The ICAEW has published details of what it believes are the great tax myths of our time.

Here's what they said...

• "Money kept overseas is not taxable - For most people living in the UK it is taxable. It doesn’t matter if you leave the money in Jersey, for example, and never touch it, you must still pay income tax on any interest. However, if you are not both resident and domiciled in the UK the position may be different and you may need to seek further professional advice. HMRC are looking much more closely at overseas bank accounts, so don’t overlook the interest – they won’t.
• Children are not taxable - It doesn’t matter how old you are, even babies are taxable if they have income. For most children, there won’t be any tax to pay since the personal allowance of £4,895 for 2005/06, or £5,035 for 2006/07, allows each person this much income before they start paying tax.
• Students are not taxable in their first year at university - Just like children, students who earn more than the personal allowance will have to pay tax. Employers will usually ask student employees working in the holidays to sign a form P38S so they can pay their wages in gross.
• Give money to your children and escape tax on the interest it earns - If a parent gives money to a child then if the interest earned exceeds £100, it is treated as being the parent’s income and not the child’s. Interestingly though, a grandparent can give away money without the same problem occurring. Watch out for inheritance tax (IHT) though; some gifts will be exempt, but larger amounts may create an IHT problem.
• The Inland Revenue always get your tax code right - Certainly not. Even assuming that information you have given is correct it can be easily lost amongst the millions of other PAYE codes. Make sure that any benefits that you get from your employer have been valued correctly (look at the Form P11D given out before 6 July 2006). Check that the suffix (the letter after your numerical code number) is right for your circumstances (look at the leaflet which came with it); the letters BR for someone who only has one job should ring alarm bells since this may mean that you are paying basic rate tax (22%) on all of your income and that you aren’t getting any benefit for the personal allowance mentioned above.
• If you have overpaid tax you can always rely on the Revenue to pay it back - This can’t happen by magic. If you have overpaid tax under the PAYE system and have no other income, then it should happen automatically. Often though the position will be more complicated and you will have to ask for the tax back, either by completing a Tax Return or by completing a Repayment Form (R40). Investment income is taxed at a different rate to earnings, so it is always worth checking the tax you have paid at the end of the year. Pensioners are particularly liable to be caught out and overpay tax as they may have several sources of small amounts of pensions and interest income.
• If you let a room to a lodger income is not taxable - All income from letting is taxable, but to encourage people to let a room in their home, income of up to £4,250 is exempt under the Rent-a-room scheme.
• State pension is not taxable - The State pension is taxable, but is always paid gross. If you have no income apart from the State pension, then since for a single person it is below the level of the personal allowance, no tax is due. If you do have other income, such as an occupational pension, then you will probably find that your tax code has been adjusted for the state pension - if not, you may not have paid the correct amount of tax.
• If you only ever work for cash you don’t need to pay tax - HMRC devote significant resources to tracking money in the black economy and even small one-person businesses are interesting to them. It is your responsibility to keep records of your financial affairs and to declare your income. There are penalties for cheating and you may even go to prison. If you have made a mistake then you should seek proper professional advice to minimise the effects of the consequences."

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