John Whiting of PwC

Earlier in the week, Simon, with some input from John, focussed on issues arising from the withdrawal of the 10% income tax rate from next month. We are still getting a lot of questions about that - for example, Andrew Davis asks whether dividends which are currently taxed at 10% will be taxed in future at 20%, and Tricia wonders whether she'll still get some benefit from the 10% rate as all her income is bank and building society interest. John, can you clarify the position?

John says: The idea is for the coming tax year, starting on 6 April, the 10% income tax band (which currently applies to the first �2,230 of taxable income above the personal allowance) will disappear; in compensation, the basic rate of income tax, currently 22% above that income level, will come down to 20%.

For basic rate taxpayers, dividend income is currently taxed at 10% which is actually covered by the tax credits you get so there is no actual cash tax to pay on a dividend. Higher rate taxpayers do have extra tax to pay on dividends. These rates don't alter under the new regime - the tax rates remain the same, with dividends being treated as the top chunk of income.

As for bank/ building society interest, if your income is low and would currently just mean that you were only into the 10% income tax bracket, you'll still be treated like that as the 10% rate is being retained for bank and building society interest, but only if you have that low income. Viewers might want to look at the separate article I've put on the Working Lunch website on this.

Leading on from that Susan asks about someone who has retired early and has a small pension - don't these changes mean that such a person could be paying more tax?

John says: Yes, I am afraid so. People on reasonable incomes - the break point is about �18,000 - will gain more from the reduction in basic rate by 2% than they lose from the loss of the 10% band. But people with incomes below that level will lose out on the surface. There are three possible ways of protection:

You mention age allowance there. That gives a good lead in to a couple of questions we've had around that. Ted Moss says that his wife will be 65 this September - does she get the higher age related personal allowance this year when she becomes 65 or next year?

John says: The tax system is quite generous - someone is entitled to the higher age allowance if at any time during the tax year they are aged 65 - so becoming 65 on 5 April is very tax efficient!

Leading on from that, Mr T M Howell asks us to highlight the unfair tax on pensioners regarding the age restriction allowance where of course that higher age allowance that you've referred to is clawed back as income rises. This is certainly a topic we've highlighted before but is there any sign of it changing - perhaps in the Budget next week?

John says: This is indeed a regular source of irritation to pensioners: the higher age allowance is clawed back at the rate of �1 for every �2 of their income above a certain level. Currently, that income level is �20,900; from April it goes up to �21,800 but it's still firmly in place. The effect of this clawback is that the pensioners who are caught in this "trap" face a marginal tax rate of 33% this year, though with the reduction in the basic rate of income tax, that comes down to 30% next year though I suspect that will be small comfort to those affected.

It does seem rather unfair that people are given a higher allowance with one hand which is then taken back with the other; the justification is that it's targeted at those on lower incomes but it does, as Mr Howell points out, penalise those who've saved carefully for their retirement.

It is something that has been regularly highlighted but there are no signs of the system being changed and I don't expect anything happening on it in next week's Budget.

Since this is your tax week discussion, could you please tell me whether the interest obtained from a five year index linked bond is considered as income or capital gain? Should the total amount of interest be declared for tax purposes or only one fifth of it since it is the cumulative of five years earnings? Joe from Bedford.

John says: The normal situation with these bonds is that the return that you get from them is indeed interest - effectively the interest is rolled up and credited in one go. It is therefore taxed as income and in one lot rather than spread.

Anthony Speake asks about the confusing world of selling life insurance bonds - he sold three of these, realised a gain of �14,400 and was surprised to find that all of this was added to his income for the year. He's queried it twice with his tax office and they've confirmed that they've got it right but did refer to something called top slicing relief. Can you explain?

John says: There are a lot of complexities around the taxation of life products. One immediate confusion arises because the system talks about 'gains' but almost all such gains are taxed as income rather than capital gains. (The main exception is where second hand policies are involved.)

In most cases, the holder will get a certificate from the insurer when a 'chargeable event' occurs - that sets out what the tax consequences are and how the details need to be returned to HMRC. If you haven't got a certificate from the insurer, perhaps because you sold the bonds in the market, you should in any event have informed your insurer who would then send you a certificate.

Generally, when you get a gain from a bond like this, then the gain is taxed at that point, even though as you say, it effectively covers many years. (There can be variants on this where a partial surrender is taxed at the end of the 'policy year', which can lead to tax in the next tax year.)

The calculation of the tax due is basically to add the gain from the policies to your income and tax accordingly. However, you do get, in effect, a 20% tax credit so your tax bill is only the element of the gain that is taxed at the 40% tax rate at an effective 20% rate. The system then allows 'top slicing' relief. This looks at the number of complete years the policy has been running since the last gain arose, divides the gain by that number of years, calculates tax (same basis as above) as if that was the amount of income added to the top of your real income and then multiplies the resulting bill by that number of years. It usually results in a lower bill than the 'straight' calculation.

Please note that I have tried to simplify the calculation (believe it or not) and this is only an outline - unfortunately more complexities can arise!

When there is a jointly held account with tax deducted from the interest and one party needs to claim back the tax paid (being a non-taxpayer) the revenue help form refers to showing only 'your share of the interest'.

Now, does this 'share' have to be a 50/50 split between the joint account holders or can they decide on a different percentage split (say 90/10 or 99/1) so the non taxpayer can claim the larger share? D Harrington.

John says: The rule is that income from jointly-held property is normally allocated equally between the joint owners. That can be varied by spouses/civil partners; it is possible to complete a declaration (using HMRC's 'Form 17' - see their website) that the beneficial interests (and hence income) in the property is held other than 50:50.

However, this can't be done for bank accounts that are held jointly as HMRC regards each owner as jointly entitled to the whole amount, and any income is paid to the parties jointly. Instead, the spouses/partners should hold amounts in separate accounts. It is possible to change the basis of the accounts from joint beneficial owners but this normally requires a formal deed to effect it.

One viewer asks what the rules are when someone uses their own car for their job. Can we please explain the tax relief available under Revenue & Customs rules on authorised mileage rates (AMRs), how these are claimed and what happens if your employer pays something, but not the full rate?

John says: Anyone who does business mileage in their own car (and business mileage doesn't include ordinary commuting) is entitled to claim the cost of that as a business expense against their salary. HMRC have set rates - the 'authorised mileage rates (AMR)' - which are currently:

If your employer doesn't pay anything, you can claim this via your tax return, or if you don't normally fill in a return, you'll have to contact your tax office (if necessary ask your employer for a contact office) and supply appropriate details.

If your employer pays you a mileage allowance, that's not taxable up to the AMR amounts. If they pay higher amounts, that's a taxable benefit; if they pay less, you can claim the balance as a deduction from salary.

If you haven't been claiming amounts you could have done against your tax bill, you can claim for prior years - though you will of course need appropriate evidence. Normally you can go back a maximum of six years in all.

I'm a full-time employee, studying for a part-time MSc in a vocational subject (I work for BA and I'm studying Air Transport Management). I was wondering if I have any tax breaks available to me. I'm married with a mortgage but no kids. I'm entirely self-funded and getting no support from work. Adrian.

John says: The short answer, somewhat unfairly perhaps, is that there isn't any tax claim you can make. If you were thinking about claiming the cost of your MSc against your salary for tax purposes, you run into the problem that the expenses incurred aren't 'wholly, exclusively and necessarily incurred in the performance of the duties of the employment'.

There has been a flurry of tax cases recently with people trying to claim various training costs and even where they were needed for someone to keep up a professional qualification, they haven't been allowed as they fall foul of that rule in the statute, usually because they are not necessary for actually doing the job. It's to put them in a position to do the job.

If an employer pays for training costs, that is normally OK and no question of a taxable benefit (assuming the training does relate to the job); if a self-employed person undergoes training related to what they do, that again is normally OK. However, that rule doesn't help the self employed person trying to acquire new skills - training for that wouldn't be allowable.

It does seem something that could usefully be looked at if people are to be encouraged to improve their knowledge or qualifications.

I am self employed. My tax year ends 31 January. I finished a job on 29 January but did not write the report and submit the paperwork and invoice until 1 February. Can this be considered as a sale in the current year or does it have to be included in last year's accounts? Roger Haycock.

John says: This is really down to your normal accounting practice - if that is such that you normally treat a sale as made when you invoice, then include it at 1 February.

However, there is a question over whether you should include a value of your work-in-progress at your year end and put a value on that. Normal accountancy practice would be that you operate on an earnings basis - indeed HMRC no longer accept a 'cash basis' for drawing up accounts, even if one can use cash basis for VAT purposes.

I purchased some shares in an Aim listed company. Unfortunately the company is now in administration and the shares have been suspended. I understand that I must wait for the administrator to declare that the shares have 'negligible value' before I can make a claim for the capital loss.

I have two questions:

a) It is highly unlikely that I will have any Capital Gains against which to offset the loss. Can I set the loss against my (higher rate) Income Tax?

b) As it will probably be some time before the administrator makes the necessary declaration is it possible for me to sell the shares (to a friend or relative) at a nominal price and crystallise my loss and therefore claim sooner rather than later?

Mick Newport.

John says: You can make a negligible value claim without waiting for the administrator to give you a certificate. HMRC do maintain a list of shares that they have agreed are of negligible value (go to their website and search under 'negligible value') but a claim from a taxpayer is acceptable, though they will want to investigate it. Negligible value isn't defined but it is taken as worth 'next to nothing' by HMRC. Making a negligible value claim gives you a capital loss and that can only be offset against a capital gain in the same or subsequent tax years.

If you sell the shares to a friend or relative at market value, that would indeed crystallise the loss, although there are restrictions on using losses that arise on sales to close relatives.

There are also some anti-avoidance provisions about creating capital losses but it sounds as if you have real losses here! There is a limited relief for losses against income tax. This is on shares where you subscribed for them and where the company is an unquoted trading company. Unquoted here can include AIM shares. There are a lot of conditions to this relief, including that it mustn't have be dealing in land. If you did subscribe for the shares it would be worth investigating this relief further.

The opinions expressed are John's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.