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PTX Personal Taxation. Introduction. Tax: 3 Rules of Thumb. If you increase your wealth, expect HMRC to tax it Claim all possible tax deductions Disclose all taxable income (to avoid problems later). Objectives. 3. To be able to identify: When tax years start and finish

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Ptx personal taxation

PTX Personal Taxation

Introduction


Tax 3 rules of thumb
Tax: 3 Rules of Thumb

  • If you increase your wealth, expect HMRC to tax it

  • Claim all possible tax deductions

  • Disclose all taxable income (to avoid problems later)


Objectives
Objectives

3

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


Tax year for income tax and cgt
Tax Year for Income Tax and CGT

  • Tax year 2012/2013

  • starts on 6th April

  • Governed by Finance Act 2012


Tax return and payment
Tax Return and Payment

  • Form SA100

  • Supplementary pages

  • Submit by

    • 31/10/13 (paper)

    • 31/1/14 (on line)

  • Payment on account

    • 31/1/13

    • 31/7/13

  • Final (balancing) payment

    • 31/1/14



Tax computation
Tax Computation

  • See tax data and pro-forma

  • Personal Allowance

  • Tax Bands:

    • Non-savings (General)

    • Savings

    • Dividends


Exempt income
Exempt Income

  • ISAs

  • NS&I Savings Certificates (not savings accounts)

  • Prizes (eg. Premium Bonds)

  • Damages


Record keeping
Record-keeping

  • Keep to:

    • 31/1/15

      • Filing deadline + 1 year

    • 31/1/19if there is trading/property income

      • Filing deadline + 5 years

        Sufficient to substantiate the information provided to HMRC


Duties and responsibilities of a tax practitioner
Duties and Responsibilities of a Tax Practitioner

Put forward the best position in favour of a client or employer



Ptx personal taxation
Q1

When is a tax practitioner allowed to disclose information about a client without their authority


Ptx personal taxation
Q2

If an accountant suspects money laundering, to whom should he/she report it


Ptx personal taxation
Q3

Describe the types of communication with which an accountant should not be associated



Ptx personal taxation
Q1

If there is legal, regulatory or professional duty


Ptx personal taxation
Q2

Money Laundering Reporting Officer, Serious Organised Crime Agency


Ptx personal taxation
Q3

False, misleading, reckless, omitting/obscuring information


Ptx personal taxation1

PTX Personal Taxation

Savings & Investments

(Interest & dividends)


Objectives1
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


Taxation of investment income
Taxation of Investment Income

  • Receipts basis (not accrual)


Tax at source
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
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
Tax-free Income

  • These do not need to be reported on tax returns:

    • ISAs (£11,280 per year)

    • National Savings Certificates

    • Premium Bonds


Record keeping question
Record-keeping: Question

  • What records might you keep relating to investment income?


Gross assessable income answers
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
Record-keeping: Answer

  • What records might you keep relating to investment income?

  • Tax deduction certificates

  • Dividend vouchers

  • Account details

  • Working papers


Ptx personal taxation2

PTX Personal Taxation

Employment

(Salaries, Bonuses, Pensions)


Objectives2
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


Income received benefits in kind allowable deductions
Income received + benefits in kind - allowable deductions

Employment Income


Taxation of employment income
Taxation of Employment Income

  • Receipts basis (not accrual)


Indicators of self employment contract for services
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



General rule p11d employees
General Rule (P11D employees)

  • Cash cost to employer


Employee contribution
Employee contribution

  • Reduces benefit (except fuel)


List price employee contribution x scale charge employee contribution to running cost
List price – employee contribution x scale charge %- employee contribution to running cost

Company Car Benefit


Below 100g km see data sheet 100g km 11 1 per 5g km max 35 diesel 3
Below 100g/km: see data sheet100g/km: 11%+1% per 5g/kmMax 35%Diesel: +3%

Scale Charge %


20 200 x scale charge ignore part contribution
£20,200 x scale charge %Ignore part contribution

Fuel Benefit


Car fuel benefits are time apportioned if the car is not available for the whole tax year
Car & fuel benefits are time-apportioned if the car is not available for the whole tax year

Timing


Pool car
Pool Car available for the whole tax year

  • Not a benefit if:

  • Private use is incidental

  • Used by several employees

  • Not normally kept at employee’s home


Company van
Company Van available for the whole tax year

  • No benefit if insignificant private use

  • £3,000 for private use

  • £550 for fuel for private use


Beneficial loan
Beneficial Loan available for the whole tax year

  • Loan x (Official interest – Actual interest)

  • No benefit if total loans <£5,000

  • If loan written off:

    • Benefit = Amount of loan


Accomodation
Accomodation available for the whole tax year

  • Annual value (or rent paid by employer if higher)

  • +(Cost - £75,000) x Official interest

  • + Cleaning etc

  • + Assets x 20%

  • Time apportioned


Accomodation1
Accomodation available for the whole tax year

  • Exempt for

    • Representative occupier (Caretaker)

    • Customary (Vicar)

    • Security

  • In these cases:

    • Running expenses limited to 10% of earnings


Gift loan of asset
Gift/Loan of Asset available for the whole tax year

  • Gift

    • Benefit = Market value

  • Loan

    • Benefit = 20% of value when first provided


Gift of asset previously loaned
Gift of asset previously loaned available for the whole tax year

  • Higher of:

    • market value when transferred

    • market value when first provided

  • less benefits already assessed (less employee contribution)


Tax free benefits
Tax-free benefits available for the whole tax year


Tax free benefits1
Tax-free benefits available for the whole tax year

  • 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)

    • £2/week for work at home


Tax free benefits2
Tax-free benefits available for the whole tax year

  • 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)


Tax free benefits3
Tax-free benefits available for the whole tax year

  • Transport:

    • use of bicycle

    • company bus

    • workplace parking

  • Other:

    • sports facilities

    • counselling

    • eye checks

    • certain state benefits


Wholly exclusively necessarily in performance of duties
Wholly, exclusively, necessarily in performance of duties available for the whole tax year

Allowable deductions


Allowable deductions
Allowable deductions available for the whole tax year

  • Professional subscriptions

  • Approved Mileage Allowance Payments

  • Reimbursed subsistence and customer entertaining

  • P60 pay shown after:

    • Pension contributions

    • Payroll giving


Home to normal workplace travel
Home to normal workplace travel available for the whole tax year

Not Allowable


Dispensation
Dispensation available for the whole tax year

  • Reimbursed expenses not need to be entered on the tax return


Records to keep
Records to keep available for the whole tax year

  • P60

  • P11D

  • P45

  • Receipts

  • Tax return


Ptx personal taxation3

PTX Personal Taxation available for the whole tax year

Exempt Income

Personal Allowance

Pensions, Gift Aid

Administration


Objectives3
Objectives available for the whole tax year

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


Tax free income1
Tax-free Income available for the whole tax year

These do not need to be reported on tax returns:

ISAs (£11,280 per year)

National Savings Certificates

Premium Bonds


Tax free benefits4
Tax-free benefits available for the whole tax year

59

  • 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)

    • £2/week for work at home


Tax free benefits5
Tax-free benefits available for the whole tax year

60

  • employers pension contribution

  • one mobile phone + calls

  • Childcare:

    • workplace creche

    • £55 approved childcare

  • Food and entertainment:

    • staff canteen

    • 15p/day luncheon vouchers

    • Staff entertainments (£150pa per person, events above this disallowed)


Tax free benefits6
Tax-free benefits available for the whole tax year

61

  • Transport:

    • use of bicycle

    • company bus

    • workplace parking

  • Other:

    • sports facilities

    • counselling

    • eye checks

    • certain state benefits


Other exempt income
Other Exempt Income available for the whole tax year

  • 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


Personal allowance high income
Personal Allowance (High Income) available for the whole tax year

  • If adjusted net income is above £100,000

  • Reduce personal allowance by

  • 50% of the difference

  • until the allowance = £0


Adjusted net income
Adjusted net income available for the whole tax year

  • Income less:

  • Gross gift aid and personal pension contributions


Personal allowance age related
Personal Allowance (Age-related) available for the whole tax year

  • Allowance:

    • £10,500 65-74

    • £10,660 75+

  • If adjusted net income is above: £25,400

  • Reduce personal allowance by

  • 50% of the difference

  • until the allowance = Basic Allowance


Basic rate taxpayer no action
Basic rate taxpayer: available for the whole tax yearNo Action

Gift Aid & Pension Contributions


Higher rate taxpayer increase basic rate band by gross amount
Higher rate taxpayer: available for the whole tax yearIncrease basic rate band by gross amount

Gift Aid & Pension Contributions


50 x previous year s tax less deducted at source 31 jan 31 july
50% x Previous year’s tax available for the whole tax year(less deducted at source)31/Jan 31/July

Payments on Account


Late return
Late Return available for the whole tax year

Penalties:

  • £100 after 31/Jan

  • £10/day after 3 months (max £900)

  • +5% (min £300) after 6 months

  • and again after 6 months


Late payment
Late Payment available for the whole tax year

  • Interest

    From due date to day before payment

  • Penalties:

    5% of tax if >30 days

    + 5% on 31/July

    + 5% if 12 months late

    Balancing payment only


Incorrect returns
Incorrect Returns available for the whole tax year

71

  • Tax due multiplied by:

    • 0-30% Lack of reasonable care

    • 20-70% Deliberate

    • 30-100% Deliberate and concealed

  • Limited to half of maximum if unprompted


Ptx personal taxation4

PTX Personal Taxation available for the whole tax year

Income From Property

(Rental Income)

Tax Returns


Objectives4
Objectives available for the whole tax year

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


Income expense
Income & Expense available for the whole tax year


Expenses
Expenses available for the whole tax year

The general rules for expenditure to be allowable:

Revenue, not capital.

ie. Not improvements (central heating)

Wholly and exclusively for purpose of lettings


Allowable expenses
Allowable Expenses available for the whole tax year

Irrecoverable rent (NOT deducted from income)

Expenditure before a property is rented out

But not renovation

Expenditure in void periods


Wear tear allowance
Wear & Tear Allowance available for the whole tax year

Furnished lettings

10% (rent received - rates - council tax)

Or Renewals Basis


Non allowable expense
Non-allowable Expense available for the whole tax year

Depreciation


Property loss
Property loss available for the whole tax year

Offset against:

Other properties in the same tax year

Future property income

Of same type


Rent a room and other rules
Rent a Room and Other Rules available for the whole tax year


Rent a room relief
Rent a Room Relief available for the whole tax year

£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
Rent a Room Relief: Question available for the whole tax year

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
Holiday Lets available for the whole tax year

Different rules:

Capital allowances (furniture, equipment)

Pensionable


Holiday lets1
Holiday Lets available for the whole tax year

View to making a profit

Max 31 continuous days per tenant

Actually let for 105 days

Available for twice this (210 days)


Question
Question available for the whole tax year

What records might you keep relating to property income?


Income tax returns
Income Tax Returns available for the whole tax year

Employment

Property


Rent a room relief answer
Rent a Room Relief: Answer available for the whole tax year

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
Answer available for the whole tax year

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


Ptx personal taxation5

PTX Personal Taxation available for the whole tax year

Capital Gains Tax


Objectives5
Objectives available for the whole tax year

To be able to:

  • Identify chargeable persons, assets, disposals

  • Calculate gain on disposal

  • Calculate CGT liability

  • Calculate gains on

    • Part-disposals

    • Chattels

    • Shares


Objectives6
Objectives available for the whole tax year

To be able to:

  • Identify exempt assets

  • Calculate PPR relief

  • Complete CGT pages of Tax Return

  • Explain record-keeping requirements


Chargeable disposals
CHARGEABLE DISPOSALS available for the whole tax year

92


Chargeable disposals of assets
Chargeable Disposals of Assets available for the whole tax year

  • Sell

  • Give away

  • Lose

  • Destroy

93


Exempt gains
Exempt Gains available for the whole tax year

  • Death

  • Spouse/civil partner

    Transfer at original cost


Connected person
Connected person available for the whole tax year

Transfer at no less than market value


Connected person1
Connected person available for the whole tax year

  • Ancestors

  • Siblings

  • lineal descendants

    (self and spouse)


Gain on disposal
GAIN ON DISPOSAL available for the whole tax year

97


Calculate gain
Calculate Gain available for the whole tax year

Proceeds

- Costs of disposal

=Net proceeds

- Original cost (+ incidental costs)

- Improvements

= Gain


Cgt calculation
CGT CALCULATION available for the whole tax year

99


Calculate cgt
Calculate CGT available for the whole tax year

Total gains for year

- Annual exemption

= Gains subject to CGT

Gains @ 18%

+ Gains @ 28%

= CGT


Calculate cgt with losses
Calculate CGT with losses available for the whole tax year

Total gains for year

- Losses for year

- Annual exemption

- Losses b/f

= Gains subject to CGT

Gains @ 18%

+ Gains @ 28%

= CGT


Ptx personal taxation
CGT available for the whole tax year

  • Above income in the tax bands

  • Payable 31 January


Capital losses
Capital losses available for the whole tax year

  • Set against gains for year

    • May lose exempt amount

  • Then carry forward against future gains


Part disposals chattels
PART DISPOSALS & CHATTELS available for the whole tax year

104


Part disposal
Part-disposal available for the whole tax year

Cost =

Whole cost x Proceeds

Proceeds + value of remainder

105


Chattels
Chattels available for the whole tax year

  • 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(Proceeds - £6,000)


Wasting chattel
Wasting Chattel available for the whole tax year

  • Exempt

  • Expected life less than 50 years


Shares
SHARES available for the whole tax year

108


Shares match sale to purchase
Shares: match sale to purchase available for the whole tax year

  • Same day

  • Next 30 days

  • 1985 pool


Shares question
Shares: question available for the whole tax year

Against which acquisitions will each disposal be matched?

Date Number of shares

5 June 2010 acquisition 1,000

17 May 2011acquisition 500

17 May 2011 disposal 800

9 June 2011 acquisition 200

13 March 2013 disposal 2,000

28 March 2013 acquisition 1,750


Shares1
Shares available for the whole tax year

  • Bonus

  • Rights issue


Exempt assets ppr
EXEMPT ASSETS, PPR available for the whole tax year

112


Exempt assets
Exempt assets available for the whole tax year

  • Cars

  • Gilts

  • PPR

  • Wasting chattels

  • Chattels bought and sold for £6,000 max


Ppr exempt periods
PPR Exempt Periods available for the whole tax year

  • 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


Letting relief
Letting relief available for the whole tax year

  • 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


Cgt tax return records
CGT TAX RETURN & RECORDS available for the whole tax year

116


Records
Records available for the whole tax year

  • Keep 1 year after online filing deadline


Records question
Records: Question available for the whole tax year

  • What records should you keep for capital gains


Shares answer
Shares: answer available for the whole tax year


Records answer
Records: Answer available for the whole tax year

  • purchase and sale documents

  • Valuations

  • schedules of purchase and disposal