Page last updated at 13:26 GMT, Tuesday, 25 November 2008

Webchat: You asked the tax expert

John Whiting
Following Chancellor Alistair Darling's pre-Budget report, tax expert John Whiting joined the Have Your Say team on Tuesday to answer your questions.

Read the questions & answers below.



Q1: James McKeown, Paisley, Scotland
As I will be 65 in February 2009 will I receive a personal allowance of the full 9,030 for this year or will it be on a pro-rata basis for this tax year?

A: John Whiting
You'll get the full 9,030 allowance for the year-anyone who is 65 at any time during the year gets the full allowance. The same principle applies for the 75+ allowance.

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Q2: Ian Ellis, Wheathampstead, Hertfordshire
I am the director of a small business and currently am under the flat rate VAT scheme, paying 10.5%. Will my new rate of payment change in line with the recent VAT reduction? Or will this reduction actually cost me money?

John Whiting
This was an issue I put to HMRC as soon as I heard about the VAT rate reduction. They are changing the flat rate schemes to compensate for the main rate reduction. Traders will no doubt want to look at the new rates carefully and make sure they are still worthwhile. There's more detail on the HMRC website.

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Q3: Michael Grime, UK
Can I apply the new VAT rate to any bills I currently have if I pay them after 1 December 2008?

A: John Whiting
Sadly no - if you've been sent an invoice with the standard 17.5% rate on it, that's the rate you'll have to pay. Some people may think of asking the supplier to tear up the invoice and reissue it after 1 December but that won't help in most cases as the supply will have taken place before 1 December and so VAT will be due at 17.5%.

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Q4: Stuart Riches, Norwich, UK
The freezing of the lifetime allowance for pensions at 1.8M from 2010 to 2015 looks like a measure that will only affect higher payers. However this limit is also used to calculate the value of pension pots below which people are not forced to take an annuity (set at 1% or 18,000). By freezing the 1.8M, will this also have the effect of freezing this lower threshold, and therefore forcing more people who have only a small pension pot to have to take an inflexible annuity, rather than taking it as a cash lump sum?

A: John Whiting
This measure was one of those fine-print measures that only became apparent with later study. Its main objective is presumably to make sure that with the new 45% rate of tax (and withdrawal of personal allowances for those on higher incomes) then people aren't able to sidestep these by parking more money into their pension schemes. But it also looks as if it will have the impact you point to - and is undoubtedly an issue we'll raise with government in the interim.

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Q5: David Evershed, Marsh Gibbon, England
Are there any changes to capital gains tax set out in the PBR?

A: John Whiting
There doesn't seem to be anything - and as yet they haven't announced the CGT annual exemption for 2009/10 either.

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Q6: John Beckett, Hedge End, UK
Will the State Retirement Pension increase apply from January 08 or April 08?

A: John Whiting
The actual increase - of 4.55 a week on the basic pension - takes effect from April. However, the chancellor also announced the payment of additional lump sum of 50 to pensioners and this will be made in January. That effectively gives pensioners the increase from January.

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Q7: Ron, Bedford, UK
It looks to me the poor old haulier is going to lose out again. The 2.5% cut in vat on fuel being compensated by the equivalent rise in duty will cost us approx. 80 per month per lorry. How can this be classed as helping small businesses?

A: John Whiting
You highlight an important issue. The aim of the various duty increases - on tobacco, alcohol and also petrol/diesel (with the postponed 2 pence duty raise to come in from 1 December) is intended to keep prices much the same. So what people gain on the VAT swing, they lose on the duty roundabout. However, the rabbit punch is there for the trader - as you say, often the haulier - who can recover the VAT. They get less VAT back but still have to pay the higher duty.

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Q8: Eddie McDade, East Kilbride
My friend is in the process of having a conservatory built. The cost is 12,500 including VAT and the work is due to be completed next Friday. What rate of VAT would he expect to pay on completion given the change in VAT announced yesterday? At 17.5% I think he would be paying about 1862 and at 15% this would be about 1596 saving 266. Would the builder invoice him at the new or old rate?

A: John Whiting
If the job is completed and invoiced on Friday, then the 17.5% rate of VAT has to apply. But if the invoice doesn't come out until next week then the supplier has a degree of discretion to decide whether to apply the new rate of tax - no doubt you may be able to persuade him to wait a bit!

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Q9: Tony Blackledge, Wigan, UK
On Working Lunch today you stated that the new Personal Allowance from next April will be 6475. I do not understand how you arrive at the figure? By my reckoning it will be 6160 - i.e. 5435 + (145/20%)= 6160. Please explain.

A: John Whiting
I must admit I came up with the same figure as you when the chancellor was talking. In fact what (I think) he meant to say was that he was increasing the personal allowance by 130 OVER AND ABOVE the amount that inflation suggested he should increase it by. With inflation at 5.1% at the appropriate time, that meant 310; add the 130 and that means a 440 rise on the 6,035 to 6,475.

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Q10: Peter, UK
I have seen reported that the higher tax rate is now a terrible muddle for example, for incomes above 43,875 to 100,000, the rate of tax will be 40%. For incomes from 100,000 to 106,475 the rate will increase to 50%. For incomes above 106,475 up to 140,000, the rate drops to 40% again. For incomes of 140,001 to 146,475 the tax rate is again 50% and for incomes above 150,000 the rate will be 45%. Is this right?

A: John Whiting
It is a muddle - pensioners who currently face a marginal rate of 30% as their allowances are adjusted will recognise the issue. As you say, we have a 'main' higher rate of 40%. From April 2010 the personal allowance starts to be reduced for those with incomes of 100,000+. In fact HALF the allowance is withdraw initially, the other half goes as incomes exceed 140,000. So in fact marginal rates are: up to 100k, 40%; 100,000-106,475 60%; then back to 40%; then 140,000-146,475 60% again; then 40% until 150,000 when the new 45% rate kicks in....although that only comes in from 2011. And of course we should really add NICs at 1.5% to all those rates!

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Q11: Kenneth Leech Coniston, Cumbria
John, one simple question. I am 65 years of age and my personal allowance is 9030. Is my personal allowance being raised in line with all the other allowances, and if so when ?

A: John Whiting
Yes, your allowance goes up from April to 9,490. Those aged 75+ get 9,640.

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Q12: Jan Youens, Keighley, England
I'm a Supply teacher. As my rate of pay per day is high I always pay N.I. This year I've only worked 4 days but paid 30.53 N.I. Can I reclaim this as by April 2009 I'll have earned less than 1000?

A: John Whiting
The problem with National Insurance is that it's charged on a weekly basis - so that if you earn above the weekly 'primary threshold' - currently 105 a week - then you have to pay NICs (at 11%). Unlike income tax, you don't get an annual allowance. This is something of a trap that catches a number of seasonal workers - for example students who work during vacations and are miffed to find themselves paying NICs even though they've only worked a few weeks.

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Q13: Sandra Dorrington, Abertillery, Gwent
Will the pensioners extra 60 I shall receive in January be tax free? Thanks.

A: John Whiting
Yes, it should be. Eligibility for this payment will be the same as for the annual Christmas bonus according to the Treasury.

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Q14: Gerard, South Molton
Will the personal exemption and lower NI rate be identical from 2009 onwards?

A: John Whiting
Good question - the Chancellor seem to say that the personal allowance (for income tax) and the main threshold (for NICs) would be the same from April 2009 (as it was until he gave us the extra 600 personal allowance in May). However, looking at the detailed releases shows that you shouldn't believe everything you hear. In fact the amounts will be aligned - but only from April 2011. In the meantime they will presumably get closer together but from next April the personal allowance will be 6,475 whereas the NIC start point will be at 110 a week, equivalent to 5720 a year.

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Q15: Nick, Epsom, Surrey
I've seen a lot of comment on some websites about a 61% tax rate for the wealthy. Am I right in thinking that this rate only applies to "slices of income" such as between 100k and 107k?

A: John Whiting
Yes - the main 40% rate applies but from 2010 it increases on slices of income as the personal allowance is withdrawn. That applies to a slice above 100,000 and again from 140,000 - and gives marginal rates of 60%. Add the NIC 1% (1.5% from April 2011) and you get to your 61%.

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Q16: J Shah, Surrey
Why is it that middle/working class have to always bear the brunt of taxes? The poor/lower class gets help from the government, the rich have enough to bear the extra cost but what has the working class got back? Yet we will have to pay for the cost of what the government is handing out now.

A: John Whiting
I think yours is a political point rather than a strictly tax technical one! But many high income people will look at the PBR and feel they are paying a good deal more; and then in due course all rates of NIC go up by 0.5%. In many ways everyone will be contributing to clearing the deficit but undoubtedly those at the lower end of the income scale have some protection with tax credits which seems fair enough.

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Q17: Dean Jenkins, London
If retailers have paid 17.5% VAT on stock which they then sell and receive 15%, then isn't the government just going to refund them all come their next VAT returns? And if the retailers don't individually amend the price of every item in their stores then isn't the net result of this policy a 1.2b handout to retailers?

A: John Whiting
Retailers generally don't actually bear any VAT in that the system allows then to recover it all. The people who really bear VAT are you and me - the end consumers. So the change in rate doesn't actually benefit or cost them anything - apart from , of course, the very considerable admin hassles they are facing with all the re-pricing they are having to do.

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Q18: Bill, London
Will HMRC assist more with late PAYE payments in a small business?

A: John Whiting
Yes - they are saying that they will be much more ready to negotiate payment plans for small businesses facing cash flow problems.

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Q19: John, Manchester
I am 66, don't receive pension credit but receive single persons discount on council tax. My income is quite limited but not enough to receive pension credit due to my savings of over 16k. A large portion of my disposable income goes out on service charges for my flat. Is there any way I can offset this against my tax allowance as some form of tax credit?

A: John Whiting
I'm afraid there is no offset for personal expenditure such as the service charge against personal allowance or tax generally.

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Q20: Andrew Cook, Stone, Staffs, England
Will there be any increase in price of alcohol, petrol and tobacco as from December 1 as a result of the change in the levels of VAT?

A: John Whiting
The government's plan is that duty rises net off the VAT reductions , so the prices remain about the same. But when VAT goes back up after December 2009, the duty rises will remain in place.

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Q21: Barrie Marsden, Hull
I have a salary of circa 42k. If I get a salary increase in future years can I commute all of this to my pension either via my employer or my own contribution and not pay any NI contributions on the increased amount? I am age 56 now.

A: John Whiting
There is scope for you to put more into your pension scheme but that of itself doesn't save NICs. A salary sacrifice in advance may work to save NICs - but needs to be handled carefully with proper timing. One to discuss with your employer. P.S Give my regards to Hull - up the Tigers!


BBC Host: Thank you very much for joining our live webchat. Due to the high volume of response we were unable to answer all of your questions.


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