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PTAX Personal Taxation
Introduction
Tax: 3 Rules of Thumb
1. If you increase your wealth, expect HMRC to
tax it
2. Claim all possible tax deductions
3. Disclose all taxable income (to avoid
problems later)
2
Objectives
To be able to identify:
When tax years start and finish
The deadline for submitting a tax return
Deadlines for paying tax
What basis should be used to assess
different types of income
Income which is exempt from Income Tax
How long records must be retained
Responsibilities of a tax practitioner
3
Tax Year for Income Tax and CGT
Tax year 2013/2014
starts on 6th April
Governed by Finance Act 2013
4
Tax Return and Payment
Form SA100
Supplementary pages
Submit by
31/10/14 (paper)
31/1/15 (on line)
Payment on account
31/1/14
31/7/14
Final (balancing) payment
31/1/15
5
Types of Income
Type of Income
Basis of Assessment
Property Income (Rent)
Accruals
Trading Income
Accounting year which ends in
2013/14
Employment/pension Income
Receipts
Savings and Investment Income
Receipts
6
Tax Computation
See tax data and pro-forma
Personal Allowance
Tax Bands:
Non-savings (General)
Savings
Dividends
7
Exempt Income
ISAs
NS&I Savings Certificates (not savings
accounts)
Prizes (eg. Premium Bonds)
Damages
8
Record-keeping
Keep to:
31/1/16
Filing deadline + 1 year
31/1/20 if there is trading/property income
Filing deadline + 5 years
Sufficient to substantiate the information provided to HMRC
9
Duties and Responsibilities of a
Tax Practitioner
Put forward the best position in favour of a
client or employer
10
ETHICS QUIZ
11
Q1
When is a tax practitioner allowed to disclose
information about a client without their authority
12
Q2
If an accountant suspects money laundering, to
whom should he/she report it
13
Q3
Describe the types of communication with which
an accountant should not be associated
14
ANSWERS
15
Q1
If there is legal, regulatory or professional duty
16
Q2
Money Laundering Reporting Officer, Serious
Organised Crime Agency
17
Q3
False, misleading, reckless, omitting/obscuring
information
18
PTAX Personal Taxation
Savings & Investments
(Interest & dividends)
Objectives
To be able to:
Explain the basis on which investment income
is taxed
Identify income which is not taxed at source
Identify income which is exempt from tax
Gross-up income and calculate the tax due
Explain record-keeping requirements
20
Taxation of Investment Income
Receipts basis (not accrual)
21
Tax at source
Most interest has tax deducted at source
Basic rate
Not
NS&I accounts and income bonds
Gilts
Dividends are “deemed” to have tax deducted
at source
Not repayable
Gross (assessable) income: Questions
Net savings income = £160
20% tax already deducted
Gross = ???
Net dividend income = £270
10% tax already deducted
Gross = ???
Tax-free Income
These do not need to be reported on tax
returns:
ISAs (£11,520 per year)
National Savings Certificates
Premium Bonds
Record-keeping: Question
What records might you keep relating to
investment income?
Gross (assessable) income: Answers
Net savings income = £160
20% tax already deducted
Gross = £200
Net dividend income = £270
10% tax already deducted
Gross = £300
Record-keeping: Answer
What records might you keep relating to
investment income?
Tax deduction certificates
Dividend vouchers
Account details
Working papers
PTAX Personal Taxation
Income From Property
(Rental Income)
Tax Returns
Objectives
To be able to:
Identify allowable expenses
Calculate taxable property income
Treat property losses correctly
Make suitable elections for Rent-a-Room relief
Calculate taxable income from furnished
holiday lets
Prepare tax return supplements for
Employment Income
Property Income
29
Income & Expense
Expenses
The general rules for expenditure to be
allowable:
1. Revenue, not capital.
ie. Not improvements (central heating)
2. Wholly and exclusively for purpose of
lettings
Allowable Expenses
Irrecoverable rent (NOT deducted from
income)
Expenditure before a property is rented out
But not renovation
Expenditure in void periods
Wear & Tear Allowance
Furnished lettings
10% (rent received - rates - council tax)
Non-allowable Expense
Depreciation
Property loss
Offset against:
1. Other properties in the same tax year
2. Future property income
Of same type
Rent a Room and Other Rules
Rent a Room Relief
£4,250 /year
Example
If you rent out part of your own home for
£5,000 a year, taxable income is:
£5,000 less expenses
OR
£5,000 less £4,250 Rent a Room Relief
See p2.9
Rent a Room Relief: Question
If you rent out part of your own home for
£6,000 a year, incurring expenses of £3,200,
what is your taxable income?
Holiday Lets
Different rules:
Capital allowances (furniture, equipment)
Pensionable
Holiday Lets
View to making a profit
Max 31 continuous days per tenant
Actually let for 105 days
Available for twice this (210 days)
Question
What records might you keep relating to
property income?
Rent a Room Relief: Answer
If you rent out part of your own home for
£6,000 a year, incurring expenses of £3,200,
what is your taxable income?
£6,000-£3,200 = £2,800
Or elect for rent a room relief
£6,000-£4,250=£1,750
Answer
What records might you keep relating to
property income?
Accounting records
cash books
bank statements
rental agreements
invoices for expenses
working papers
copies of tax returns
PTAX Personal Taxation
Employment
(Salaries, Bonuses, Pensions)
Objectives
To be able to:
Decide whether a taxpayer is employed or
self-employed
Decide when employment income is taxable
Assess the taxable amount on a variety of
benefits in kind
Identify expenses which are allowable in
calculating taxable income
Explain record-keeping requirements
45
Employment Income
Income received
+ benefits in kind
- allowable deductions
Taxation of Employment Income
Receipts basis (not accrual)
47
Indicators of Self-Employment
(Contract for Services)
Can employ substitute
decide how/when/where to work
choose work hours
financial risk
provide own equipment
work for several people/organisations
48
Taxable Benefits
49
General Rule (P11D employees)
Cash cost to employer
50
Employee contribution
Reduces benefit (except fuel)
51
Company Car Benefit
List price
– employee contribution (max £5,000)
x scale charge %
- employee contribution
to running cost
Scale Charge %
Below 95g/km: see data sheet
95g/km: 11%
+1% per 5g/km
Max 35%
Diesel: +3%
Fuel Benefit
£21,100
x scale charge %
Ignore part contribution
Timing
Car & fuel benefits are timeapportioned if the car is not
available for the whole tax year
Pool Car
Not a benefit if:
Private use is incidental
Used by several employees
Not normally kept at employee’s home
56
Company Van
No benefit if insignificant private use
£3,000 for private use
£564 for fuel for private use
57
Beneficial Loan
Loan x (Official interest – Actual interest)
No benefit if total loans <£5,000
If loan written off:
Benefit = Amount of loan
58
Accomodation
Annual value
(or rent paid by employer if higher)
+(Cost - £75,000) x Official interest
+ Cleaning etc
+ Assets x 20%
Time apportioned
59
Accomodation
Exempt for
Representative occupier (Caretaker)
Customary (Vicar)
Security
In these cases:
Running expenses limited to 10% of earnings
60
Gift/Loan of Asset
Gift
Benefit = Market value
Loan
Benefit = 20% of value when first provided
61
Gift of asset previously loaned
Higher of:
market value when transferred
market value when first provided
less benefits already assessed (less
employee contribution)
62
Tax-free benefits
63
Tax-free benefits
Money:
First £30,000 redundancy (not strictly a benefit)
£8,000 relocation
£5,000 suggestion scheme,
long service award (20yrs, £50/yr)
£5 per night incidental expenses (£10
overseas)
£4/week for work at home
64
Tax-free benefits
employers pension contribution
one mobile phone + calls
Childcare:
workplace creche
£55 approved childcare
Food:
staff canteen
15p/day luncheon vouchers
Staff entertainments (£150pa per person,
events above this disallowed)
65
Tax-free benefits
Transport:
use of bicycle
company bus
workplace parking
Other:
sports facilities
counselling
eye checks
certain state benefits
66
Allowable deductions
Wholly, exclusively, necessarily in
performance of duties
Allowable deductions
Professional subscriptions
Approved Mileage Allowance Payments
Reimbursed subsistence and customer
entertaining
P60 pay shown after:
Pension contributions
Payroll giving
68
Not Allowable
Home to normal
workplace travel
Dispensation
Reimbursed expenses not need to be entered
on the tax return
70
Records to keep
P60
P11D
P45
Receipts
Tax return
71
PTAX Personal Taxation
Income Tax Computation
(Pensions, Gift Aid, Personal Allowance)
Objectives
To be able to:
Identify income which is exempt from Income
Tax
Determine a taxpayer’s personal allowance
Compute Income Tax payable, making
appropriate adjustments for:
Personal Pensions
Gift Aid
Determine payments on account
Determine penalties due for lateness and
error
73
EXEMPT INCOME
Tax-free Income
These do not need to be reported on tax
returns:
ISAs (£11,520 per year)
National Savings Certificates
Premium Bonds
Tax-free benefits
Money:
First £30,000 redundancy (not strictly a benefit)
£8,000 relocation
£5,000 suggestion scheme, long service
award (20yrs, £50/yr)
£5 per night incidental expenses (£10
overseas)
£4/week for work at home
76
Tax-free benefits
employers pension contribution
one mobile phone + calls
Childcare:
workplace creche
£55 approved childcare
Food:
staff canteen
15p/day luncheon vouchers
Staff entertainments (£150pa per person,
events above this disallowed)
77
Tax-free benefits
Transport:
use of bicycle
company bus
workplace parking
Other:
sports facilities
counselling
eye checks
certain state benefits
78
Other Exempt Income
Income from scholarships
Disability pensions
Some social security benefits (eg. housing
benefit)
Most commissions, discounts, cashbacks
received by retail customers
Damages or compensation
Home-generated electricity
INCOME TAX COMPUTATION
Including:
Personal allowances
Personal pensions
Gift aid
80
Personal Allowance (High Income)
•
•
•
•
If adjusted net income is above £100,000
Reduce personal allowance by
50% of the difference
until the allowance = £0
81
Adjusted net income
Income less:
Gross gift aid and personal pension
contributions
82
Personal Allowance (Age-related)
• Allowance:
• £10,500 65-74
• £10,660 75+
•
•
•
•
If adjusted net income is above: £26,100
Reduce personal allowance by
50% of the difference
until the allowance = Basic Allowance
83
Gift Aid & Pension
Contributions
Basic rate taxpayer:
No Action
84
Gift Aid & Pension
Contributions
Higher rate taxpayer:
Increase basic rate band by gross
amount
85
PAYMENTS & PENALTIES
86
Payments on Account
50% x Previous year’s tax
(less deducted at source)
31/Jan 31/July
87
Late Return
Penalties:
£100 after 31/Jan
£10/day after 3 months (max £900)
+5% (min £300) after 6 months
and again after 6 months
88
Late Payment
1. Interest
From due date to day before payment
2. Penalties:
5% of tax if >30 days
+ 5% on 31/July
+ 5% if 12 months late
Balancing payment only
89
Incorrect Returns
Tax due multiplied by:
0-30%
20-70%
30-100%
Lack of reasonable care
Deliberate
Deliberate and concealed
Minimum = half of maximum if prompted
90
PTAX Personal Taxation
Capital Gains Tax
Objectives
To be able to:
Identify chargeable persons, assets, disposals
Calculate gain on disposal
Calculate CGT liability
Calculate gains on
Part-disposals
Chattels
Shares
92
Objectives
To be able to:
Identify exempt assets
Calculate PPR relief
Explain record-keeping requirements
93
CHARGEABLE DISPOSALS
94
94
Chargeable Disposals of Assets
Sell
Give away
Lose
Destroy
95
95
Exempt Gains
Death
Spouse/civil partner
Transfer at original cost
96
Connected person
Transfer at no less than market value
97
Connected person
Ancestors
Siblings
lineal descendants
(self and spouse)
98
GAIN ON DISPOSAL
99
99
Calculate Gain
Proceeds
- Costs of disposal
=Net proceeds
- Original cost (+ incidental costs)
- Improvements
= Gain
100
CGT CALCULATION
101
101
Calculate CGT
Total gains for year
- Annual exemption
= Gains subject to CGT
Gains @ 18%
+ Gains @ 28%
= CGT
102
Calculate CGT with losses
Total gains for year
- Losses for year
- Annual exemption
- Losses b/f
= Gains subject to CGT
Gains @ 18%
+ Gains @ 28%
= CGT
103
CGT
Above income in the tax bands
Payable 31 January
104
Capital losses
Set against gains for year
May lose exempt amount
Then carry forward against future gains
105
PART DISPOSALS &
CHATTELS
106
106
Part-disposal
Cost =
Whole cost x
Proceeds
Proceeds + value of remainder
107
107
Chattels
Bought & sold for <£6,000
Exempt
Bought for >£6,000 sold for <£6,000
Proceeds
assumed to be £6,000
Otherwise
Gain
limited to
5/3(Gross Proceeds - £6,000)
108
Wasting Chattel
Exempt
Expected life less than 50 years
109
SHARES
110
110
Shares: match sale to purchase
Same day
2. Next 30 days
3. 1985 pool
1.
111
Shares: question
Against which acquisitions will each disposal be
matched?
Date
Number of shares
5 June 2011
acquisition
1,000
17 May 2012
acquisition
500
17 May 2012
disposal
800
9 June 2012
acquisition
200
13 March 2014 disposal
2,000
28 March 2014 acquisition
1,750
112
Shares
Bonus
Rights issue
113
EXEMPT ASSETS, PPR
114
114
Exempt assets
Cars
Gilts
PPR
Wasting chattels
Chattels bought and sold for £6,000 max
115
PPR Exempt Periods
Last 3 years
PLUS (if PPR before and after):
Any time employed abroad
4 years due to UK employment
3 years for any other reason
116
Letting relief
Owner’s residence, let in part or for part of
the time
Lower of
Gain related to let % (after allowing for
deemed occupation)
PPR exemption
£40,000
117
CGT TAX RETURN &
RECORDS
118
118
Records
Keep 1 year after online filing deadline
119
Records: Question
What records should you keep for capital
gains
120
Shares: answer
Purchases
05/06/2011
17/05/2012
09/06/2012
28/03/2014
Sales from Pool
1,000
500
200
1,750
Sales
Pool
17/05/2012 13/03/2014
1,000
(500)
0 Same day
(200)
0 Next 30 days
(1,750)
0 Next 30 days
(100)
(800)
(250)
(2,000)
(350)
650
121
Records: Answer
purchase and sale documents
Valuations
schedules of purchase and disposal
122