The Gazette 1991

JU LY/AUGUST

1991

GAZETTE

year. However, the taxable income arrived at cannot be less than 125 100 times the taxable income cal- culated by the old method. For example, if my accounting year ends on the 31st of July of each year and taxable earnings for:

do not have to concern yourself wi th your actual incomee for 1990/1991. If, for example, your accounts for your business are made up to the 31st of July of each year the trading income you will be concerned with in making your return by the 31st of January 1991

ultimately works out at less than 90% of the tax for which he is ultimately liable. The. moral appears to be, pay preliminary tax in an amount equal to your tax liability for your previous year and avoid the risk of paying too little. The balance of the tax due for this year 1990/ 1991 will not have to be paid until at least the date for filing your returns for 1990/1991 which will be the 31st of January, 1992. Section 26 deals with with- holding tax for professional ser- vices. Previously where tax was withheld a tax credit could be obtained in the year of assessment the basis period for which was the year in which the tax was withheld. For example, if my accounts were done up to the 31st of July and the tax was withheld from me in April 1988 i.e. in my accounts year ending 31 July 1988 I would get a tax credit for the amount withheld in the year of assessment 1989/1990, my accounts year ending the 31st of July 1988 being the basis period for the year of assessment 1989/1990. Profits for 12 months to 31 July 1988 20,000 Tax withheld April 1988 5,000 Tax on assessment (say) 6,000 Less: tax credit 5,000 Tax payable 1,000 With the new changes, if tax is withheld in one financial year i.e. 6 April to the following 5 April, I will not get a tax credit for the amount withheld until the following year of assessment. For example if tax was withheld from me in August 1990, I will get a tax credit for that amount withheld in the year of assessment 1991/1992. Profit for the year ending 30 September 1990 20,000 Tax withheld August 1990 5,000 Assessment for financial year 1989/1990 20,000

Year ending the 31st of July, 1989 Year ending the 31st of July, 1990 £32,000 Under the transitional arrangements my taxable income under Case 2 of Schedule D, 1990/1991 is: £20,000 + £32,000 x /2 = £26,000 Under the old rules my taxable income would have been £20,000. Under the new rules if the transitional provisions did not apply my taxable income would have been £32,000. If my accounting year ends on the 31st of July of each year and taxable earnings for: Year ending the 31st of July, 1989 - £20,000 Year ending the 31st of July, 1990 - £26,000 Under the transitional arrangements my taxable income under Case 2 of Schedule D, 1990/1991 is: £20,000 + £26,000 x Vi = £23,000 However the taxable income for the transitional period 1990/91 cannot be less than: 125 x £20,000 = £25,000 100 - - £20,000

This transitional arrangement only applies for business set up prior to the 6th of April 1989. Section 17 deals with the new provisions for Case 3 income i.e. interest paid without deduction for D.I.R.T. and foreign income. Pre- viously this income was taxed on a preceding year basis i.e. the taxable income for the year 1989/ 1990 would have been the actual income for the year 1988/1989. Under the new provisions the tax- able income for 1990/1991 will be the actual income for 1990/ 1991. Section 18 deals similarly with Case 5 income, i.e. rental income. Under Section 23 the date for filing the annual tax returns has been extended from the 31st of December to the 31st of January. However, the return required to be made by the 31st of January 1991 is for the actual income of the year 1989/1990 and as regards trading income the income based on accounts ending in the year 1989/ 1990. In making your income tax return for the 31st of January you

will be the income as set out in your accounts for the year ending the 31st of July 1989 and not the year ending the 31st of July 1990. Under Section 24 preliminary tax is now payable by the 1st of November in each year and there is no period of grace thereafter. If the amount of preliminary tax does not at least equal 90% of the tax which "The moral appears to be, pay preliminary tax in an amount equal to your tax liability for your previous year and avoid the risk of paying too little." is ultimately deemed to be payable, the tax-payer will be liable to interest on the balance from the time the preliminary tax became dua However the tax-payer can pay as preliminary tax, the amount of tax for which he or she was liable in the previous tax year without incurring the risk of interest even if that amount of preliminary tax

Assessment 1990/1991

for financial

year

20,000

Tax on assessment (say) 6,000 No tax credit

201