It’s important to understand the facts about your tax position as a small business owner, as this will help when submitting your tax return to HM Revenue & Customs (HMRC) in order for it to calculate your tax on your behalf, or to collect underpaid tax through PAYE codes.
The following myths have been uncovered by the ICAEW:

Money kept overseas is not taxable
For most people living in the UK, it is taxable. It doesn’t matter if you leave the money in Jersey, for example, and never touch it, you must still pay income tax on any interest. However, if you are not both resident and domiciled in the UK the position may be different and you may need to seek further professional advice. HMRC is looking much more closely at overseas bank accounts, so don’t overlook the interest – it won’t!

Give money to your children and escape tax on the interest it earns
If a parent gives money to a child then if the interest earned exceeds £100, it is treated as being the parent’s income and not the child’s. Interestingly though, a grandparent can give away money without the same problem occurring. Watch out for inheritance tax (IHT) though; some gifts will be exempt, but larger amounts may create an IHT problem.

The Inland Revenue always get your tax code right
Certainly not. Even assuming that information you have given is correct it can be easily lost amongst the millions of other PAYE codes. Make sure that any employment benefits that you give yourself have been valued correctly (look at the Form P11D given out before 6 July 2006). Check that the suffix (the letter after your numerical code number) is right for your circumstances (look at the leaflet which came with it); the letters BR for someone who only has one job should ring alarm bells since this may mean that you are paying basic rate tax (22 per cent) on all of your income and that you aren’t getting any benefit for the personal allowance mentioned above. A number of Chartered Accountants have informed us of clients whose PAYE codes have being incorrectly issued earlier this year.

If you have overpaid tax you can always rely on HMRC to pay it back
This can’t happen by magic. If you have overpaid tax under the PAYE system and have no other income, then it should happen automatically. Often though the position will be more complicated and you will have to ask for the tax back, either by completing a Tax Return or by completing a Repayment Form (R40). Investment income is taxed at a different rate to earnings, so it’s always worth checking the tax you have paid at the end of the year.

State pension is not taxable
The State pension is taxable, but is always paid gross. If someone has no income apart from the State pension, then since for a single person it is below the level of the personal allowance, no tax is due. If they do have other income, such as an occupational pension, then you will probably find that the tax code has been adjusted for the state pension - if not, they may not have p...

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