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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.

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Presentation on theme: "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."— Presentation transcript:

1 PTAX Personal Taxation Introduction

2 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

3 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

4 Tax Year for Income Tax and CGT Tax year 2013/2014 starts on 6 th April Governed by Finance Act

5 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

6 Types of Income Type of IncomeBasis of Assessment Property Income (Rent)Accruals Trading IncomeAccounting year which ends in 2013/14 Employment/pension IncomeReceipts Savings and Investment IncomeReceipts 6

7 Tax Computation See tax data and pro-forma Personal Allowance Tax Bands: Non-savings (General) Savings Dividends 7

8 Exempt Income ISAs NS&I Savings Certificates (not savings accounts) Prizes (eg. Premium Bonds) Damages 8

9 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

10 Duties and Responsibilities of a Tax Practitioner Put forward the best position in favour of a client or employer 10

11 ETHICS QUIZ 11

12 Q1 When is a tax practitioner allowed to disclose information about a client without their authority 12

13 Q2 If an accountant suspects money laundering, to whom should he/she report it 13

14 Q3 Describe the types of communication with which an accountant should not be associated 14

15 ANSWERS 15

16 Q1 If there is legal, regulatory or professional duty 16

17 Q2 Money Laundering Reporting Officer, Serious Organised Crime Agency 17

18 Q3 False, misleading, reckless, omitting/obscuring information 18

19 PTAX Personal Taxation Savings & Investments (Interest & dividends)

20 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

21 Taxation of Investment Income Receipts basis (not accrual) 21

22 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

23 Gross (assessable) income: Questions Net savings income = £160 20% tax already deducted Gross = ??? Net dividend income = £270 10% tax already deducted Gross = ???

24 Tax-free Income These do not need to be reported on tax returns: ISAs (£11,520 per year) National Savings Certificates Premium Bonds

25 Record-keeping: Question What records might you keep relating to investment income?

26 Gross (assessable) income: Answers Net savings income = £160 20% tax already deducted Gross = £200 Net dividend income = £270 10% tax already deducted Gross = £300

27 Record-keeping: Answer What records might you keep relating to investment income? Tax deduction certificates Dividend vouchers Account details Working papers

28 PTAX Personal Taxation Income From Property (Rental Income) Tax Returns

29 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

30 Income & Expense

31 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

32 Allowable Expenses Irrecoverable rent (NOT deducted from income) Expenditure before a property is rented out But not renovation Expenditure in void periods

33 Wear & Tear Allowance Furnished lettings 10% (rent received - rates - council tax)

34 Non-allowable Expense Depreciation

35 Property loss Offset against: 1. Other properties in the same tax year 2. Future property income Of same type

36 Rent a Room and Other Rules

37 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

38 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?

39 Holiday Lets Different rules: Capital allowances (furniture, equipment) Pensionable

40 Holiday Lets View to making a profit Max 31 continuous days per tenant Actually let for 105 days Available for twice this (210 days)

41 Question What records might you keep relating to property income?

42 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

43 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

44 PTAX Personal Taxation Employment (Salaries, Bonuses, Pensions)

45 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

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

47 Taxation of Employment Income Receipts basis (not accrual) 47

48 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

49 Taxable Benefits 49

50 General Rule (P11D employees) Cash cost to employer 50

51 Employee contribution Reduces benefit (except fuel) 51

52 List price – employee contribution (max £5,000) x scale charge % - employee contribution to running cost Company Car Benefit

53 Below 95g/km: see data sheet 95g/km: 11% +1% per 5g/km Max 35% Diesel: +3% Scale Charge %

54 £21,100 x scale charge % Ignore part contribution Fuel Benefit

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

56 Pool Car Not a benefit if: Private use is incidental Used by several employees Not normally kept at employee’s home 56

57 Company Van No benefit if insignificant private use £3,000 for private use £564 for fuel for private use 57

58 Beneficial Loan Loan x (Official interest – Actual interest) No benefit if total loans <£5,000 If loan written off: Benefit = Amount of loan 58

59 Accomodation Annual value (or rent paid by employer if higher) +(Cost - £75,000) x Official interest + Cleaning etc + Assets x 20% Time apportioned 59

60 Accomodation Exempt for Representative occupier (Caretaker) Customary (Vicar) Security In these cases: Running expenses limited to 10% of earnings 60

61 Gift/Loan of Asset Gift Benefit = Market value Loan Benefit = 20% of value when first provided 61

62 Gift of asset previously loaned Higher of: market value when transferred market value when first provided less benefits already assessed (less employee contribution) 62

63 Tax-free benefits 63

64 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

65 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

66 Tax-free benefits Transport: use of bicycle company bus workplace parking Other: sports facilities counselling eye checks certain state benefits 66

67 Wholly, exclusively, necessarily in performance of duties Allowable deductions

68 Professional subscriptions Approved Mileage Allowance Payments Reimbursed subsistence and customer entertaining P60 pay shown after: Pension contributions Payroll giving 68

69 Home to normal workplace travel Not Allowable

70 Dispensation Reimbursed expenses not need to be entered on the tax return 70

71 Records to keep P60 P11D P45 Receipts Tax return 71

72 PTAX Personal Taxation Income Tax Computation (Pensions, Gift Aid, Personal Allowance)

73 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

74 EXEMPT INCOME

75 Tax-free Income These do not need to be reported on tax returns: ISAs (£11,520 per year) National Savings Certificates Premium Bonds

76 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

77 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

78 Tax-free benefits Transport: use of bicycle company bus workplace parking Other: sports facilities counselling eye checks certain state benefits 78

79 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

80 INCOME TAX COMPUTATION Including: Personal allowances Personal pensions Gift aid 80

81 81 Personal Allowance (High Income) If adjusted net income is above £100,000If adjusted net income is above £100,000 Reduce personal allowance byReduce personal allowance by 50% of the difference until the allowance = £0

82 82 Adjusted net income Income less: Gross gift aid and personal pension contributions

83 83 Personal Allowance (Age-related) Allowance:Allowance: £10, £10, £10, £10, If adjusted net income is above: £26,100If adjusted net income is above: £26,100 Reduce personal allowance byReduce personal allowance by 50% of the difference until the allowance = Basic Allowance

84 84 Basic rate taxpayer: No Action Gift Aid & Pension Contributions

85 85 Higher rate taxpayer: Increase basic rate band by gross amount Gift Aid & Pension Contributions

86 PAYMENTS & PENALTIES 86

87 87 50% x Previous year’s tax (less deducted at source) 31/Jan 31/July Payments on Account

88 88 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

89 89 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

90 Incorrect Returns Tax due multiplied by: 0-30%Lack of reasonable care 20-70%Deliberate %Deliberate and concealed Minimum = half of maximum if prompted 90

91 PTAX Personal Taxation Capital Gains Tax

92 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

93 Objectives To be able to: Identify exempt assets Calculate PPR relief Explain record-keeping requirements 93

94 94 CHARGEABLE DISPOSALS 94

95 95 Chargeable Disposals of Assets Sell Give away Lose Destroy 95

96 96 Exempt Gains Death Spouse/civil partner Transfer at original cost

97 97 Connected person Transfer at no less than market value

98 Connected person Ancestors Siblings lineal descendants (self and spouse) 98

99 99 GAIN ON DISPOSAL 99

100 100 Calculate Gain Proceeds - Costs of disposal =Net proceeds - Original cost (+ incidental costs) - Improvements = Gain

101 101 CGT CALCULATION 101

102 102 Calculate CGT Total gains for year - Annual exemption = Gains subject to CGT 18% + 28% = CGT

103 103 Calculate CGT with losses Total gains for year - Losses for year - Annual exemption - Losses b/f = Gains subject to CGT 18% + 28% = CGT

104 CGT Above income in the tax bands Payable 31 January 104

105 105 Capital losses Set against gains for year May lose exempt amount Then carry forward against future gains

106 106 PART DISPOSALS & CHATTELS 106

107 107 Part-disposal Cost = Whole cost x Proceeds Proceeds + value of remainder 107

108 108 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)

109 Wasting Chattel Exempt Expected life less than 50 years 109

110 110 SHARES 110

111 111 Shares: match sale to purchase 1. Same day 2. Next 30 days pool

112 Shares: question Against which acquisitions will each disposal be matched? DateNumber of shares 5 June 2011acquisition1, May 2012acquisition May 2012disposal800 9 June 2012acquisition March 2014 disposal2, March 2014 acquisition1,

113 Shares Bonus Rights issue 113

114 114 EXEMPT ASSETS, PPR 114

115 115 Exempt assets Cars Gilts PPR Wasting chattels Chattels bought and sold for £6,000 max

116 116 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

117 117 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

118 118 CGT TAX RETURN & RECORDS 118

119 Records Keep 1 year after online filing deadline 119

120 Records: Question What records should you keep for capital gains 120

121 Shares: answer 121

122 Records: Answer purchase and sale documents Valuations schedules of purchase and disposal 122


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