Trusts and taxes

Overview

A trust is a way of managing assets (money, investments, land or buildings) for people. There are different types of trusts and they are taxed differently.

Trusts involve:

the ‘settlor’ - the person who puts assets into a trust

the ‘trustee’ - the person who manages the trust (a trust)

the ‘beneficiary’ - the person who benefits from the trust (a trust)

This guide is also available in Welsh (Cymraeg).

What trusts are for

Trusts are set up for a number of reasons, including:

to control and protect family assets

when someone’s too young to handle their affairs

when someone cannot handle their (someone) affairs because they (someone)’re incapacitated

to pass on assets while you’re still alive

to pass on assets when you die (a ‘will trust’)

under the rules of inheritance if someone dies without a will (in England and Wales)

What the settlor does

The settlor decides how the assets in a trust should be used - this is usually set out in a document called the ‘trust deed’.

Sometimes the settlor can also benefit from the assets in a trust - this is called a ‘settlor-interested’ trust and has special tax rules. Find out more by reading the information on different types of trust.

What trustees do

The trustees (trustees) are the legal owners of the assets held in a trust. Their (trustees) role is to:

deal with the assets (the assets held in a trust) according to the settlor’s (the settlor) wishes, as set out in the trust deed (a document called the ‘trust deed’) or their (the settlor) will

manage the trust (a trust) on a day-to-day basis and pay any tax due

decide how to invest or use the trust’s (a trust) assets (the assets held in a trust)

If the trustees (trustees) change, the trust (a trust) can still continue, but there always has to be at least one trustee.

Beneficiaries

There might be more than one beneficiary, like a whole family or defined group of people. They may benefit from:

the income of a trust only, for example from renting out a house held in a trust

the capital only, for example getting shares held in a trust when they reach a certain age

both the income and capital of the trust (a trust)

If you need help

Contact a solicitor or tax advisor. They (trustees) can also talk to HM Revenue and Customs (HMRC) on your behalf if you give them (trustees) permission.

You can also get help from the Society of Trust and Estate Practitioners.

Types of trust

The main types of trust are:

bare trusts

interest in possession trusts

discretionary trusts

accumulation trusts

mixed trusts

settlor-interested trusts

non-resident trusts

Each type of trust is taxed differently. Trusts involve a ‘trustee’, ‘settlor’ and ‘beneficiary’.

Bare trusts

Assets in a bare trust are held in the name of a trustee. However, the beneficiary has the right to all of the capital and income of the trust (a trust) at any time if they’re 18 or over (in England and Wales), or 16 or over (in Scotland). This means the assets set aside by the settlor will always go directly to the intended beneficiary.

Bare trusts are often used to pass assets to young people - the trustees look after them until the beneficiary is old enough.

Interest in possession trusts

These are trusts where the trustee must pass on all trust income to the beneficiary as it arises (less any expenses).

Discretionary trusts

These are where the trustees can make certain decisions about how to use the trust income, and sometimes the capital.

Depending on the trust deed, trustees can decide:

what gets paid out (income or capital)

which beneficiary to make payments to

how often payments are made

any conditions to impose on the beneficiaries

Discretionary trusts are sometimes set up to put assets aside for:

a future need, like a grandchild who may need more financial help than other beneficiaries at some point in their life

beneficiaries who are not capable or responsible enough to deal with money themselves (the trustees)

Accumulation trusts

This (Accumulation trusts) is where the trustees can accumulate income within the trust and add it to the trust’s capital. They may also be able to pay income out, as with discretionary trusts.

Mixed trusts

These (Mixed trusts) are a combination of more than one type of trust. The different parts of the trust (Mixed trusts) are treated according to the tax rules that apply to each part.

Settlor-interested trusts

These are where the settlor or their (the settlor) spouse or civil partner benefits from the trust. The trust could be:

an interest in possession trust

an accumulation trust

a discretionary trust

Non-resident trusts

This is a trust where the trustees are not resident in the UK for tax purposes. The tax rules for non-resident trusts are very complicated.

Parental trusts for children

These are trusts set up by parents for children under 18 who have never been married or in a civil partnership. They’re not a type of trust in their own right but will be either:

a bare trust

an interest in possession trust

an accumulation trust

a discretionary trust

Read the information on types of trust to find out more.

Income Tax

Income Tax on income from the trust is paid by the trustees, but the ‘settlor’ (the settlor) is responsible for it. This means:

The trustees pay Income Tax on the trust income (income from the trust) by filling out a Trust and Estate Tax Return.

They (the trustees) give the settlor a statement of all the income and the rates of tax charged on it.

The settlor tells HM Revenue and Customs (HMRC) about the tax the trustees have paid on their behalf when filling out their (the trustees) Self Assessment tax return.

Trusts for vulnerable people

Some trusts for disabled people or children get special tax treatment. These are called ‘trusts for vulnerable beneficiaries’.

Who qualifies as a vulnerable beneficiary

A vulnerable beneficiary is either someone under 18 whose parent has died or a disabled person who is eligible for any of the following benefits (even if they do not receive them):

Attendance Allowance

Disability Living Allowance (either the care component at the highest or middle rate, or the mobility component at the higher rate)

Personal Independence Payment

an increased disablement pension

Constant Attendance Allowance

Armed Forces Independence Payment

A vulnerable beneficiary can also be someone who is unable to manage their own affairs because of a mental health condition - check with a medical professional that it’s covered by the Mental Health Act 1983.

Trusts that qualify for special tax treatment

A trust does not qualify for special Income Tax treatment if the person setting it up can benefit from the trust income. However, from 2008 to 2009 it would qualify for special Capital Gains Tax treatment.

Trusts for children who’ve lost a parent are usually set up by the parent’s will, or by special rules of inheritance if there’s no will.

If someone dies without a will in Scotland, a trust set up there for their children is usually treated as a bare trust for tax purposes.

If there’s more than one beneficiary

If there are beneficiaries who are not vulnerable, the assets and income for the vulnerable beneficiary must be:

identified and kept separate

used only for that person (the vulnerable beneficiary)

Only that part of the trust (A trust) gets special tax treatment.

Claiming special tax treatment

To claim special treatment for Income Tax and Capital Gains Tax, the trustees have to fill in the ‘Vulnerable Person Election’ form.

If there’s more than one vulnerable beneficiary, each needs a separate form.

The trustees and beneficiary must both sign the form.

If the vulnerable person (the vulnerable beneficiary) dies or is no longer vulnerable, the trustees must tell HMRC.

Income Tax

In a trust with a vulnerable beneficiary, the trustees are entitled to a deduction of Income Tax. It’s calculated like this:

Trustees work out what their trust Income Tax would be if there was no claim for special treatment - this will vary according to which type of trust it (A trust) is.

They (Trustees) then work out what Income Tax the vulnerable person (a vulnerable beneficiary) would have paid if the trust income had been paid directly to them (someone) as an individual.

They (Trustees) can then claim the difference between these 2 figures as a deduction from their (Trustees) own Income Tax liability.

This is a complicated calculation but there’s a detailed worked example on the HMRC website.

Capital Gains Tax

Capital Gains Tax may be due if assets are sold, given away, exchanged or transferred in another way and they’ve gone up in value since being put into trust.

Tax is only paid by trustees if the assets (assets) have increased in value above the ‘annual exempt amount’, which is an allowance of £12,300 for people who have a mental or physical disability, or £6,150 for other trustees.

Trustees are responsible for paying any Capital Gains Tax due. If the trust is for vulnerable people, trustees can claim a reduction, which is calculated like this:

They (trustees) work out what they (trustees) would pay if there was no reduction.

They (trustees) then work out what the beneficiary would have to pay if the gains had come directly to them (trustees).

They (trustees) can claim the difference between these 2 amounts (the difference between these 2 figures) (these 2 figures) as a reduction on what they (trustees) have to pay in Capital Gains Tax using form SA905.

This special Capital Gains Tax treatment does not apply in the tax year when the beneficiary (trustees) dies.

Inheritance Tax

These are the situations when trusts for vulnerable people get special Inheritance Tax treatment:

for a disabled person whose trust was set up before 8 April 2013 - at least half of the payments from the trust must go to the disabled person during their lifetime

for a disabled person whose trust was set up on or after 8 April 2013 - all payments must go to the disabled person, except for up to £3,000 per year (or 3% of the assets, if that’s lower), which can be used for someone else’s benefit

when someone who has a condition that’s expected to make them disabled sets up a trust for themselves

for a bereaved minor - they must take all the assets and income at (or before becoming) 18

There’s no Inheritance Tax charge:

if the person who set up the trust survives 7 years from the date they set it up

on transfers made out of a trust to a vulnerable beneficiary

When the beneficiary (a vulnerable beneficiary) dies, any assets held in the trust on their behalf are treated as part of their estate and Inheritance Tax may be charged.

Trusts usually have 10-year Inheritance Tax charges, but trusts with vulnerable beneficiaries are exempt.

Trusts and Income Tax

Different types of trust income have different rates of Income Tax.

Each type of trust is taxed differently. Trusts involve a ‘trustee’, ‘settlor’ and ‘beneficiary’.

Accumulation or discretionary trusts

Trustees are responsible for paying tax on income received by accumulation or discretionary trusts. The first £1,000 is taxed at the standard rate.

If the settlor has more than one trust, this £1,000 is divided by the number of trusts they have. However, if the settlor has set up 5 or more trusts, the standard rate band for each trust is £200.

The tax rates are below.

Trust income up to £1,000

Type of income | Tax rate

Dividend-type income | 7.5%

All other income | 20%

Trust income over £1,000

Type of income | Tax rate

Dividend-type income | 38.1%

All other income | 45%

Dividends

Trustees do not qualify for the dividend allowance. This means trustees pay tax on all dividends depending on the tax band they fall within.

Interest in possession trusts

The trustees are responsible for paying Income Tax at the rates below.

Type of income | Income Tax rate

Dividend-type income | 7.5%

All other income | 20%

Sometimes the trustees ‘mandate’ income to the beneficiary. This means it goes to them directly instead of being passed through the trustees.

If this (goes) happens, the beneficiary needs to include this on their (the beneficiary) Self Assessment tax return and pay tax on it.

Bare trusts

If you’re the beneficiary of a bare trust you’re responsible for paying tax on income from it.

You need to tell HMRC about the income on a Self Assessment tax return.

If you do not usually send a tax return, you need to register for self-assessment by 5 October following the tax year you had the income.

Settlor-interested trusts

The settlor is responsible for Income Tax on these trusts (Settlor-interested trusts), even if some of the income is not paid out to them (the beneficiary). However, the Income Tax is paid by the trustees as they (the trustees) receive the income.

The trustees pay Income Tax on the trust income by filling out a Trust and Estate Tax Return.

They (the trustees) give the settlor a statement of all the income and the rates of tax charged on it.

The settlor tells HMRC about the tax the trustees have paid on their behalf on a Self Assessment tax return.

The rate of Income Tax depends on what type of trust the settlor-interested trust is.

Other types of trust

There are special tax rules for parental trusts for children, trusts for vulnerable people and trusts where the trustees are not resident in the UK for tax purposes. These are called non-resident trusts.

If you’re the beneficiary

Depending on the type of trust and your income, you might be able to claim some of the Income Tax back.

If you’re the trustee

Get help completing the Trust and Estate Tax return.

If you need more help

There’s more detailed guidance on trusts and Income Tax.

Contact HMRC or get professional tax advice if you need help.

Trusts and Capital Gains Tax

Capital Gains Tax is a tax on the profit (‘gain’) when something (an ‘asset’) that’s increased in value is taken out of or put into a trust.

When Capital Gains Tax might be payable

If assets are put into a trust

Tax is paid by either the person:

selling the asset to the trust

transferring the asset (the ‘settlor’)

If assets are taken out of a trust

The trustees usually have to pay the tax (Capital Gains Tax) if they sell or transfer assets on behalf of the beneficiary.

There’s no tax to pay in bare trusts if the assets are transferred to the beneficiary.

Sometimes an asset might be transferred to someone else but Capital Gains Tax is not payable. This happens when someone dies and an ‘interest in possession’ ends.

A beneficiary gets some or all of the assets in a trust

Sometimes the beneficiary of a trust becomes ‘absolutely entitled’ and can tell the trustees what to do with the assets, for example when they reach a certain age.

In this case, the trustees pay Capital Gains Tax based on the assets’ (the assets) market value when the beneficiary (the beneficiary of a trust) became entitled to them (the assets).

Non-UK resident trusts

The rules for Capital Gains Tax on non-UK resident trusts are complicated. You can get help with your tax.

Working out total gains

Trustees need to work out the total taxable gain to know if they have to pay Capital Gains Tax.

Allowable costs

Trustees can deduct costs to reduce gains, including:

the cost of the property (including any administration fees)

professional fees, for example for a solicitor or stockbroker

the cost of improving property or land to increase its value, for example building a conservatory (but not repairs or regular maintenance)

Tax reliefs

Trustees might be able to reduce or delay the amount of tax the trust (a trust) pays if gains are eligible for tax relief.

Relief | Description

Private Residence Relief | Trustees pay no Capital Gains Tax when they sell a property the trust (a trust) owns. It must be the main residence for someone allowed to live there under the rules of the trust (a trust).

Entrepreneurs’ Relief | Trustees pay 10% Capital Gains Tax on qualifying gains if they sell assets used in a beneficiary’s business, which has now ended. They may also get relief when they sell shares in a company where the beneficiary had at least 5% of shares and voting rights.

Hold-Over Relief | Trustees pay no tax if they transfer assets to beneficiaries (or other trustees in some cases). The recipient pays tax when they sell or dispose of the assets, unless they also claim relief.

Tax-free allowance

Trustees only have to pay Capital Gains Tax if the total taxable gain is above the trust’s (a trust) tax-free allowance (called the Annual Exempt Amount).

The tax-free allowance for trusts (Tax-free allowance) is:

£12,300 if the beneficiary is vulnerable - a disabled person or a child whose parent has died

If there’s more than one beneficiary, the higher allowance (Tax-free allowance) may apply even if only one of them is vulnerable.

See tax-free allowances for previous years.

The tax-free allowance (Tax-free allowance) may be reduced if the trust’s (a trust) settlor has set up more than one trust (‘settlement’) since 6 June 1978.

There’s more detailed information about Capital Gains Tax and Self Assessment for trusts.

Report gains to HMRC

If you’re the trustee, report any gains as part of your Trust and Estate Tax Return.

You’ll need to download and fill in form SA905 if you’re sending your tax return by post.

If you’re the beneficiary, you need to report and pay through a Self Assessment tax return.

The rules are different for reporting a loss.

If you need more help

There’s more detailed guidance on Capital Gains Tax.

Contact HMRC or get professional tax advice if you need help.

Trusts and Inheritance Tax

Inheritance Tax may have to be paid on a person’s estate (their money and possessions) when they die.

Inheritance Tax is due at 40% on anything above the threshold - but there’s a reduced rate of 36% if the person’s (a person’s) will leaves more than 10% of their (a person’s) estate (a person’s estate (their money and possessions)) to charity.

Inheritance Tax can also apply when you’re alive if you transfer some of your estate into a trust.

When Inheritance Tax is due

The main situations when Inheritance Tax is due are:

when assets are transferred into a trust

when a trust reaches a 10-year anniversary of when it was set up (there are 10-yearly Inheritance Tax charges)

when assets are transferred out of a trust (known as ‘exit charges’) or the trust ends

when someone dies and a trust is involved when sorting out their estate

What you pay Inheritance Tax on

You pay Inheritance Tax on ‘relevant property’ - assets like money, shares, houses or land. This includes the assets in most trusts.

There are some occasions where you may not have to pay Inheritance Tax - for example where the trust contains excluded property.

Special rules

Some types of trust are treated differently for Inheritance Tax purposes.

Bare trusts

These are where the assets in a trust are held in the name of a trustee but go directly to the beneficiary, who has a right to both the assets and income of the trust.

Transfers into a bare trust may also be exempt from Inheritance Tax, as long as the person making the transfer survives for 7 years after making the transfer.

Interest in possession trusts

These (Interest in possession trusts) are trusts where the beneficiary is entitled to trust income as it’s produced - this is called their ‘interest in possession’.

On assets transferred into this type of trust (Interest in possession trusts) before 22 March 2006, there’s no Inheritance Tax to pay.

On assets transferred on or after 22 March 2006, the 10-yearly Inheritance Tax charge may be due.

During the life of the trust (a trust) there’s no Inheritance Tax to pay as long as the asset stays in the trust (a trust) and remains the ‘interest’ of the beneficiary.

Between 22 March 2006 and 5 October 2008:

beneficiaries of an interest in possession trust could pass on their interest in possession to other beneficiaries, like their children

this (pass) was called making a ‘transitional serial interest’

there’s no Inheritance Tax to pay in this situation

From 5 October 2008:

beneficiaries of an interest in possession trust cannot pass their (beneficiaries of an interest in possession trust) interest on as a transitional serial interest

if an interest is transferred after this date (5 October 2008) there may be a charge of 20% and a 10-yearly Inheritance Tax charge will be payable unless it (an interest in possession trust)’s a disabled trust

If you inherit an interest in possession trust from someone who has died, there’s no Inheritance Tax at the 10-year anniversary. Instead, 40% tax will be due when you die.

If the trust is set up by a will

Someone might ask that some or all of their assets are put into a trust. This is called a ‘will trust’.

The personal representative of the deceased person (Someone) has to make sure that the trust (a trust) is properly set up with all taxes paid, and the trustees make sure that Inheritance Tax is paid on any future charges.

If the deceased (Someone) transferred assets into a trust before they (Someone) died

If you’re valuing the estate of someone who has died, you’ll need to find out whether they made any transfers in the 7 years before they died. If they did, and they paid 20% Inheritance Tax, you’ll need to pay an extra 20% from the estate.

Even if no Inheritance Tax was due on the transfer, you still have to add its value to the person’s (Someone) estate (the estate of someone who has died) when you’re valuing it (the estate of someone who has died) for Inheritance Tax purposes.

Trusts for bereaved minors

A bereaved minor is a person under 18 who has lost at least one parent or step-parent. Where a trust is set up for a bereaved minor, there are no Inheritance Tax charges if:

the assets in the trust (a trust) are set aside just for bereaved minor (a bereaved minor)

they (a bereaved minor) become fully entitled to the assets (the assets in the trust (a trust)) by the age of 18

A trust for a bereaved young person can also be set up as an 18 to 25 trust - the 10-yearly charges do not apply. However, the main differences are:

the beneficiary must become fully entitled to the assets in the trust by the age of 25

when the beneficiary is aged between 18 and 25, Inheritance Tax exit charges may apply

Trusts for disabled beneficiaries

There’s no 10-yearly charge or exit charge on this type of trust as long as the asset stays in the trust (a trust) and remains the ‘interest’ of the beneficiary.

You also do not have to pay Inheritance Tax on the transfer of assets into a trust for a disabled person as long as the person making the transfer survives for 7 years after making the transfer.

Paying Inheritance Tax

You pay Inheritance Tax using form IHT100.

If you’re valuing the estate of someone who’s died, you may have to value other assets apart from trusts to see if Inheritance Tax is due.

More help and information

There’s more detailed guidance on trusts and Inheritance Tax.

Contact HMRC or get professional tax advice if you need help.

Beneficiaries - paying and reclaiming tax on trusts

If you’re a trust beneficiary there are different rules depending on the type of trust. You might have to pay tax through Self Assessment or you might be entitled to a tax refund.

If you do not usually send a tax return and need to, you must register for Self Assessment by 5 October following the tax year you had the income.

Read the information on the different types of trust to understand the main differences between them. If you’re not sure what type of trust you have, ask the trustees.

If you’re the beneficiary of a bare trust you are responsible for declaring and paying tax on its income. Do this on a Self Assessment tax return.

Interest in possession trusts

If you’re the beneficiary of this type of trust (Interest in possession trusts), you’re entitled to its (Interest in possession trusts) income (after expenses) as it arises.

If you ask for a statement, the trustees must tell you:

the different sources of income

how much income you’ve been given

how much tax has been paid on the income

You’ll usually get income sent through the trustees, but they (the trustees) might pass it to you directly without paying tax first. If this happens you need to include it on your Self Assessment tax return.

If you do not usually send a tax return you must register for Self Assessment by 5 October the year after you were given the income.

If you’re a basic rate taxpayer

You will not owe any extra tax. You’ll still need to complete a Self Assessment tax return to show the income you receive from an interest in possession trust but you will get a credit for the tax paid by the trustees. This means the income is not taxed twice.

If you’re a higher rate taxpayer

You’ll have to pay extra tax on the difference between what tax the trustees have paid and what you, as a higher rate taxpayer, are liable for. This will be calculated when you do your Self Assessment.

How to reclaim tax

You can reclaim tax paid on:

dividends (if you’re entitled to dividend allowance)

savings interest (if you’re entitled to personal savings allowance)

trade and property income (if you’re entitled to trading allowance or property allowance)

The allowance amount will be reduced if it’s already been used against some income. The allowance you have left is called the ‘available allowance’.

If the amount of income you receive is less than or equal to the available allowance (The allowance you have left), you can reclaim all of the tax paid.

If the amount of income you receive is more than the available allowance (The allowance you have left), you can only claim the tax paid on the available allowance (The allowance you have left).

If you’re a Self Assessment taxpayer the repayment will be calculated as part of your return.

If you’re not a Self Assessment taxpayer you can reclaim the tax (tax) using form R40.

You need to make a separate claim for each tax year.

Accumulation or discretionary trusts

With these trusts all income received by beneficiaries is treated as though it has already been taxed at 45%. If you’re an additional rate taxpayer there will be no more tax to pay.

You may be able to claim tax back on trust income you’ve received if any of the following apply:

you’re a non-taxpayer

you pay tax at the basic rate of 20%

you pay tax at the higher rate of 40%

You can reclaim the tax paid using form R40. If you complete a tax return, you can claim through Self Assessment.

Settlor-interested discretionary trusts

If a settlor-interested trust is a discretionary trust, payments made to the settlor’s spouse or civil partner are treated as though they’ve already been taxed at 45%. There’s no more tax to pay. However, unlike payments made from other types of trusts, the tax credit cannot be claimed back.

Non-resident trusts

This (Non-resident trusts) is a trust where the trustees are not resident in the UK for tax purposes. The tax rules for this type of trust are very complicated - there’s detailed guidance on non-resident trusts.

If a pension scheme pays into a trust

When a pension scheme pays a taxable lump sum into a trust after the pension holder dies, the payment is taxed at 45%.

If you’re a beneficiary and receive a payment funded by this lump sum (a taxable lump sum), you’ll also be taxed.

You can claim back tax paid on the original lump sum (a taxable lump sum) - do this on your Self Assessment tax return if you complete one, or using form R40.

The trust will tell you the amount you need to report - this will normally be more than the amount you actually receive.

Trustees - tax responsibilities

As the trustee, you’re responsible for reporting and paying tax on behalf of the trust.

If there are 2 or more trustees, nominate one as the ‘principal acting trustee’ to manage its (The trust) tax. The other trustees are still accountable, and can be charged tax and interest if the trust does not pay.

Registering a trust

Once a trust becomes liable for tax, you must register the trust with HM Revenue and Customs.

Sending tax returns

You must report the trust’s (The trust) income and gains in a trust and estate Self Assessment tax return after the end of each tax year. You can either:

buy software to send it electronically by 31 January

fill in paper form SA900 and post it to HMRC (HM Revenue and Customs) by 31 October (3 months earlier)

You can also get help, for example from HMRC (HM Revenue and Customs) or by getting an accountant to do your return for you.

After you’ve sent your return, HMRC (HM Revenue and Customs) will tell you how much you owe. You’ll need to pay your Self Assessment bill by the deadline.

You’ll need to collect and keep records (for example bank statements) to complete your tax return.

Telling beneficiaries about tax and income

You must give the beneficiary a statement with the amount of income and tax paid by the trust, if they ask. You can use form R185 (trust) to do this. There’s a different form if you need to provide a statement to a settlor who retains an interest.

If there’s more than one beneficiary, you must give each of them this information relative to the amount they receive.

Death benefit payments from a pension scheme

You must give the beneficiary extra information if both the following apply:

you make a payment funded by a taxable lump sum from a pension scheme

the pension holder has died

Use form R185 (LSDB) if you’re a trustee. There’s a different form if you’re a pension administrator.

You must tell the beneficiary within 30 days.

Other responsibilities

You may have to report other things to HMRC. You need to:

use the online service to tell HMRC if there are any changes to the trust

fill in form IHT100 when the trust needs to pay Inheritance Tax

Your other responsibilities as a trustee depend on the type of trust and any instructions from the person who set up the trust in the trust deed.

When you must register a trust

You must register your trust with HM Revenue and Customs (HMRC) (HMRC) if it becomes liable for any of the following:

Capital Gains Tax

Income Tax

Inheritance Tax

Stamp Duty Land Tax or Land and Buildings Transaction Tax in Scotland

Stamp Duty Reserve Tax

You must also register a trust to claim tax relief.

Non-resident trusts

You must register a non-resident trust if it becomes liable for:

tax on UK income

tax on UK assets

You can get professional advice from a solicitor or tax advisor about registering a trust.

When you do not need to register your trust

You do not need to register your trust if:

it (your trust) has to pay Income Tax of less than £100 on interest

only the settlor or beneficiary of the trust (your trust) has to pay tax

it (your trust)’s a bare trust

it (your trust)’s a charitable trust

it (your trust)’s a resulting trust and the assets go back to the settlor because all the beneficiaries have died

it (your trust)’s a statutory trust created through legislation

it (your trust)’s a constructive trust imposed by a court

it (your trust) holds a pension scheme already registered with HMRC

You also do not need to register your trust if you have to file information:

under the Foreign Account Tax Compliance Act (FATCA)

for Common Reporting Standard (CRS) purposes

Deadlines for registering

The deadline depends on the tax your trust is liable for.

Trusts liable for Income Tax or Capital Gains Tax

If it’s the first time your trust is liable for either tax (Income Tax or Capital Gains Tax), the deadline is 5 October in the tax year after it first becomes liable for these taxes (Income Tax or Capital Gains Tax).

For example, if your trust first becomes liable for Income Tax during the 2020 to 2021 tax year, you must register by 5 October 2021.

If your trust has been liable for either tax (Income Tax or Capital Gains Tax) before, the deadline is 31 January in the tax year after it’s again liable for these taxes (Income Tax or Capital Gains Tax).

For example, if your trust is liable for Income Tax during the 2020 to 2021 tax year and it has been liable for Income Tax before, you must register by 31 January 2022.

Trusts liable for other taxes

You must register by 31 January in the tax year after the one in which the trust (your trust) is liable for any of the following:

Inheritance Tax

Stamp Duty Land Tax or Land and Buildings Transaction Tax in Scotland

Stamp Duty Reserve Tax

You must register by the earlier deadline if your trust is liable for more than one tax and both deadlines apply.

How to register

How you register a trust depends on whether you’re:

a trustee

an agent registering a trust for a client

There’s a different process if you need to register an estate of someone who’s died.


Make and serve a statutory demand, or challenge one

When you can make a statutory demand

You can make a statutory demand to ask for payment of a debt from an individual or company.

Anyone who’s owed money (the ‘creditor’) can make a statutory demand. You do not need a lawyer.

If the debt (a debt)’s over 6 years old, you cannot usually make a statutory demand. You can get legal advice instead.

There may be faster ways of getting smaller debts paid than making a statutory demand.

When the individual or company that owes you money (the ‘debtor’) receives a statutory demand, they (an individual or company) have 21 days to either:

pay the debt (a debt)

reach an agreement to pay

You can apply to bankrupt your debtor (an individual or company) or close (‘wind up’) their (an individual or company) company if they (an individual or company) do not respond to the statutory demand (a statutory demand) within 21 days.

Statutory demand forms

Choose the form you need, fill it in and deliver (‘serve’) it to the individual or company that owes you money (an individual or company).

You do not need to send a separate letter.

Serve a demand on an individual (including partners in a partnership)

Which form you need depends on whether you’re collecting a debt that’s:

payable now

payable now following a judgment or court order

payable in the future, if you think they (an individual or company) will not be able to pay the debt (a debt) when they (an individual or company) need to

If you’re serving a demand on a business partnership, you need to download and fill in a form for each partner.

Serve a demand on a limited company

Use statutory demand form SD 1.

If you’re in Scotland

You must use a different form to make a statutory demand in Scotland.

How to serve a statutory demand

You must deliver (‘serve’) the statutory demand form (the form you need) by:

giving it (the form you need) to the individual who owes you money (you should try all their known addresses)

leaving it (the form you need) at the registered office of the company or partnership that owes money (or the main place of business if they do not have a registered office)

giving it (the form you need) to the company’s (the company or partnership that owes money) director, company secretary, manager or principal officer

get a ‘process server’ to serve it (a statutory demand) for you (a solicitor can arrange this)

You can only send it (a statutory demand) by registered post or put it (the form you need) through a letterbox if it (a statutory demand) cannot be delivered in person.

Records you must keep

You must keep a copy of the statutory demand (a statutory demand) and anything that confirms:

the time and date you served the statutory demand (a statutory demand), for example a postage receipt or confirmation from your process server

the debtor has received the statutory demand (a statutory demand)

You’ll need this information if your demand (a statutory demand) is ignored.

If your demand (a statutory demand) is ignored

If your debtor does not pay the debt or agree to your statutory demand (a statutory demand) within 21 days, you can:

start bankruptcy proceedings against any individuals who owe you £5,000 or more

wind up a company that owes you £750 or more

You have 4 months to apply to bankrupt or wind up your debtor. If you’re late, explain why to the court named on the statutory demand (a statutory demand).

Serve a statutory demand abroad

Get legal help if you want to serve a statutory demand in another country.

You need to serve a statutory demand according to local laws but also according to the UK rules.

Challenge a statutory demand

If you do not agree with a statutory demand you’ve been given, you can apply to challenge it and get it ‘set aside’.

You can be made bankrupt or your company wound up if you ignore a statutory demand.

You must apply to the court named on your statutory demand (the court named on the statutory demand (a statutory demand)). Contact a solicitor or your nearest county court if you’re not sure where to send your application.

You cannot challenge a statutory demand if it was served on a company. You can apply to stop your creditors from winding up your company instead.

Any bankruptcy petitions the creditor has already filed against you will usually be suspended until the court reaches a decision.

The court will not usually set aside a statutory demand if it was served on you following the judgment of another court unless, for example:

you think the creditor owes you the same amount as your debt, or more

the amount on the statutory demand (a statutory demand) is secured

Deadlines

You must apply to challenge the statutory demand (a statutory demand) within either:

18 days if you were in the UK (UK) when you got the statutory demand (a statutory demand)

21 to 34 days if you were in another country when you got the statutory demand (a statutory demand) - check the table of countries for specific deadlines

If the deadline is during a weekend or on a bank holiday, you have until the next day the court is open to apply.

You might be able to get an extension in some circumstances - contact the court to find out what these are.

How to apply

Download and fill in form IAA.

Make 3 copies of the completed form and either post them to the court named on your statutory demand (the court) or give them to the court in person.

What happens next

You’ll usually hear back from the court within 10 working days of applying.

If the court does not agree with your application, it (the court) can give the creditor permission to issue a bankruptcy petition against you.

If the court agrees with your application, your case will be passed on to a bankruptcy registrar. They’ll look at your case and arrange a hearing.

What happens at the hearing (a hearing)

Both sides will present their case (your case) to a registrar or judge. They’ll either make a decision then, or ask you and the other party to give more evidence at another hearing.

You’ll usually get a decision at the end of the final hearing.

If you win your case, you’ll get an order from the court setting aside the statutory demand (a statutory demand). The deadline for paying the debt will be suspended.

If you lose, you’ll have to pay back your debt (the debt) within the 21 day time limit. The creditor can apply to bankrupt you if you do not pay in time and your debt is £5,000 or more.

Do not go to court if you have coronavirus (COVID-19) symptoms or if you’re self-isolating or in quarantine. Tell the court if you cannot attend.

Contact the Insolvency Service

Use the contact form to contact the Insolvency Service about delivering and challenging a statutory demand.

You cannot currently contact the Insolvency Service by telephone because of coronavirus (COVID-19).


If you cannot pay your tax bill on time

What to do

You must arrange to pay your tax bill with HM Revenue and Customs (HMRC) if you either:

miss a payment

know you cannot pay on time

If you pay a tax bill late you must pay interest on the amount you owe until it’s paid off. You can avoid penalties by arranging a payment plan with HMRC (HM Revenue and Customs (HMRC)) before the tax (your tax bill) is due  – or by 1 April for Self Assessment.

If you owe Self Assessment tax and your bill (your tax bill) is less than £30,000 you may be able to pay in monthly instalments.

For any other bills or problems paying, you must contact HMRC (HM Revenue and Customs (HMRC)) to discuss your options. How you contact HMRC (HM Revenue and Customs (HMRC)) depends on what you need to pay.

This guide is also available in Welsh (Cymraeg).

If you cannot pay because of coronavirus (COVID-19)

You may be able to pay your Self Assessment tax (Self Assessment tax) in monthly instalments. This includes any delayed (deferred) ‘payments on account’ that were due in July 2020, if you did not pay them at the time.

Contact the HMRC (HM Revenue and Customs (HMRC)) coronavirus (COVID-19) helpline if you cannot pay any other tax bills because of coronavirus (coronavirus (COVID-19)).

If you’re self-employed

If your business has been affected by coronavirus (COVID-19), you may be able to claim a grant through the Self-Employment Income Support Scheme.

If you cannot pay your Self Assessment tax bill

You can set up a payment plan online to spread the cost of your latest Self Assessment bill if:

you owe £30,000 or less

you do not have any other payment plans or debts with HMRC (HM Revenue and Customs (HMRC))

your tax returns are up to date

it’s less than 60 days after the payment deadline

You do not need to contact HMRC (HM Revenue and Customs (HMRC)) if you set up a payment plan.

Call the Self Assessment helpline (the HMRC (HM Revenue and Customs (HMRC)) coronavirus (COVID-19) helpline) if you’re not eligible for a payment plan or cannot use the online service.

If you cannot pay other taxes

You might be able to set up a Time to Pay Arrangement with HMRC (HM Revenue and Customs (HMRC)) if you’re unable to pay any other taxes in full. This lets you spread the cost of your tax bill by paying what you owe in instalments.

How you do this (a Time to Pay Arrangement with HMRC (HM Revenue and Customs (HMRC))) depends on whether you’ve received a payment demand.

If you’ve received a payment demand, like a tax bill or a letter threatening you with legal action, call the HMRC (HM Revenue and Customs (HMRC)) office that sent you the letter.

If you’ve not received a bill or letter, call the Payment Support Service (PSS).

Nominated partners in business partnerships can negotiate a Time to Pay Arrangement with HMRC (HM Revenue and Customs (HMRC)) on behalf of the partnership or individual partners.

Before you contact HMRC (HM Revenue and Customs (HMRC))

You’ll need to know:

your reference number (for example, your 10-digit Unique Taxpayer Reference or VAT reference number)

the amount of the tax bill you’re finding it difficult to pay and the reasons why

what you’ve done to try to get the money to pay the bill (the tax bill)

how much you can pay immediately and how long you may need to pay the rest

your bank account details

What happens when you contact HMRC (HM Revenue and Customs (HMRC))

HM Revenue and Customs (HMRC) will ask you about:

your income and expenditure

your assets, like savings and investments

what you’re doing to get your tax payments back in order

HMRC (HM Revenue and Customs (HMRC)) will decide whether you should be able to pay immediately. If you cannot, they (HM Revenue and Customs (HMRC))’ll decide whether you’ll be able to get your payments back on track with more time.

You’ll be asked more in-depth questions if you’ve been given more time to pay before. In more complex cases HMRC (HM Revenue and Customs (HMRC)) may ask for evidence before they (HM Revenue and Customs (HMRC)) make a decision.

What happens next

You’ll have to pay immediately if HMRC (HM Revenue and Customs (HMRC)) think you can when you call. You can pay by Direct Debit, corporate credit card or debit card over the phone.

You’ll be charged a fee if you pay by credit card. The fee is not refundable.

If you cannot pay all your tax bill, you may be able to:

pay your bill in instalments by Direct Debit

get more time to pay

When you might get more time to pay

HMRC (HM Revenue and Customs (HMRC)) may offer you extra time to pay if they (HM Revenue and Customs (HMRC)) think you genuinely cannot pay in full now but will be able to pay in the future.

You can set up a plan to pay in instalments by Direct Debit on dates they (HM Revenue and Customs (HMRC)) agree with you.

Tell HMRC (HM Revenue and Customs (HMRC)) as soon as possible if your circumstances change and you can pay your tax bill faster.

You’ll have to pay interest on the amount you pay late.

You must keep these payments up to date and pay your other tax. If you do not, HMRC (HM Revenue and Customs (HMRC)) will normally cancel the arrangement and take legal action against you straight away.

When you will not get more time to pay

If HMRC (HM Revenue and Customs (HMRC)) do not think you can get your payments on track with more time, they (HM Revenue and Customs (HMRC)) will not make an arrangement with you - they (HM Revenue and Customs (HMRC))’ll expect you to pay your tax bill straight away.

If you do not, HMRC (HM Revenue and Customs (HMRC)) will start ‘enforcement action’ to get the money from you.

Help and advice

The Money Advice Service has more information about debt management and where you can get free debt advice.

You can also contact HMRC (HM Revenue and Customs (HMRC)).

Making a complaint

You cannot appeal against HMRC’s (HM Revenue and Customs (HMRC)) decision, but you can make a complaint if you’re unhappy about how you were treated.


Claim tax relief for your job expenses

Overview

You might be able to claim tax relief if:

you use your own money for things that you must buy for your job

you only use these things (things that you must buy for your job) for your work

You cannot claim tax relief if your employer either gives you:

all the money back

an alternative, for example your employer gives you a laptop but you want a different type or model

This guide is also available in Welsh (Cymraeg).

You must have paid tax in the year. You’ll get tax relief based on what you’ve spent and the rate at which you pay tax.

For some claims, you must keep records of what you’ve spent. You must claim within 4 years of the end of the tax year (the year) that you spent the money.

If your claim is for the current tax year, HM Revenue and Customs (HMRC) will usually make any adjustments needed through your tax code.

If your claim is for previous tax years, HMRC (HM Revenue and Customs (HMRC)) will either make adjustments through your tax code or give you a tax refund.

Check if you can claim

Working from home

You may be able to claim tax relief for additional household costs if you have to work at home on a regular basis, either for all or part of the week. This includes if you have to work from home because of coronavirus (COVID-19).

You cannot claim tax relief if you choose to work from home.

You may be able to claim tax relief for:

gas and electricity

metered water

business phone calls, including dial-up internet access

You cannot claim for the whole bill, just the part that relates to your work.

You may also be able to claim tax relief on equipment you’ve bought, such as a laptop, chair or mobile phone.

How much you can claim

You can either claim tax relief on:

£6 a week from 6 April 2020 (for previous tax years the rate is £4 a week) - you will not need to keep evidence of your extra costs

the exact amount of extra costs you’ve incurred above the weekly amount - you’ll need evidence such as receipts, bills or contracts

You’ll get tax relief based on the rate at which you pay tax. For example, if you pay the 20% basic rate of tax and claim tax relief on £6 a week you would get £1.20 per week in tax relief (20% of £6).

Check if you can claim

Uniforms, work clothing and tools

You may be able to claim tax relief on the cost of:

repairing or replacing small tools you need to do your job (for example, scissors or an electric drill)

cleaning, repairing or replacing specialist clothing (for example, a uniform or safety boots)

You cannot claim relief on the initial cost of buying small tools or clothing for work.

Personal Protective Equipment (PPE)

You cannot claim tax relief for PPE (Personal Protective Equipment (PPE)). If your job requires you to use PPE your employer should either:

give you PPE (Personal Protective Equipment (PPE)) free of charge

ask you to buy it (Personal Protective Equipment (PPE)) and reimburse you the costs

How much you can claim

You can either claim:

the actual amount you’ve spent - you’ll need to keep receipts

an agreed fixed amount (a ‘flat rate expense’ or ‘flat rate deduction’)

Check if your job has an agreed flat rate expense.

Check if you can claim

Vehicles you use for work

You may be able to claim tax relief if you use cars, vans, motorcycles or bicycles for work.

This (use) does not include travelling to and from your work, unless it’s a temporary place of work.

How much you can claim depends on whether you’re using:

a vehicle that you’ve bought or leased with your own money

a vehicle owned or leased by your employer (a company vehicle)

Using your own vehicle for work

If you use your own vehicle or vehicles for work, you may be able to claim tax relief on the approved mileage rate. This covers the cost of owning and running your vehicle. You cannot claim separately for things like:

fuel

electricity

road tax

MOTs

repairs

To work out how much you can claim for each tax year you’ll need to:

keep records of the dates and mileage or your work journeys

add up the mileage for each vehicle type you’ve used for work

take away any amount your employer pays you towards your costs, (sometimes called a ‘mileage allowance’)

Approved mileage rates

| First 10,000 business miles in the tax year | Each business mile over 10,000 in the tax year

Cars and vans | 45p | 25p

Motorcycles | 24p | 24p

Bicycles | 20p | 20p

Using a company car for business

You can claim tax relief on the money you’ve spent on fuel and electricity, for business trips in your company car. Keep records to show the actual cost of the fuel.

If your employer reimburses some of the money, you can claim relief on the difference.

Check if you can claim

Professional fees and subscriptions

You can claim tax relief on:

professional membership fees, if you must pay the fees to be able to do your job

annual subscriptions you pay to approved professional bodies or learned societies if being a member of that body or society is relevant to your job

You cannot claim tax relief on life membership subscriptions, or for professional membership fees or annual subscriptions you:

have not paid yourself (for example if your employer has paid for them)

have paid to professional organisations that are not approved by HMRC

Your organisation can tell you how much tax you’re allowed to claim back.

Check if you can claim

Travel and overnight expenses

If you have to travel for your work you may be able to claim tax relief on the cost or money you’ve spent on food or overnight expenses.

You cannot claim for travelling to and from work, unless you’re travelling to a temporary place of work.

You can claim tax relief for money you’ve spent on things like:

public transport costs

hotel accommodation if you have to stay overnight

food and drink

congestion charges and tolls

parking fees

business phone calls and printing costs

You may also be able to claim tax relief on business mileage.

Check if you can claim

Buying other equipment

In most cases you can claim tax relief on the full cost of substantial equipment, for example a computer, you have to buy to do your work. This is because it qualifies for a type of capital allowance called annual investment allowance.

You cannot claim capital allowances for cars, motorcycles or bicycles you use for work, but you may be able to claim for business mileage and fuel costs.

You claim in a different way for small items that’ll last less than 2 years, such as uniforms and tools.

You can only claim tax relief for equipment expenses if:

you need it to do your job

you use the equipment for work and there’s no significant private use - this includes using the equipment according to your organisation’s policy

If your employer gives you money for the item

Reduce the amount you claim tax relief on by the amount of money your employer gives you.

Check if you can claim


Individual Savings Accounts (ISAs)

Overview

You can save tax-free with Individual Savings Accounts (ISAs).

In the 2021 to 2022 tax year, the maximum you can save in ISAs is £20,000

There are 4 types of ISA:

cash ISAs

stocks and shares ISAs

innovative finance ISAs

Lifetime ISAs

You can put money into one of each kind of ISA each tax year.

Who can open an ISA

You must be:

16 or over for a cash ISA

18 or over for a stocks and shares or innovative finance ISA

18 or over but under 40 for a Lifetime ISA

You must also be either:

resident in the UK

a Crown servant (for example diplomatic or overseas civil service) or their spouse or civil partner if you do not live in the UK

You cannot hold an ISA with or on behalf of someone else.

You can get a Junior ISA for children under 18.

Opening and managing an ISA for someone who lacks the mental capacity to do this for themselves

A close friend or relative can apply to the Court of Protection (COP) for a financial deputyship order to open and manage an ISA for someone who cannot do this for themselves.

In Scotland, applications need to be made to the Office of the Public Guardian in Scotland.

In Northern Ireland, applications need to be made to the Office of Care and Protection.

How ISAs work

There are 4 types of Individual Savings Accounts (ISA):

cash ISA

stocks and shares ISA

innovative finance ISA (ISAs)

Lifetime ISA

You do not pay tax on:

interest on cash in an ISA

income or capital gains from investments in an ISA

If you complete a tax return, you do not need to declare any ISA interest, income or capital gains on it.

Putting money into an ISA

Every tax year you can put money into one of each kind of ISA. The tax year runs from 6 April to 5 April.

You can save up to £20,000 in one type of account or split the allowance across some or all of the other types.

You can only pay £4,000 into your Lifetime ISA (a Lifetime ISA) in a tax year.

Your ISAs (a Lifetime ISA) will not close when the tax year finishes. You’ll keep your savings on a tax-free basis for as long as you keep the money in your ISA accounts.

What you can include in your ISAs

Cash ISAs can include:

savings in bank and building society accounts

some National Savings and Investments products

Stocks and shares ISAs can include:

shares in companies

unit trusts and investment funds

corporate bonds

government bonds

You cannot transfer any non-ISA (ISAs) shares you already own into an ISA unless they’re from an employee share scheme.

Lifetime ISAs may include either:

cash

stocks and shares

Innovative finance ISAs include:

peer-to-peer loans - loans that you give to other people or businesses without using a bank

‘crowdfunding debentures’ - investing in a business by buying its debt

You cannot transfer any peer-to-peer loans you’ve already made or crowdfunding debentures you already hold into an innovative finance ISA.

If you have questions about the tax rules for ISAs, you can call the ISA Helpline.

How to open an ISA

You can get an Individual Savings Account (ISA) from:

banks

building societies

credit unions

friendly societies

stock brokers

peer-to-peer lending services

crowdfunding companies

other financial institutions

Contact your provider directly for more information about how to open an ISA with them.

Withdrawing your money

You can take your money out of an Individual Savings Account (ISA) at any time, without losing any tax benefits. Check the terms of your ISA to see if there are any rules or charges for making withdrawals.

There are different rules for taking your money out of a Lifetime ISA.

If your ISA is ‘flexible’, you can take out cash then put it back in during the same tax year without reducing your current year’s allowance. Your provider can tell you if your ISA is flexible.

Transferring your ISA

You can transfer your Individual Savings Account (ISA) (your ISA) from one provider to another at any time.

You can transfer your savings to a different type of ISA or to the same type of ISA.

If you want to transfer money you’ve invested in an ISA during the current year, you must transfer all of it.

For money you invested in previous years, you can choose to transfer all or part of your savings.

If you transfer cash and assets from a Lifetime ISA to a different ISA before the age of 60, you’ll have to pay a withdrawal fee of 25%.

Restrictions on what you can transfer

You can transfer cash from your innovative finance ISA to another provider - but you may not be able to transfer other investments from it.

Check with your provider for any restrictions they may have on transferring ISAs. They may also make you pay a charge.

How to transfer your ISA

To switch providers, contact the ISA provider you want to move to and fill out an ISA transfer form to move your account. If you withdraw the money without doing this (transfer), you will not be able to reinvest that part of your tax-free allowance again.

Deadlines and complaints

ISA transfers should take no longer than:

15 working days for transfers between cash ISAs

30 calendar days for other types of transfer

If you want to transfer investments held in an innovative finance ISA, ask your provider how long it will take.

If your transfer takes longer than it should, contact your ISA provider (your provider).

If you’re unhappy with the response, you can take the matter up with the Financial Ombudsman Service.

If you move abroad

If you open an Individual Savings Account (ISA) in the UK then move abroad, you cannot put money into it after the tax year that you move (unless you’re a Crown employee working overseas or their spouse or civil partner).

You must tell your ISA provider as soon as you stop being a UK resident.

However, you can keep your ISA open and you’ll still get UK tax relief on money and investments held in it.

You can transfer an ISA to another provider even if you are not resident in the UK.

You can pay into your ISA (an ISA) again if you return and become a UK resident (subject to the annual ISA allowance).

If you die

Your ISA will end when either:

your executor closes it (Your ISA)

the administration of your estate is completed

Otherwise, your ISA provider will close your ISA 3 years and 1 day after you die.

There will be no Income Tax or Capital Gains Tax to pay up to that date, but ISA investments will form part of your estate for Inheritance Tax purposes.

Stocks and shares ISAs

Your ISA provider can be instructed to either:

sell the investments and pay the proceeds to the administrator or beneficiary of your estate

transfer the investments to your surviving spouse’s or civil partner’s ISA - this is only possible if they have the same ISA provider as you

Check the terms and conditions of your ISA for details.

Inheriting an ISA from your spouse or civil partner

If your spouse or civil partner dies you can inherit their (your spouse or civil partner) ISA allowance.

As well as your normal ISA allowance you can add a tax-free amount up to either:

the value of their (your spouse or civil partner) ISA when it (their (your spouse or civil partner) ISA)’s closed

Contact your ISA provider or the provider of your spouse or civil partner’s ISA for details.

If your spouse or civil partner died from 3 December 2014 to 5 April 2018

Their (your spouse or civil partner) ISA ended on the date of their (your spouse or civil partner) death (5 April 2018). ISA investments will form part of their (your spouse or civil partner) estate for Inheritance Tax purposes.

Their (your spouse or civil partner) ISA provider (your ISA provider) can be instructed to sell the investments (ISA investments) and either:

pay the proceeds to the administrator or beneficiary of their (your spouse or civil partner) estate

transfer the investments (ISA investments) directly to them (the administrator or beneficiary of their (your spouse or civil partner) estate)

You can inherit their (your spouse or civil partner) ISA allowance. As well as your normal ISA allowance, you can add a tax-free amount up to the value they (your spouse or civil partner) held in their (your spouse or civil partner) ISA when they (your spouse or civil partner) died.

Contact your ISA provider or the provider of your spouse or civil partner’s ISA (their (your spouse or civil partner) ISA) for details.


P45, P60 and P11D forms: workers' guide

You’ll get a P45 from your employer when you stop working for them.

There’s a separate guide to getting P45s if you’re an employer.

Your P45 shows how much tax you’ve paid on your salary so far in the tax year (6 April to 5 April).

A P45 has 4 parts (Part 1, Part 1A, Part 2 and Part 3).

Your employer sends details for Part 1 (Part 1A) to HM Revenue and Customs (HMRC) and gives you the other parts.

You give Part 2 and 3 to your new employer (or to Jobcentre Plus if you’re not working).

Keep Part 1A for your own records.

By law your employer must give you a P45 - ask them (your employer) for one.

You can check how much tax you paid last year if you think you might have paid too much.

You do not have a P45

You will not have a P45 if you’re starting your first job or you’re taking on a second job. Your employer will need to work out how much tax you should be paying on your salary.

They (your employer) may use a ‘Starter Checklist’ to collect the information, or may collect it another way. The Starter Checklist has questions about any other jobs, benefits or student loans you have. It helps your employer work out your correct tax code before your first payday.

Your P60 (P60) shows the tax you’ve paid on your salary in the tax year (6 April to 5 April). You get a separate P60 for each of your jobs.

There’s a separate guide to getting P60s if you’re an employer.

If you’re working for an employer on 5 April they must give you a P60. They must provide this by 31 May, on paper or electronically.

You’ll need your P60 (a P60) to prove how much tax you’ve paid on your salary, for example:

to claim back overpaid tax

to apply for tax credits

as proof of your income if you apply for a loan or a mortgage

Your employer (an employer) might give you a copy of your P11D if they (an employer) used it to tell HM Revenue and Customs (HMRC) about your ‘benefits in kind’ (for example company cars or interest-free loans).

They (an employer) do not have to do this, but they (an employer) must tell you how much each benefit is worth.

There’s a separate guide to getting form P11D (your P11D) if you’re an employer.

You might not get a P11D if your employer (an employer) takes the tax you owe on your benefits out of your pay.

Your employer (an employer) will write to you to explain how this (takes) works.

Lost PAYE forms

Lost P45

You cannot get a replacement P45.

Instead, your new employer may give you a ‘Starter Checklist’ or ask you for the relevant details about your finances to send to HM Revenue and Customs (HMRC).

Lost P60

You can get a replacement P60 from your employer.

You can usually get a copy of the P11D (your P11D) from your employer. If they (an employer) cannot give you one, you can contact HMRC (HM Revenue and Customs (HMRC)) for a copy.


Tax on company benefits

Overview

As an employee, you pay tax on company benefits like cars, accommodation and loans.

Your employer takes the tax you owe from your wages through Pay As You Earn (PAYE).

The amount you pay depends on what kind of benefits you get and their value, which your employer works out.

Check your Income Tax to see how company benefits affect the tax you pay.

Some company benefits can be tax-free, like childcare and canteen meals.

You have to pay tax and National Insurance on things that are paid in cash, as they’re treated as earnings.

Tax on company cars

You’ll pay tax if you or your family use a company car privately, including for commuting.

You pay tax on the value to you of the company car (a company car), which depends on things like how much it (a company car) would cost to buy and the type of fuel it (a company car) uses.

This value of the car (a company car) is reduced if:

you have it (a company car) part-time

you pay something towards its (a company car) cost

it (a company car) has low CO2 emissions

If your employer pays for fuel you use for personal journeys, you’ll pay tax on this separately.

If you drive a hybrid

If your company car has CO2 emissions of 1 to 50g/km, the value of the car is based on its zero emission mileage figure, or ‘electric range’. This is the distance the car can go on electric power before its batteries need recharging.

Contact your employer to find out your car’s (your company car) zero emission mileage figure.

Check or update your company car tax

Tell HM Revenue and Customs (HMRC) if your car or fuel details change. You can check or update your company car tax online, for example if:

you get a company car or give one back

your employer starts or stops paying for fuel for you to use personally

If a change affects the value of the car (a company car), HMRC (HM Revenue and Customs (HMRC)) will update your tax code so you pay the right tax.

Estimating the tax you’ll pay

You can see how much tax you might pay with HMRC’s (HM Revenue and Customs (HMRC)) company car and fuel benefit calculator.

This calculator (HMRC’s (HM Revenue and Customs (HMRC)) company car and fuel benefit calculator) may not work in all browsers. Find out how to update or change your browser.

Other company benefits you'll pay tax on

You pay tax on the value of the benefit to you, which your employer works out.

Medical insurance

You usually pay tax on the cost of the insurance premiums if your employer pays for your medical insurance.

Check how your employer works out how much tax to deduct from your pay.

You can get some tax-free health benefits from your employer, including:

medical insurance when you’re working abroad

annual check-ups

Check and report changes to medical insurance paid for by your employer.

Loans

You’ll pay tax on low-interest or interest-free loans from your employer if they’re worth more than £10,000.

You pay tax on the difference between the interest rate you pay to your employer and the official rate of interest set by the Bank of England.

You may pay tax if your employer lends money to one of your relatives.

Living accommodation

If you (or one of your relatives) is living in accommodation provided by your employer you may pay tax.

How the tax is worked out depends on whether the accommodation (accommodation provided by your employer) cost more than £75,000.

You may not pay tax if you get the accommodation (accommodation provided by your employer) so you can do your job, or do your job better, for example agricultural workers living on farms.

Help with your Self Assessment

Use the living accommodation helpsheet if you need help with the ‘Employment’ section of your Self Assessment tax return.

Tax-free company benefits

You can get some company benefits tax free, including:

meals in a staff canteen

hot drinks and water at work

a mobile phone

workplace parking

Christmas parties can also be tax free if they cost £150 or less per head and are open to all employees.

Your employer might provide tax free childcare support, including childcare vouchers.

National Insurance on company benefits

You do not usually have to pay National Insurance on benefits you get from your job.

Your employer will pay National Insurance contributions on them (benefits you get from your job) instead.

But you do have to pay National Insurance on things that are paid in cash, as they’re treated as earnings.

For example, if your employer gives you a gift that you could sell instead of keep, you will pay National Insurance on the value of the gift.

Keeping records and reporting changes

At the end of each tax year, your employer will give you details of the company benefits they’ve told HM Revenue and Customs (HMRC) about.

They (your employer) might give you a copy of your P11D form, if they (your employer) sent one to HMRC (HM Revenue and Customs (HMRC)).

You must keep these details for 2 years after the tax year they relate to.

Tell HMRC (HM Revenue and Customs (HMRC)) about starting or stopping company benefits

You must tell HMRC (HM Revenue and Customs (HMRC)) about any benefits you or your family start or stop getting from work - even if your employer has already taken Income Tax and National Insurance for them.

You should only tell HMRC (HM Revenue and Customs (HMRC)) that you’ve got a company car once you’ve started using it.


Tax overpayments and underpayments

Your tax calculation

If you’re employed or get a pension, your employer or pension provider uses your tax code to work out how much tax to take from you.

You could still be paying too much or too little tax. For example, if you got a company benefit or pay rise that HMRC did not know about, and so they did not update your tax code.

If you have not paid the right amount at the end of the tax year, HMRC will send you a P800 or a Simple Assessment tax calculation.

Your P800 or Simple Assessment (a P800 or a Simple Assessment tax calculation) will tell you how to get a refund or pay tax you owe.

You will not get a P800 or Simple Assessment if you’re registered for Self Assessment. Your bill will be adjusted automatically if you’ve underpaid or overpaid tax.

When you might get a P800

You might get a P800 if you:

finished one job, started a new one and were paid by both in the same month

started receiving a pension at work

received Employment and Support Allowance or Jobseeker’s Allowance

P800s are sent out after the tax year ends on 5 April. You’ll normally get yours by the end of November.

When you might get a Simple Assessment letter

You might get a Simple Assessment letter if you:

owe tax that cannot be automatically taken out of your income

owe HMRC more than £3,000

have to pay tax on the State Pension

You can pay your Simple Assessment bill online.

Checking your tax calculation

Your letter (a Simple Assessment letter) will show the income you should have paid tax on. This includes any income from pay, pensions, state benefits, savings interest and employee benefits.

Compare the figures with your records, for example your P60, bank statements or letters from the Department for Work and Pensions. If your state benefit was paid every 4 weeks, work out the total paid in a year by multiplying your regular payment by 13 (not 12).

You may be able to use the HMRC tax checker to work out how much tax you should have paid.

If you think your tax calculation is wrong

Contact HMRC if you think the amounts used in your letter (a Simple Assessment letter) are wrong, or HMRC did not act on information you gave them (HMRC).

You have 60 days to query your simple assessment (your Simple Assessment bill) in writing or by telephone. The details of how to do that will be mentioned in your Simple Assesment letter (a Simple Assessment letter).

If your P800 says you're due a refund

Your P800 tax calculation will tell you how you can get your refund (a refund).

If your P800 says you can claim online

Your P800 will tell you if you can claim your refund (a refund) online. You’ll be sent the money within 5 working days - it’ll be in your UK account once your bank has processed the payment.

If you do not claim within 21 days, HM Revenue and Customs (HMRC) (HMRC) will send you a cheque. You’ll get this within 6 weeks of the date on your P800.

Contact HMRC if you cannot claim your refund (a refund) online.

If your P800 says you’ll get a cheque

Your P800 will tell you if HMRC will send you a cheque. You do not need to make a claim.

You’ll get your cheque within 14 days of the date on your P800. If you’re owed tax from more than one year, you’ll get a single cheque for the entire amount.

If you do not have a P800

You can check how much Income Tax you should have paid.

Contact HMRC if you think you’ve paid too much tax. If they (HMRC) agree, they (HMRC)’ll send you a P800.

If your P800 says you owe tax

HM Revenue and Customs (HMRC) (HMRC) will usually collect the tax you owe (tax) in instalments over the next year. This will happen automatically if you:

pay Income Tax through an employer or pension provider

earn enough income over your Personal Allowance to cover the underpayment

owe less than £3,000

HMRC will write to you about how you can pay if they (HMRC) cannot collect the money (tax) this way.

Other ways to pay

Online

Your P800 will tell you if you can pay the tax you owe (tax) online.

By post

You can pay with a cheque, made payable to ‘HM Revenue and Customs only’.

Write your National Insurance Number on the back of the cheque. Send it with a covering letter including:

your full name and address

your National Insurance number

the amount of the payment

what the payment relates to, for example, PAYE

the year the payment is for

Allow 3 working days for your payment to reach HMRC. Send your cheque (the cheque) to:

You do not need to include a street name, city name or PO box with this address.


Pay voluntary Class 3 National Insurance

Overview

You may be able to pay Class 3 voluntary National Insurance to fill gaps in your contributions record to qualify for benefits like the State Pension.

Pay now

Before you pay

Check your National Insurance record to find out:

if you have any gaps

if you’re eligible to pay voluntary contributions

how much it will cost

Voluntary contributions do not always increase your State Pension (the State Pension). Contact the Future Pension Centre to find out if you’ll benefit from voluntary contributions.

Ways to pay

You can pay monthly via Direct Debit.

Contact HM Revenue and Customs (HMRC) if you want to:

pay quarterly - they (HM Revenue and Customs (HMRC))’ll send you a bill every July, October, January and April

make a one-off payment

Make sure you pay HMRC (HM Revenue and Customs (HMRC)) by the deadline you’re given. The amount of time you’ll need to allow depends on how you pay.

Same or next day

You can make same or next day payments:

by online or telephone banking

by CHAPS

at your bank or building society, if it’s still open

3 working days

You can pay within 3 days by BACS.

You currently cannot pay by cheque through the post because of coronavirus (COVID-19).

You can no longer pay at the Post Office.

Direct Debit

To set up monthly payments, download and send the Direct Debit form to HM Revenue and Customs (HMRC). The address is on the form.

HMRC (HM Revenue and Customs (HMRC)) will write within 21 days to confirm your Direct Debit is set up.

Payments appear on your statement as ‘HMRC NI-DD’.

Your debits usually start in May.  If you’re setting up the Direct Debit (your Direct Debit) after May and you need to pay arrears, you can do this through your first payment.

Bank details for online or telephone banking, CHAPS, Bacs

Make your payment to the following HM Revenue and Customs’ (HMRC) (HM Revenue and Customs (HMRC)) bank account, unless you’re paying from overseas.

Sort code | Account number | Account name

08 32 20 | 12001004 | HMRC NICO Telephone banking

Reference number

Use your reference number when making your payment. You’ll find it on your bill.

For quarterly payments, your number will be 18 characters beginning with 11.

For one-off payments, your number will be 18 characters beginning with 60.

Contact HMRC (HM Revenue and Customs (HMRC)) if you do not have a reference number.

How long it takes

Payments by Faster Payments (online or telephone banking) usually reach HM Revenue and Customs (HMRC) on the same or next day, including weekends and bank holidays.

CHAPS payments usually reach HMRC (HM Revenue and Customs (HMRC)) the same working day if you pay within your bank’s processing times.

Bacs payments usually take 3 working days.

Check your bank’s transaction limits and processing times before making a payment.

Overseas payments

If you’re paying from abroad, the account you pay into depends on whether you’re using a UK or non-UK account.

Account type | Sort code | Account number

UK | 20 20 48 | 30944793

Account type | Account number (IBAN) | Bank Identifier Code (BIC)

Non-UK | GB49BARC20204830944793 | BARCGB22

For either account, pay to account name ‘HMRC (HM Revenue and Customs (HMRC)) NIC receipts’.

Reference number

Use your National Insurance number followed by ‘IC’, your surname then your initial. If your bank limits you to a certain amount of characters, you should use your National Insurance number followed by ‘IC’ and as much of your surname as possible.

If you’re an employer paying for an employee living abroad, you should use your 13-character employer number.

Banking address

HMRC’s (HM Revenue and Customs (HMRC)) banking address is:

At your bank or building society

Pay at a branch by cash or cheque. You’ll need the payslip HM Revenue and Customs (HMRC) sent with your bill.

Some branches might be closed because of coronavirus (COVID-19).

Make your cheque payable to ‘HM Revenue and Customs only’.

Write your Class 3 National Insurance reference number on the back of your cheque. You’ll find the reference number on the payslip provided by HMRC (HM Revenue and Customs (HMRC)).

HMRC (HM Revenue and Customs (HMRC)) will accept your payment on the date you make it, and not the date it reaches HMRC’s (HM Revenue and Customs (HMRC)) account, if you pay between Monday and Friday.

By cheque through the post

You cannot currently pay by cheque through the post because of coronavirus (COVID-19).

You can still make payments:

by online or telephone banking

by CHAPS or BACS

at your bank or building society, if it (your bank or building society)’s still open

If you’ve paid by cheque since 6 April 2020

Call HMRC (HM Revenue and Customs (HMRC)) if you want to check your payment has been received.


Keeping your pay and tax records

Overview

You need to keep records if you have to send HM Revenue and Customs (HMRC) a Self Assessment tax return.

You’ll need your records to fill in your tax return correctly. If HMRC (HM Revenue and Customs (HMRC)) checks your tax return, they (HM Revenue and Customs (HMRC)) may ask for the documents.

You must also keep records for business income and outgoings if you’re self-employed.

How to keep your records

There are no rules on how you must keep records. You can keep them on paper, digitally or as part of a software program (like book-keeping software).

HMRC (HM Revenue and Customs (HMRC)) can charge you a penalty if your records are not accurate, complete and readable.

Lost or destroyed records

Try to get copies of as much as you can, for example ask banks for copies of statements, suppliers for duplicate invoice etc.

You can use ‘provisional’ or ‘estimated’ figures if you cannot recreate all your records. You must use the ‘Any other information’ box on the tax return (your tax return) to say that this is what you’re doing.

‘Provisional’ means you’ll be able to get paperwork to confirm your figures later. ‘Estimated’ means you will not be able to confirm the figures.

You may have to pay interest and penalties if your figures turn out to be wrong and you have not paid enough tax.

How long to keep your records

You must keep records about your business income and costs for longer if you’re self-employed.

How long you should keep your records depends on whether you send your tax return before or after the deadline.

HM Revenue and Customs (HMRC) may check your records to make sure you’re paying the right amount of tax.

Tax returns sent on or before the deadline

You should keep your records for at least 22 months after the end of the tax year the tax return is for.

Tax returns sent after the deadline

You should keep your records for at least 15 months after you sent the tax return.

Employees and limited company directors

Income from employment

You should keep documents about your pay and tax, including:

your P45 - if you leave your job, this shows your pay and tax to the date you left

your P60 - if you’re in a job on 5 April, this shows your pay and tax for the tax year

form P11D - this shows your expenses and benefits, like a company car or health insurance

certificates for any Taxed Award Schemes

information about any redundancy or termination payment

Contact your employer if you do not have your P60, P45 or form P11D.

You should also keep details of any other income or benefits from your job, including:

any tips received (unless your employer pays them through the ‘tronc’ system, which means they will have deducted tax already)

benefits you get in connection with your job from someone other than your employer, like meal vouchers

any lump sum payments not included on your P60 or P45, like incentive payments or ‘golden hellos’ (payments you get to encourage you to take a new job)

Expense records

If you’ve had to pay for things like tools, travel or specialist clothing for work, you may be able to claim for these to reduce the tax you’ll have to pay. You need to keep a record of these so you can include them in your tax return.

Benefits records

You should keep any documents relating to:

social security benefits

Statutory Sick Pay

Statutory Maternity, Paternity or Adoption Pay

Jobseeker’s Allowance

Income from employee share schemes or share-related benefits

You should keep:

copies of share option certificates and exercise notices

letters about any changes to your options

information about what you paid for your shares and the relevant dates

details of any benefits you’ve received as an employee shareholder

Savings, investments and pensions

You should keep all:

bank or building society statements and passbooks

statements of interest and income from your savings and investments

tax deduction certificates from your bank

dividend vouchers you get from UK companies

unit trust tax vouchers

documents that show the profits you’ve made from life insurance policies (called ‘chargeable event certificates’)

details of income you get from a trust

details of any out-of-the ordinary income you’ve received, like an inheritance

Pension information

You should keep:

form P160 (Part 1A) which you got when your pension started

form P60 which your pension provider sends you every year

any other details of a pension (including State Pension) and the tax deducted from it

Rental income

You should keep details of:

the dates when you let out your property

all rent you get

any income from services you give to tenants (for example if you charge for maintenance or repairs)

rent books, receipts, invoices and bank statements

allowable expenses you pay to run your property (for example services you pay for such as cleaning or gardening)

There are rules about what you can and cannot claim as expenses on your tax return.

Capital gains or losses

You may have to pay Capital Gains Tax if you sell (or ‘dispose of’) certain assets that have gone up in value since you got them.

You must make sure you keep the correct records.

Overseas income

You should keep:

evidence of income you’ve earned from overseas, like payslips, bank statements or payment confirmations

receipts for any overseas expenses you want to claim to reduce your tax bill

dividend certificates from overseas companies

certificates or other proof of the tax you’ve already paid - either in the UK or overseas


VAT Annual Accounting Scheme

Overview

Usually, VAT-registered businesses submit their VAT Returns and payments to HM Revenue and Customs 4 times a year.

With the Annual Accounting Scheme you:

make advance VAT payments towards your VAT bill - based on your last return (or estimated if you’re new to VAT)

submit 1 VAT Return a year

From 1 April 2019, most businesses will need to keep digital VAT records and use software to submit VAT Returns.

When you submit your VAT Return you either:

make a final payment - the difference between your advance payments and actual VAT bill

apply for a refund - if you’ve overpaid your VAT bill

The scheme (the Annual Accounting Scheme) would not suit your business if you regularly reclaim VAT because you’ll only be able to get 1 refund a year (when you submit the VAT Return (your VAT Return)).

You can join the scheme (the Annual Accounting Scheme) if your estimated VAT taxable turnover is £1.35 million or less.

Talk to an accountant or tax adviser if you want advice on whether the Annual Accounting Scheme is right for you.

Join or leave the scheme (the Annual Accounting Scheme)

You must be eligible to join the scheme (the Annual Accounting Scheme).

How to join

You can join the scheme (the Annual Accounting Scheme):

online - when you register for VAT

by post - fill in VAT600 AA (or use VAT600 AA/FRS to apply for the Flat Rate Scheme at the same time)

Do not use the address on the form - send it to the following address instead.

Confirmation you’ve joined the scheme (the Annual Accounting Scheme) is sent to your VAT online account (or in the post if you do not apply online).

How to leave

You can leave the scheme (the Annual Accounting Scheme) at any time, but you must leave if you’re no longer eligible to be in it (the Annual Accounting Scheme).

To leave, write to HMRC and they will confirm when you can leave. From this date, you must account for your VAT in the usual way.

You have to wait 12 months before you can rejoin the scheme (the Annual Accounting Scheme).

Eligibility

You can join the Annual Accounting Scheme if:

you’re a VAT-registered business

your estimated VAT taxable turnover is £1.35 million or less in the next 12 months

VAT taxable turnover (your estimated VAT taxable turnover) is the total of everything sold that is not VAT exempt.

Exceptions

You cannot use the scheme (the Annual Accounting Scheme) if:

you left the scheme (the Annual Accounting Scheme) in the last 12 months

your business is part of a VAT registered division or group of companies

you’re not up to date with your VAT Returns or payments

you’re insolvent

Leaving the scheme (the Annual Accounting Scheme)

You must leave the scheme (the Annual Accounting Scheme) if:

your VAT taxable turnover is (or is likely to be) more than £1.6 million at the end of the annual accounting year

Return and payment deadlines

Check your VAT Return and payment deadlines in your HM Revenue and Customs (HMRC) (HMRC) online account.

VAT Return deadline

There are 12 months in your VAT accounting period. Your VAT Return is due once a year, 2 months after the end of your accounting period.

Most businesses now need to keep digital VAT records and use software to submit VAT Returns.

Payment deadlines

You must make advance payments towards your VAT bill (either monthly or quarterly) during your accounting period (your VAT accounting period) and a final payment when you submit your VAT Return.

Payment | Deadline

Monthly | Due at the end of months 4, 5, 6, 7, 8, 9, 10, 11 and 12

Quarterly | Due at the end of months 4, 7 and 10

Final payment | Within 2 months of month 12

How much do you pay

Each payment is either 10% of your estimated VAT bill (monthly payments) or 25% (quarterly payments). The amount is based on previous VAT returns (or estimated if you’re new to VAT).

HMRC will write telling you when your instalments are due and how much they’ll be.

The final payment (known as a ‘balancing payment’) is the difference between your advance payments and the actual VAT bill confirmed on your VAT Return.

You may be due a VAT refund if you’ve overpaid HMRC.

You must pay VAT to HMRC electronically, for example by Direct Debit or internet banking.


VAT margin schemes

Overview

VAT margin schemes tax the difference between what you paid for an item and what you sold it for, rather than the full selling price. You pay VAT at 16.67% (one-sixth) on the difference.

You can choose to use a margin scheme when you sell:

second-hand goods

works of art

antiques

collectors’ items

You cannot use a margin scheme for:

any item you bought for which you were charged VAT

precious metals

investment gold

precious stones

How to start

You can start using a margin scheme at any time by keeping the correct records, and then reporting it on your VAT return. You do not have to register.

You’ll have to pay VAT on the full selling price of each item if you do not meet all the scheme’s (a margin scheme) requirements.

Exceptions

There are special rules if you’re selling:

second hand cars

horses and ponies

houseboats and caravans

high volume, low price items - you can use the  Global Accounting Scheme, a simplified version of the margin scheme

There are also special rules for dealers, pawnbrokers and auctioneers.

Eligibility

You can only use a margin scheme for:

second-hand goods

works of art

antiques and collectors’ items

Second-hand goods

Goods that can still be used, or which could be used after repair.

Works of art

Most items normally described as ‘works of art’ are eligible. There are some exceptions, for example technical drawings, scenery for theatres and hand-decorated manufactured items.

Antiques and collectors’ items

Antiques are goods that are over 100 years old. Collectors’ items are stamps, coins and currency and other pieces of scientific, historical or archaeological interest. Not all items that can be collected are eligible for a margin scheme.

There are special rules for works of art, antiques or collectors’ items imported from outside the European Economic Area (EEA) and works of art bought directly from the creator or their heirs.

Margin schemes and standard VAT

If some of the items you buy and sell are not eligible for a margin scheme, you pay and charge VAT for those items in the normal way.

You cannot include any of the following in your calculations when using a margin scheme:

business overheads

repairs

parts or accessories

Instead, reclaim these (parts or accessories) on your VAT return in the normal way.

Contact HM Revenue and Customs (HMRC) if you’re not sure about a particular item.

Keeping records

You must keep the usual VAT records when you use a margin scheme.

You must also keep:

a stockbook that tracks each item sold under the margin scheme individually

copies of purchase and sales invoices for all items

Stockbook

You must record certain information for each item you buy and sell that you want to use a margin scheme (the margin scheme) for.

Purchases | Sales

Stock number in numerical sequence | -

Date of purchase | Date of sale

Purchase invoice number (unless you made out the purchase invoice yourself) | Sales invoice number

Purchase price | Selling price, or method of disposal

Name of seller | Name of buyer

Description of the item | -

- | Margin on sale (sales price less purchase price)

- | VAT due (16.67% or one-sixth)

You must keep VAT records for 6 years. You have to keep records until you sell the item for any stock you bought more than 6 years ago that you plan to sell under the margin scheme.

Invoices

To use the margin scheme, you must have invoices for each item that meet the VAT margin scheme requirements.

The margin scheme (the margin scheme) invoice requirements (the VAT margin scheme requirements) are not the same as the general VAT invoice requirements.

You must have:

an invoice from the seller (seller) when you bought the item

a copy of the invoice you gave to the buyer when you sold the item

Buying

When you buy something you plan to sell under a margin scheme, you must get an invoice from the seller that includes:

date

seller’s name and address

your name and address, or that of your business

the item’s unique stockbook number (if you bought the item (something you plan to sell under a margin scheme) from another VAT-registered business)

item description

total price - you must not add any other costs to this price

if you bought the item from another VAT-registered business, any of the following: ‘margin scheme - second hand goods’, ‘margin scheme - works of art’ or ‘margin scheme - collectors’ items and antiques’

Selling

When you sell something you plan to claim for under a VAT margin scheme, you must give the buyer an invoice that includes:

date

your name, address and VAT registration number

the buyer’s name and address, or that of their business

the item’s unique stock book number

invoice number

item description

total price - you must not show VAT separately

There are special rules for using the margin scheme for imports and exports outside the UK. Find out more about the rules.

VAT return

You must show any goods you bought or sold using a margin scheme on your VAT return (VAT return).

Filling in your VAT return

Box on the VAT return form | What to fill in

Box 1 | Include the output tax due on all eligible goods sold in the period covered by the return

Box 6 | Include the full selling price of all eligible goods sold in the period, less any VAT due on the margin

Box 7 | Include the full purchase price of eligible goods bought in the period

You do not have to include margin scheme purchases or sales in boxes 8 and 9 of your VAT return (VAT return).