Last week we had good news about revised HMRC guidance concerning the VAT flat rate scheme, and a prompt to think about clients submitting repayment claims. We also highlighted some special situations that apply to members and former members of the armed forces.

This is an
extract from our topical tax tips newsletter dated 19 May
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Members of the armed forces 
Individuals who serve in the armed forces are highly motivated, but some leave the forces carrying burdens of illness or disability. The UK tax and benefits system can present a barrier, as there are many rules which don’t fit easily with the usual situations faced by current and former members of the armed services. For instance: 

Residence 
Serving personnel may be posted to other countries, but their residence for tax purpose must be worked out using the statutory residence test (SRT). Individuals are not deemed to be UK resident for tax purposes when serving – although they may be treated as UK resident for tax credit purposes. Earned income from the armed forces will always be subject to UK income tax. The SRT will have to be applied to family members of serving personnel who also live abroad.    

Tax credits 
Serving personnel and their families can claim tax credits, even if they are serving in another country. The serving claimant is treated as if they were present in the UK, as long as they were ordinarily resident in the UK before their overseas posting began. 

Non-taxable income 
There are a number of travel and operational allowances that serving personnel receive which are not taxable and are disregarded for tax credits. Former members may receive war pensions and mobility supplements which are not treated as pension income. Also the armed forces independence payment is not treated as income.    

All of these issues, and much more, are covered in the LITRG guide for armed forces. There is also a very handy leaflet covering the same topics that can be printed out.  

This is an
extract from our topical tax tips newsletter dated 19 May
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
 
The
full newsletter contained links to related source material for this
story and the
other two topical, timely and commercial tax tips. We’ve been
publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to
know about each week.
You can obtain future issues by registering here>>>