% of £100.

In these cases, the payment you make is known as net of basic rate tax.

However, when a business starts or an accounting period changes, complex rules apply. The same accounting period may become taxable in two different tax years. Effectively, tax is paid on the same income twice. That period is called the Overlap Period.

Overlap Relief can be claimed to prevent income being taxed twice.

The relief will be the same amount as the overlap profit already taxed, and will be set against profits in a later tax year. Thus the profits of that year are reduced by an amount equal to the profit taxed twice.

This does not usually happen until the business ceases, but can also happen when an accounting period is extended.

It shows the cash equivalent, or taxable value, of any taxable benefits. This has to be done before 6 June every year.

The form shows the allowances and deductions used in calculating the code, and perhaps some further comments.

Most people have a standard code, and are never sent a P2.

It comes in four parts, each showing the same information:
Part 1 - Sent this to the employer’s tax office.
Part 1A - For the individual’s own records.
Parts 2 & 3 - To be given to any new employer. One part is sent to the new tax office, the other is used for the next payroll calculation in the new job.

The P85 also allows for a refund of tax to be claimed if there will not be any more taxable income here for the rest of that tax year.

The P86 may also have a form DOM 1 attached, which can be used to make a domicile ruling if necessary.

However, company benefits are not taxable if the employee is paid at a rate of less than £8500 per year. In this case, the employer advises the revenue of the situation on a form P9D. Only one is needed for all affected employees of the company.

As you earn money, your employer will work out how much money you should pay, and will pass it across to the Revenue on your behalf.

The payments can be seen as advance payments for the next year’s bill. They come in two stages in January and July, each equalling half of the tax outstanding for the year before.

The best way to explain is probably an example.
Miss X’s total tax liability for the tax year 2000/01 was £7500. But most of her income was from renting a property and was not taxed before she got it. So, she had to pay a lump sum of £5000.

As £5000 is more that 20% of £7500 she will be asked to pay on account, for the next tax year, 2001/02. The payments will be £2500 twice, payable by 31 Jan 2002 and 31 July 2002.

If next year’s tax bill is likely to be reduced (in Miss X’s case may be she sold the property) the payments on account can be as well. However, interest may be charged if the reduction is too great.

The allowance makes a basic rate taxpayer £1015.30 better off, and a higher rate taxpayer by £1846 better off.

Machinery includes such things as office furniture, shop tills etc.

A tax deduction cannot be claimed for the purchase cost. Instead, the cost of depreciation is claimed, known as a Capital Allowance.

The taxable profit of a business may not be the same as the trading profit. This is because some expenses shown in business accounts are not allowable for tax purposes.

In these cases, the payments on account can be reduced, to NIL if required.

It is important to remember that interest may be charged if the reduction is too great, and a tax bill does arise in the year.

If a relief can be claimed, it will do this. Consequently, a relief will reduce the tax burden.

Many different types of relief are available. As a general guide, many outgoing, such as contributions to pension schemes, qualify for tax relief. Whoever the payments were made to can advise if tax relief applies. Rental Expenses: When a property is rented out, many of the expenses incurred in the rental, such as property agents’ fees, or cleaning costs, can be claimed as a deduction from the rental accounts.

1. Revenue expenses: Ongoing expenses incurred in the rental of a property are deducted from the annual rental income to arrive at the profit. They may include letting agents’ fees, house insurance etc.

2. Capital Expenses: These are expenses on the fabric of the property. For instance, an extension to a house, or new wiring. These improve the property, and usually increase its value. Such expenses can only be claimed against any future capital gains tax.

Some expenses may be seen as capital expenditure, but because they are necessary to make the property habitable, they are allowed as revenue expenses. For example, replacing a broken toilet with a new one.

If Retirement Relief is available, the first £50,000 profit on sale of a business will be exempt from Capital Gains Tax. Thereafter, only half of the next £150,000 profit is chargeable. When the profit exceeds £200,000, any excess is taxable in full.

Although the rules are necessarily complicated, the claimant must usually be over 50 (although a claim is still possible if for retirement due to ill-health below that age). After that, it must be proved that the retirement is genuine.

Basically, a new asset must be purchased out of the proceeds of the disposal. Assuming this qualifies for relief, the gain will be “rolled over” until the eventual disposal of the new asset.

For example, a shop is sold giving a chargeable gain of £25000. A new shop is then purchased for £100,000. If Rollover Relief is claimed, when the new shop is eventually sold, an effective purchase price of £75000 will be used.

Subject to stringent rules, a sub-contractor can register for payments to be made gross, without any tax being deducted. A CIS 6 certificate will be given to be shown to the contractor for this to happen.

In most cases though, the criteria will not be met, and a Registration card, CIS 4, will be given instead. This will mean that the contractor deducts 18% tax from the payments made. Whenever this happens, a voucher CIS 25 should be given to the sub-contractor showing the payments and the tax retained.

Business travel in this instance does not usually include travel from your home to your office, but can cover you if you have to go to a temporary place of work.

It is a consumption tax because it is paid by the end consumer. VAT-registered businesses can deduct VAT paid on purchases for business activities from their VAT liability.

The standard rate of VAT in the UK is 17.5%. A lower rate of 5% applies to Domestic Fuel, Home Energy-saving Products and Women’s Sanitary Products.

This tax credit is means tested. Therefore your entitlement to the tax credit will be determined by the number of qualifying children you have, along with your net weekly family income.

It is usually 25% of the value of the asset at the start of the period, but sometimes up to 100% can be used. The amount is apportioned if there is any private use of the asset. This leaves the business element - or the Capital Allowance to be claimed.