A few weeks ago Newspapers published very alarmist articles revealing that the Inland Revenue can collect up to 50% of your salary in tax if you have other income that is not taxed at source, such as property rents. Unfortunately the newspapers chose to omit some important background facts.

Fact 1
The PAYE coding system has always been used to collect tax due on benefits in kind. Now the tax due on rental or investment income can also be collected directly from your monthly salary, if you do not object to this.

Fact 2
If you are in receipt of a small amount of rental income each year; using a PAYE code to collect the tax due can mean you don’t have to fill in a self assessment tax return form. This will save you time and money. However, if you have more than one let property or high property expenditure you should complete a tax return each year to ensure your tax position is correct and any rental losses are quantified and claimed.

Fact 3
The maximum amount of tax that can be deducted using your PAYE code is 50% of your gross salary. This is not a 50% tax rate as is sometimes suggested. You will pay the same total amount of tax whether or not you pay the tax due on your property income directly via your PAYE code number or via your self-assessment tax return.

Fact 4
By using the PAYE system to collect all of your tax liabilities the Inland Revenue receives your money in monthly instalments. This improves the Government’s cash flow to the detriment of your own. Remember, using the PAYE system to pay tax on your rental income is optional.

Fact 5
This new system of bringing rental income into the PAYE system should only start after you have submitted your 2003/04 Tax Return which is issued on 6 April 2004. Some Tax Inspectors may be jumping the gun by issuing revised PAYE code numbers for 2004/05 that include rental income. If this happens to you ring the Inland Revenue office that issued the code and object or speak to us.