PTAX Personal Taxation

1
PTAX Personal Taxation

• Introduction

2
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)

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 6th April
• Governed by Finance Act 2013

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

6
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
7
Tax Computation

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

8
Exempt Income

• ISAs
• NSI Savings Certificates (not savings accounts)
• Prizes (eg. Premium Bonds)
• Damages

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

10
Duties and Responsibilities of a Tax Practitioner

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

11
ETHICS QUIZ
12
Q1

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

13
Q2

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

14
Q3

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

15
ANSWERS
16
Q1

• If there is legal, regulatory or professional duty

17
Q2

• Money Laundering Reporting Officer, Serious
  Organised Crime Agency

18
Q3

• False, misleading, reckless, omitting/obscuring
  information

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

21
Taxation of Investment Income

• Receipts basis (not accrual)

22
Tax at source

• Most interest has tax deducted at source
• Basic rate
• Not
• NSI 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

30
Income Expense
31
Expenses

• The general rules for expenditure to be
  allowable
• Revenue, not capital.
• ie. Not improvements (central heating)
• 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
• Other properties in the same tax year
• 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
• 6,000-4,2501,750

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

46
Income received benefits in kind -
allowable deductions
Employment Income
47
Taxation of Employment Income

• Receipts basis (not accrual)

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

49
Taxable Benefits
50
General Rule (P11D employees)

• Cash cost to employer

51
Employee contribution

• Reduces benefit (except fuel)

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 sheet95g/km 111
per 5g/kmMax 35Diesel 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 employees home

57
Company Van

• No benefit if insignificant private use
• 3,000 for private use
• 564 for fuel for private use

58
Beneficial Loan

• Loan x (Official interest Actual interest)
• No benefit if total loans lt5,000
• If loan written off
• Benefit Amount of loan

59
Accomodation

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

60
Accomodation

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

61
Gift/Loan of Asset

• Gift
• Benefit Market value
• Loan
• Benefit 20 of value when first provided

62
Gift of asset previously loaned

• Higher of
• market value when transferred
• market value when first provided
• less benefits already assessed (less employee
  contribution)

63
Tax-free benefits
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

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)

66
Tax-free benefits

• Transport
• use of bicycle
• company bus
• workplace parking
• Other
• sports facilities
• counselling
• eye checks
• certain state benefits

67
Wholly, exclusively, necessarily in performance
of duties
Allowable deductions
68
Allowable deductions

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

69
Home to normal workplace travel
Not Allowable
70
Dispensation

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

71
Records to keep

• P60
• P11D
• P45
• Receipts
• Tax return

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 taxpayers 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

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

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)

78
Tax-free benefits

• Transport
• use of bicycle
• company bus
• workplace parking
• Other
• sports facilities
• counselling
• eye checks
• certain state benefits

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

81
Personal Allowance (High Income)

• If adjusted net income is above 100,000
• Reduce personal allowance by
• 50 of the difference
• until the allowance 0

82
Adjusted net income

• Income less
• Gross gift aid and personal pension contributions

83
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

84
Basic rate taxpayer No Action
Gift Aid Pension Contributions
85
Higher rate taxpayer Increase basic rate
band by gross amount
Gift Aid Pension Contributions
86
PAYMENTS PENALTIES
87
50 x Previous years tax (less deducted at
source)31/Jan 31/July
Payments on Account
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
Late Payment

• Interest
• From due date to day before payment
• Penalties
• 5 of tax if gt30 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
• 30-100 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

93
Objectives

• To be able to
• Identify exempt assets
• Calculate PPR relief
• Explain record-keeping requirements

94
CHARGEABLE DISPOSALS
94
95
Chargeable Disposals of Assets

• Sell
• Give away
• Lose
• Destroy

95
96
Exempt Gains

• Death
• Spouse/civil partner
• Transfer at original cost

97
Connected person

• Transfer at no less than market value

98
Connected person

• Ancestors
• Siblings
• lineal descendants
• (self and spouse)

99
GAIN ON DISPOSAL
99
100
Calculate Gain

• Proceeds
• - Costs of disposal
• Net proceeds
• - Original cost ( incidental costs)
• - Improvements
• Gain

101
CGT CALCULATION
101
102
Calculate CGT

• Total gains for year
• - Annual exemption
• Gains subject to CGT
• Gains _at_ 18
• Gains _at_ 28
• CGT

103
Calculate CGT with losses

• Total gains for year
• - Losses for year
• - Annual exemption
• - Losses b/f
• Gains subject to CGT
• Gains _at_ 18
• Gains _at_ 28
• CGT

104
CGT

• Above income in the tax bands
• Payable 31 January

105
Capital losses

• Set against gains for year
• May lose exempt amount
• Then carry forward against future gains

106
PART DISPOSALS CHATTELS
106
107
Part-disposal

• Cost
• Whole cost x Proceeds
• Proceeds value of remainder

107
108
Chattels

• Bought sold for lt6,000
• Exempt
• Bought for gt6,000 sold for lt6,000
• 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

110
SHARES
110
111
Shares match sale to purchase

1. Same day
2. Next 30 days
3. 1985 pool

112
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
•  

113
Shares

• Bonus
• Rights issue

114
EXEMPT ASSETS, PPR
114
115
Exempt assets

• Cars
• Gilts
• PPR
• Wasting chattels
• Chattels bought and sold for 6,000 max

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
Letting relief

• Owners 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
CGT TAX RETURN RECORDS
118
119
Records

• Keep 1 year after online filing deadline

120
Records Question

• What records should you keep for capital gains

121
Shares answer
122
Records Answer

• purchase and sale documents
• Valuations
• schedules of purchase and disposal