Personal Taxation
Gaps 74 - 78
Understand the UK tax system as
relevant to the needs and circumstances
of individuals and trusts
Edward Grant FPFS
Chartered Financial Planner
CII Accredited Trainer
© Just Asked Ltd 2012
DISCLAIMER
This gap fill session is of a general
nature and is not a substitute for
professional advice. No responsibility
can be accepted for the consequences
of any action taken or refrained from as
a result of what is said.
© Just Asked Ltd 2012
Gaps
• Gap 74 – National Insurance Contributions
• Gap 75 – UK Tax Compliance and Self-Assessment
• Gap 76 – Residence and Domicile
• Gap 77 – Stamp Duty Land Tax
• Gap 78 – Value Added Tax (VAT)
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National Insurance - Gap 74
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National Insurance - Gap 74
Learning point
To understand
• National Insurance Contributions (NICs)
• Liability for employers
• Employees
• Self employed
• Voluntary NICs.
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Determining factors
Employment
Age
Earnings
Residence
Certain social security benefits are reliant on National Insurance Contributions
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Administration
• National Insurance Contributions Office (NICO)
• National Insurance Number issued 16 years of
age
• 16 and state pension age employee liability,
although employer still liable
• Quoted on a 52 weeks basis
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National Insurance
Class 1
Employees and
Employers
Class 2
Self-employed
Classes
Class 3
Voluntary
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Class 4
Self-Employed Profits
Class 1
– Directors and Employees
Contract
• Contract for service
• Contract of service
Control
• When and how
Where
• Integral part of business
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National Insurance liability
Salary, bonuses, overtime, holiday pay, incentives to change conditions of
employment, personal debts e.g. personal credit card expenditure
SMP, SAP, SPP, SSP paid by the employer
(only additional if employee obliged to pass on to employer)
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National Insurance liability
Salary, bonuses, overtime, holiday pay, incentives to change conditions of
employment, personal debts e.g. personal credit card expenditure
SMP, SAP, SPP, SSP paid by the employer
(only additional if employee obliged to pass on to employer)
Cash convertible e.g. premium bonds, GILTS, Unit Trusts, Shares, Gold Bullion
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National Insurance liability
Salary, bonuses, overtime, holiday pay, incentives to change conditions of
employment, personal debts e.g. personal credit card expenditure
SMP, SAP, SPP, SSP paid by the employer
(only additional if employee obliged to pass on to employer)
Cash convertible e.g. premium bonds, GILTS, Unit Trusts, Shares, Gold Bullion
Not liable – Compensation, damages, redundancy, in lieu of notice, Employer
Funded Retirement
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Earnings and contribution
threshold
Lower earnings limit (LEL)
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Weekly
£
Monthly
£
Annual
£
102
442
5,304
Earnings and contribution
threshold
Weekly
£
Monthly
£
Annual
£
Primary contribution threshold (employee)
139
602
7,225
Lower earnings limit (LEL)
102
442
5,304
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Contributory Social Security Benefits
£139 per week
£102 per week
Below Lower Earnings Limit
National Insurance Contributions - No
Contributory Social Security Benefits - No
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Contributory Social Security Benefits
£139 per week
Between Lower and Primary Earnings Limit
National Insurance Contributions - No
Contributory Social Security Benefits - Yes
£102 per week
Below Lower Earnings Limit
National Insurance Contributions - No
Contributory Social Security Benefits - No
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Contributory Social Security Benefits
Above Primary Earnings Threshold
National Insurance Contributions - Yes
Contributory Social Security Benefits - Yes
£139 per week
Between Lower and Primary Earnings Limit
National Insurance Contributions - No
Contributory Social Security Benefits - Yes
£102 per week
Below Lower Earnings Limit
National Insurance Contributions - No
Contributory Social Security Benefits - No
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Earnings and contribution
threshold
Weekly
£
Monthly
£
Annual
£
Secondary contribution threshold
(employer)
136
589
7,072
Primary contribution threshold (employee)
139
602
7,225
Lower earnings limit (LEL)
102
442
5,304
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Earnings and contribution
threshold
Weekly
£
Monthly
£
Annual
£
Upper accrual point (UAP)
770
3,337
40,040
Secondary contribution threshold
(employer)
136
589
7,072
Primary contribution threshold (employee)
139
602
7,225
Lower earnings limit (LEL)
102
442
5,304
© Just Asked Ltd 2012
Earnings and contribution
threshold
Weekly
£
Monthly
£
Annual
£
Upper earnings limit (UEL)
817
3,540
42,475
Upper accrual point (UAP)
770
3,337
40,040
Secondary contribution threshold
(employer)
136
589
7,072
Primary contribution threshold (employee)
139
602
7,225
Lower earnings limit (LEL)
102
442
5,304
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Contracted-out contributions
Occupational – Final Salary
(flat rate rebate scheme must provide certain benefits)
Occupational – Money Purchase
(as well as NI saving, NICO pays an age related rebate)
Personal Pension
(NICO pays age related rebate to pension provider)
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Class 1 rates - employees
Total earnings
£ per week
Up to 139.00
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Contracted-in
rate
Contracted-out
rate
Nil
Nil
Class 1 rates - employees
Total earnings
£ per week
Contracted-in
rate
Contracted-out
rate
770.01 – 817.00
12%
12%
139.01 – 770.00
12%
10.4%
Nil
Nil
Up to 139.00
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Class 1 rates - employees
Total earnings
£ per week
Contracted-in
rate
Contracted-out
rate
Above 817.00
2%
2%
770.01 – 817.00
12%
12%
139.01 – 770.00
12%
10.4%
Nil
Nil
Up to 139.00
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Class 1 rates – employees
contracted-in
Total earnings
£ per week
National Insurance Payable
£950 per week
Above 817.00
139.01 – 817.00
Up to 139.00
Total
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Nil
Class 1 rates – employees
contracted-in
Total earnings
£ per week
National Insurance Payable
£950 per week
Above 817.00
139.01 – 817.00
Up to 139.00
Total
© Just Asked Ltd 2012
£678 @ 12% = £81.36
Nil
Class 1 rates – employees
contracted-in
Total earnings
£ per week
Above 817.00
139.01 – 817.00
Up to 139.00
Total
© Just Asked Ltd 2012
National Insurance Payable
£950 per week
£113 @ 2% = £2.66
£678 @ 12% = £81.36
Nil
Class 1 rates – employees
contracted-in
Total earnings
£ per week
Above 817.00
139.01 – 817.00
Up to 139.00
Total
© Just Asked Ltd 2012
National Insurance Payable
£950 per week
£113 @ 2% = £2.66
£678 @ 12% = £81.36
Nil
£84.02
Class 1 rates - employers
Total earnings Contracted Contracted
£ per week
-in rate
-out rate
Final
Salary
Contractedout rate
Money
Purchase
Above 817.00
770.01 – 817.00
136.01 – 770.00
Up to 136.00
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13.8%
10.1%
12.4%
Nil
Nil
Nil
Class 1 rates - employers
Total earnings Contracted Contracted
£ per week
-in rate
-out rate
Final
Salary
Contractedout rate
Money
Purchase
Above 817.00
13.8%
13.8%
13.8%
770.01 – 817.00
13.8%
13.8%
13.8%
136.01 – 770.00
13.8%
10.1%
12.4%
Nil
Nil
Nil
Up to 136.00
© Just Asked Ltd 2012
Class 1 rates – employers
contracted out money purchase rate
Total earnings
£ per week
National Insurance Payable
£950 per week
Above 770.00
136.01 – 770.00
Up to 136.00
Total
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Nil
Class 1 rates – employers
contracted out money purchase rate
Total earnings
£ per week
National Insurance Payable
£950 per week
Above 770.00
136.01 – 770.00
Up to 136.00
Total
© Just Asked Ltd 2012
£634@ 12.4% = £78.61
Nil
Class 1 rates – employers
contracted out money purchase rate
Total earnings
£ per week
National Insurance Payable
£950 per week
Above 770.00
£180 @ 13.8% = £24.84
136.01 – 770.00
£634@ 12.4% = £78.61
Up to 136.00
Total
© Just Asked Ltd 2012
Nil
Class 1 rates – employers
contracted out money purchase rate
Total earnings
£ per week
National Insurance Payable
£950 per week
Above 770.00
£180 @ 13.8% = £24.84
136.01 – 770.00
£634@ 12.4% = £78.61
Up to 136.00
Total
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Nil
£103.45
Class 1a contributions
• fringe benefits
• Company Cars and PMI
• non taxable fringe benefit
• Approved pension and Group PHI
• 13.8% employer only where taxable
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Collections
• Employer collects through PAYE system
• P14, P60 and P35 returns show all National
Insurance contributions
• Class 1A due 19th July after end of tax year
• Class 1A reported on P11D and P11D(b) forms
submitted by 6th July
• Penalties of 1% increasing to 5%
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Overseas matters
• 27 member states plus
Norway, Iceland and
Liechtenstein
• EEA nationals pay social
security contributions in
only one state
• Pay where you work
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Company directors
• Accommodate infrequent earnings an annual
earnings period adopted
• Use of dividends reduces national insurance
liability
• Care IR35 rules and Arctic systems judgement
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Special categories of
employment
Domestic
Workers
Office
cleaners
Ministers of
religion
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Freelance
and casual
film and
TV
Agency
Workers
Lecturers
and
instructors
Actors and
entertainers
Examples of special categories
of self-employed earners
Share Fishermen
£3.15 per week
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Sub Postmasters
Credits
o National Insurance credits accrued without
contributions during periods of:
o
o
o
o
o
Full time training
Unemployment and sickness
SMP, SPP, SAP
Men over 60 (although being phased out)
Below Primary contribution threshold but above
Lower earnings limit
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Associated employments
• Some employees and employers sought to
fragment income
• Linked associated employments as if they were
a single employment
• Not aggregated employment if weak link and
separate PAYE
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Example
Job A
• Pays £110 per week
Job B
• Pays £120 per week
Not in same group and run separately
No National Insurance
as both below threshold and do not need to be aggregated
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Maximum NI contributions
across multiple employments
• Cap on NI contributions across unconnected
employment
• 53 weeks x £678 x 12% = £4,312.08
• 2% no maximum
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Example
Job A
£32,000 per year
Job B
£22,000 per year
Without main band maximum National Insurance would be
£32,000 - £7,225 = £24,775 @12% = £2,973.00
£22,000 - £7,225 = £14,775 @12% = £1,773.00
Total = £4,746
© Just Asked Ltd 2012
Example
Job A
£32,000 per year
Job B
£22,000 per year
Without main band maximum National Insurance would be
£32,000 - £7,225 = £24,775 @12% = £2,973.00
£22,000 - £7,225 = £14,775 @12% = £1,773.00
Total = £4,746
Instead of
£42,475 - £7,225 = £35,250 @12% = £4,230.00
£54,000 - £42,475 = £11,525 @2% = £230.50
Total = £4,460.50
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Class 2 contributions
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Self- Employed
Flat £2.50 p.w.
rate
Under £5,315
Under £1,300
Class 4 contributions
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Self- Employed
Profit related
£7,225 - £42,475
@9%
Over £42,475
@2%
Self-employed
Net Profits shown by
business accounts
£50,000 - £42,475
Class 4
£50,000 Profits
£7,225 - £42,475
Up to £7,225
Total
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Nil
Self-employed
Net Profits shown by
business accounts
£50,000 - £42,475
£7,225 - £42,475
Up to £7,225
Total
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Class 4
£50,000 Profits
£35,250 @ 9% = £3,172.50
Nil
Self-employed
Net Profits shown by
business accounts
£50,000 - £42,475
£7,225 - £42,475
Up to £7,225
Total
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Class 4
£50,000 Profits
£7,525 @ 2% = £150.50
£35,250 @ 9% = £3,172.50
Nil
Self-employed
Net Profits shown by
business accounts
£50,000 - £42,475
£7,225 - £42,475
Up to £7,225
Total
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Class 4
£50,000 Profits
£7,525 @ 2% = £150.50
£35,250 @ 9% = £3,172.50
Nil
£3,323.00
Self-employed
Net Profits shown by
business accounts
£50,000 - £42,475
£7,225 - £42,475
Up to £7,225
Class 4
£50,000 Profits
£7,525 @ 2% = £150.50
£35,250 @ 9% = £3,172.50
Nil
Total
£3,323.00
Class 2
£2.50 x 52 weeks
= £130.00
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Annual maximum contributions
• To avoid unfairness where individuals have
employed and self-employed earnings
• Ignoring 2% additional uncapped rate
• Employee Class 1 £81.36 (£817-£139) @ 12%
• £81.36 x 53 weeks = £4,312.08
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Voluntary Class 3
• If individual has NI contribution gaps and have
paid sufficient Class 1 and Class 2 NIC in the
current year
• Class 3 is £12.60 per week collected by NICO
• Resident in UK or arrived in tax year and have
previously liable to NI or ordinarily resident or
arrived and resident for 26 weeks
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Question
What type of National Insurance Contributions might a
self-employed individual with no staff have to pay?
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A
Class 3 only
B
Class 2 and Class 4
C
Class 2 and Class 3
D
Class 2 only
Answer
What type of National Insurance Contributions might a
self-employed individual with no staff have to pay?
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A
Class 3 only
B
Class 2 and Class 4
C
Class 2 and Class 3
D
Class 2 only
Question
An employee earning £120.00 per week will
© Just Asked Ltd 2012
A
Pay National Insurance and be eligible for the state
pension
B
Does not pay National Insurance and is not eligible for the
state pension
C
Pays National Insurance and is not eligible for the state
pension
D
Does not pay National Insurance and is eligible for the
state pension
Answer
An employee earning £120.00 per week will
© Just Asked Ltd 2012
A
Pay National Insurance and be eligible for the state
pension
B
Does not pay National Insurance and is not eligible for the
state pension
C
Pays National Insurance and is not eligible for the state
pension
D
Does not pay National Insurance and is eligible for
the state pension
National Insurance - Gap 74
What we covered
•
•
•
•
•
National Insurance Contributions (NICs)
Liability for employers
Employees
Self employed
Voluntary NICs.
© Just Asked Ltd 2012
UK Tax Compliance - Gap 75
© Just Asked Ltd 2012
UK Tax Compliance - Gap 75
Learning point
To understand:
• Self assessment rules
• Tax liability
• Tax return
• Payments on account and balancing
• Penalties and fines
• Important dates
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Who gets a self assessment
• Self employed
• Company directors
• Higher / Additional rate
taxpayers
• Capital gains liability
5th October
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Tax return
Income Tax
Capital
Gains Tax
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Class 4
National
Insurance
Tax return
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
31st October
Paper based
HMRC calculate
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Dec
Jan
Feb
Mar
Tax return
30th December
Under £2,000
Underpayment
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
31st October
Paper based
HMRC calculate
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Dec
Jan
Feb
Mar
Tax return
30th December
Under £2,000
Underpayment
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
31st October
Paper based
HMRC calculate
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Dec
Jan
Feb
Mar
31st January
Final online filing
date
Tax payments 2011/12
A M
J
6th April
2011
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J A S O N D J F M A M
J
J A S O N D J
Tax payments 2011/12
31st January 2012
1st on account
A M
J
6th April
2011
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J A S O N D J F M A M
J
J A S O N D J
Tax payments 2011/12
31st January 2012
1st on account
A M
J
6th April
2011
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J A S O N D J F M A M
6th April
2012
31st July 2012
2nd on account
J
J A S O N D J
Tax payments 2011/12
31st January 2012
1st on account
A M
J
6th April
2011
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J A S O N D J F M A M
6th April
2012
31st July 2012
2nd on account
J
J A S O N D J
31st January 2013
balancing payment
Amendments and checks
• HMRC right to audit within 12 months after
submission of return
• Assumed return finalised after 12 months
• Amendments can be made by taxpayer within
12 months of 31st January
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Example
Paul owned tax of £20,000 in 2010/11 and £25,000 in 2011/12 as well
as a CGT bill of £6,000
© Just Asked Ltd 2012
Example
Paul owned tax of £20,000 in 2010/11 and £25,000 in 2011/12 as well
as a CGT bill of £6,000
A M
J
6th April
2011
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J A S O N D J F M A M
J
J A S O N D J
Example
Paul owned tax of £20,000 in 2010/11 and £25,000 in 2011/12 as well
as a CGT bill of £6,000
A M
J
6th April
2011
© Just Asked Ltd 2012
J A S O N D J F M A M
31st July
10/11
Payment on
Account
J
J A S O N D J
Example
Paul owned tax of £20,000 in 2010/11 and £25,000 in 2011/12 as well
as a CGT bill of £6,000
A M
J
J A S O N D J F M A M
31st
6th April
2011
July
10/11
Payment on
Account
31st January
£10,000 on
Account
(11/12)
plus (10/11)
Balancing
Payment
© Just Asked Ltd 2012
J
J A S O N D J
Example
Paul owned tax of £20,000 in 2010/11 and £25,000 in 2011/12 as well
as a CGT bill of £6,000
A M
J
J A S O N D J F M A M
31st
6th April
2011
July
10/11
Payment on
Account
31st January
£10,000 on
Account
(11/12)
plus (10/11)
Balancing
Payment
© Just Asked Ltd 2012
J
J A S O N D J
31st July
£10,000 on
Account
(11/12)
Example
Paul owned tax of £20,000 in 2010/11 and £25,000 in 2011/12 as well
as a CGT bill of £6,000
A M
J
J A S O N D J F M A M
31st
6th April
2011
July
10/11
Payment on
Account
31st January
£10,000 on
Account
(11/12)
plus (10/11)
Balancing
Payment
© Just Asked Ltd 2012
J
J A S O N D J
31st July
£10,000 on
Account
(11/12)
31st January
£5,000 on
Balancing
Payment Plus
£6,000 CGT
plus (12/13)
£12,500 Payment
on Account
Important dates
06/04/2012
receive tax return
Apr
May
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Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
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Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
© Just Asked Ltd 2012
06/07/2012
P11D P9D
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
© Just Asked Ltd 2012
06/07/2012
P11D P9D
Jul
Aug
Sep
31/07/2012
2nd Payment
Oct
Nov
Dec
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
© Just Asked Ltd 2012
06/07/2012
P11D P9D
Jul
Aug
Sep
31/07/2012
2nd Payment
31/10/2012
Paper
Return
Oct
Nov
Dec
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
© Just Asked Ltd 2012
06/07/2012
P11D P9D
Jul
Aug
Sep
31/07/2012
2nd Payment
31/10/2012
Paper
Return
Oct
Nov
Dec
31/12/2012
PAYE
Collection
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
© Just Asked Ltd 2012
06/07/2012
P11D P9D
Jul
Aug
Sep
31/07/2012
2nd Payment
31/10/2012
Paper
Return
Oct
Nov
31/01/2013
1st Payment
and Balance
Dec
31/12/2012
PAYE
Collection
Jan
Feb
Mar
Important dates
06/04/2012
receive tax return
Apr
May
Jun
31/05/2012
P60 from
employer
© Just Asked Ltd 2012
06/07/2012
P11D P9D
Jul
Aug
Sep
31/07/2012
2nd Payment
31/10/2012
Paper
Return
Oct
Nov
31/01/2013
1st Payment
and Balance
Dec
31/12/2012
PAYE
Collection
Jan
Feb
Mar
02/03/2013
Automatic
Penalty
Interest and penalties
• Under and overpayments interest rate linked to
Bank of England base rate
• 5% overdue penalty after 30 days and then
further 5 months
• £100 Fixed penalty fine for non submission
• Other fines
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Tax evasion
• Failing to provide full and accurate information
is illegal, duty to disclose
• Schemes that are based upon secrecy, non
disclosure and false information are not
recommended
• A criminal offence leading to fines and prison
sentence
• Treasury Amnesty raised £400 million in 2007
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Tax avoidance
• Organising affairs to pay less tax is legitimate tax
avoidance, Duke of Westminster v. IRC (1935)
• Care sham transactions
• Ramsay (WT) Ltd v IRC (1981), Furniss v Dawson (1984)
preordained series of transactions with no commercial
purpose other than to avoid tax. “Ramsay Principle” court
can look through.
• Craven v White (1988) evolved Ramsay Principle
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Tax avoidance
• Finance Acts now include an increasing amount of anti
avoidance legislation
• Since 2004 Finance Act
– Schemes must be registered with HMRC
– Scheme reference number allocated for tax return
• From 1st January 2011 promoters must supply a list of
clients using their schemes
• Scheme number does not confirm HMRC approval
© Just Asked Ltd 2012
Question
Taxpayers wishing to complete their tax return for 2011/12
on paper must do so by:
© Just Asked Ltd 2012
A
31st October 2012.
B
30th September 2012.
C
31st July 2012.
D
31st January 2013
Answer
Taxpayers wishing to complete their tax return for 2011/12
on paper must do so by:
© Just Asked Ltd 2012
A
31st October 2012.
B
30th September 2012.
C
31st July 2012.
D
31st January 2013
Question
Michelle is self-employed and is preparing to pay a
second payment on account in respect of her selfassessed earnings. By what date should she make
this payment?
© Just Asked Ltd 2012
A
1st January after the end of the tax year concerned
B
31st July in the tax year concerned.
C
1st November in the tax year concerned.
D
31st July after the end of the tax year concerned.
Answer
Michelle is self-employed and is preparing to pay a
second payment on account in respect of her selfassessed earnings. By what date should she make
this payment?
© Just Asked Ltd 2012
A
1st January after the end of the tax year concerned
B
31st July in the tax year concerned.
C
1st November in the tax year concerned.
D
31st July after the end of the tax year concerned.
UK Tax Compliance - Gap 75
What we covered
To understand:
• Self assessment rules
• Tax liability
• Tax return
• Payments on account and balancing
• Penalties and fines
• Important dates
© Just Asked Ltd 2012
Residence and Domicile Gap 76
© Just Asked Ltd 2012
Residence and Domicile Gap 76
Learning point:
To understand:
• Residence, Ordinary Residence and
Domicile
• Immigration
• Emigration
• Temporary Residence
• Remittance Rules
© Just Asked Ltd 2012
Introduction
Residence
status in
tax year
© Just Asked Ltd 2012
Introduction
Residence
status in
tax year
© Just Asked Ltd 2012
Ordinary
Residence
year after
year
Introduction
Ordinary
Residence
year after
year
Residence
status in
tax year
Domicile
permanent
home
© Just Asked Ltd 2012
Time spent in UK
• UK resident if six months (183 days) or more
• Present at midnight
• If Intention to stay in UK it can be assumed UK
resident on arrival
• If individual comes to the UK for employment
expected to last at least 2 years assumed UK
resident
© Just Asked Ltd 2012
Habitual and Substantial
• Test based upon 91 days average over a 4
years
• Regarded as resident in fifth year
• Disregarding exceptional circumstances
– e.g. Illness of individual or immediate family
© Just Asked Ltd 2012
Temporary immigrants
• If individuals come to the UK for temporary
purpose treated as non resident if:
• if intention is to stay less than 3 years
• no intention to establish permanent home
• and spend less than 6 months in the tax year
© Just Asked Ltd 2012
Visits for education
Regarded as resident if UK resident for more than 6
months and less than 4 years
Treated as ordinarily resident if intend to stay after
education or visit UK for more than 3 months after
education
If education expected to be more than 4 years then
regarded as resident and ordinarily resident from date
of arrival
© Just Asked Ltd 2012
Leaving the UK
• UK residents have to leave UK to become nonresident
• Business trips not considered if home and
settled domestic life remain in UK
• Must specify date of departure and keep records
© Just Asked Ltd 2012
Going abroad for full time
employment
Contract of employment at least a complete tax
year to be non resident
Any duties they perform in the UK are “incidental”
Visits less than 183 days
Or 91 days average
© Just Asked Ltd 2012
Ordinary residents
• Resident on a regular basis ie year after year
• Habitual and Resident test assumes Ordinarily
Resident from fifth year if formerly non-resident
• If intention is to settle in the UK then assumed
ordinarily resident when they first arrive
© Just Asked Ltd 2012
Income Tax on employment earnings
Residence
Duties of
employment
performed wholly or
partly in the UK
In the UK
Resident and
Ordinarily Resident
Liable
Resident but not
Ordinarily Resident
Liable
Non Resident
Liable
© Just Asked Ltd 2012
Duties of
employment
performed wholly or
partly in the UK
Duties of
employment
performed wholly or
partly outside the
UK
Income Tax on employment earnings
Duties of
employment
performed wholly or
partly in the UK
Duties of
employment
performed wholly or
partly in the UK
In the UK
Outside the UK
Resident and
Ordinarily Resident
Liable
Liable
Resident but not
Ordinarily Resident
Liable
Liable but eligible
for the remittance
basis
Non Resident
Liable
Not Liable
Residence
© Just Asked Ltd 2012
Duties of
employment
performed wholly or
partly outside the
UK
Income Tax on employment earnings
Duties of
employment
performed wholly or
partly in the UK
Duties of
employment
performed wholly or
partly in the UK
In the UK
Outside the UK
Resident and
Ordinarily Resident
Liable
Liable
Liable
Resident but not
Ordinarily Resident
Liable
Liable but eligible
for the remittance
basis
Liable but eligible
for the remittance
basis
Non Resident
Liable
Not Liable
Not Liable
Residence
© Just Asked Ltd 2012
Duties of
employment
performed wholly or
partly outside the
UK
Domicile
• Domicile is natural home where they would
expect to return
• Can only have one domicile although can have
more than one residence
© Just Asked Ltd 2012
Domicile or origin
At birth Father’s
domicile assumed
© Just Asked Ltd 2012
Domicile or origin
At birth Father’s
domicile assumed
© Just Asked Ltd 2012
Illegitimate
Mother’s domicile
Domicile or origin
At birth Father’s
domicile assumed
Up to 16
© Just Asked Ltd 2012
Illegitimate
Mother’s domicile
Domicile or origin
At birth Father’s
domicile assumed
Illegitimate
Mother’s domicile
Up to 16
Before 1974 wife
assumes husband’s
domicile
© Just Asked Ltd 2012
Domicile of choice
• Rooting yourself
Reside in
new
country
Buy house
and
dispose of
UK
property
Acquire
citizenship
© Just Asked Ltd 2012
Establish
business or
secure job
Make local
will and
arrange
burial
Vote in new
country
Family,
friends and
business
interests
Deemed domicile
• Liable to IHT on UK situated assets if deemed
domicile
• Deemed domicile if UK resident for 17 out of 20
years
• If moving between countries care should be
taken as domicile takes 3 years to wait for new
domicile
© Just Asked Ltd 2012
Non-UK domiciled tax liability
Remittance basis
- taxable on income remitted to the UK only
© Just Asked Ltd 2012
Non-UK domiciled tax liability
Remittance basis
- taxable on income remitted to the UK only
Conditions
- money or property brought to, received in or
used in the UK by a relevant person
taxpayer, spouse, civil partner, children,
grandchildren, certain companies, settlements
© Just Asked Ltd 2012
Remittance exemptions
Personal
effects
Assets
costing less
than £1,000
Assets in UK
for less than
275 days
© Just Asked Ltd 2012
Assets
brought in for
repair
Works of art
for public
display
Certain
assets
bought
before 12th
March 2008
Annual tax charge
• £30,000 annual charge introduced FA 2008
• UK resident for 7 out of 9 years
• Does not apply if under 18
• Does not apply if income and gains less than
£2,000
© Just Asked Ltd 2012
Example
Sue is non-UK domiciled and earns £20,000 in
the UK and has £80,000 non remitted overseas
income
© Just Asked Ltd 2012
Example
Sue is non-UK domiciled and earns £20,000 in
the UK and has £80,000 non remitted overseas
income
Remittance
UK Taxable income
£20,000
(no personal allowance
or capital gains tax
exemption)
£20,000 @ 20% =
£4,000
£30,000 Annual
Remittance Charge
£30,000
Total Tax
£34,000
© Just Asked Ltd 2012
Example
Sue is non-uk domiciled and earns £20,000 in the
UK and has £80,000 non remitted overseas
income
Remittance
UK Taxable income
UK Tax
£20,000
(no personal allowance
or capital gains tax
exemption)
£20,000 @ 20% =
£4,000
£30,000 Annual
Remittance Charge
£30,000
Total Tax
£34,000
© Just Asked Ltd 2012
Taxable income
£100,000
Minus Personal
Allowance
£7,475
Taxable Income
£92,525
£35,000 @ 20%
£7,000
£57,525 @ 40%
£23,010
Total Tax
£30,010
Example
Robert is non-UK domiciled and earns £100,000 in the UK
and has £100,000 non remitted overseas income
Remittance
UK Taxable income
£100,000
(no personal allowance
or capital gains tax
exemption)
£35,000 @ 20% =
£4,000
£65,000 @ 40% =
£26,000
£30,000 Annual
Remittance Charge
£30,000
Total Tax
£60,000
© Just Asked Ltd 2012
Example
Robert is non-UK domiciled and earns £100,000 in the UK
and has £100,000 non remitted overseas income
Remittance
UK Taxable income
UK Tax
£100,000
Taxable income
(no personal allowance
or capital gains tax
exemption)
£35,000 @ 20% =
£4,000
£65,000 @ 40% =
£26,000
£30,000 Annual
Remittance Charge
£30,000
Total Tax
£60,000
© Just Asked Ltd 2012
£200,000
(no personal allowance
or capital gains tax
exemption)
£35,000 @ 20%
£7,000
£115,000 @ 40%
£46,000
£50,000 @ 50%
£25,000
Total Tax
£78,000
Self Assessment
• Taxpayer responsibility to complete Nonresidence supplementary pages
• Important that detailed records are maintained
tracking days in and out of UK and reason for
their presence
• No need for a tax return if overseas employment
income less than £10,000 and interest of less
than £100 if all liable to overseas tax
© Just Asked Ltd 2012
Capital Gains Tax
UK Domicile
Resident and
Ordinarily
Resident
Liable on
worldwide assets
Resident but
not Ordinarily
Resident
Liable on
worldwide assets
Not Resident
Not liable unless a
temporary nonresident
© Just Asked Ltd 2012
Non UK-Domicile
Capital Gains Tax
UK Domicile
Resident and
Ordinarily
Resident
Liable on
worldwide assets
Resident but
not Ordinarily
Resident
Liable on
worldwide assets
Not Resident
Not liable unless a
temporary nonresident
© Just Asked Ltd 2012
Non UK-Domicile
Liable on UK gains and foreign gains
remitted to UK if remittance basis is
used, but £30,000 annual tax charge may
be payable. If remittance basis not used
then liable on worldwide gains.
Liable on UK gains and foreign gains
remitted to UK if remittance basis is
used, but £30,000 annual tax charge may
be payable. If remittance basis not used
then liable on worldwide gains.
Not liable unless a temporary nonresident
Inheritance Tax
UK Domicile
Non UK-Domicile
UK Assets
Liable
Liable
Foreign Assets
Liable
Not Liable
© Just Asked Ltd 2012
Double Taxation
• UK negotiated over 100 double taxation treaties
• Allow exemption from UK tax liability for
overseas residents
• Treaty determines which country tax is due
© Just Asked Ltd 2012
Question
Sam has come to the UK to study and expects to be here
for at least three years before returning to Australia. He
will be regarded as:
© Just Asked Ltd 2012
A
non-UK resident
B
resident and ordinarily resident in the UK
C
ordinarily resident in the UK
D
resident in the UK
Answer
Sam has come to the UK to study and expects to be here
for at least three years before returning to Australia. He
will be regarded as:
© Just Asked Ltd 2012
A
non-UK resident
B
resident and ordinarily resident in the UK
C
ordinarily resident in the UK
D
resident in the UK
Question
A non-UK domiciled individual who opts to be taxed on
the remittance basis should be aware that:
© Just Asked Ltd 2012
A
charge of £30,000 will apply once they have been
resident in the UK for at least five out of the previous
seven years
B
the annual tax charge can be applied to all individuals
over the age of 16
C
this method of taxation is not available for foreign
earnings above £2,000 in any tax year
D
they will not be entitled to the Income Tax personal
allowance or the Capital Gains Tax annual exemption
Answer
A non-UK domiciled individual who opts to be taxed on
the remittance basis should be aware that:
© Just Asked Ltd 2012
A
charge of £30,000 will apply once they have been
resident in the UK for at least five out of the previous
seven years
B
the annual tax charge can be applied to all individuals
over the age of 16
C
this method of taxation is not available for foreign
earnings above £2,000 in any tax year
D
they will not be entitled to the Income Tax personal
allowance or the Capital Gains Tax annual exemption
Residence and Domicile Gap 76
What we covered
To understand:
• Residence, Ordinary Residence and
Domicile
• Immigration
• Emigration
• Temporary Residence
• Remittance Rules
© Just Asked Ltd 2012
Stamp Duty Gap 77
© Just Asked Ltd 2012
Stamp Duty Gap 77
Learning point:
To understand:
• Stamp duty land tax
• Who is liable
• Transactions subject to tax
• Rates of tax
• Main reliefs
© Just Asked Ltd 2012
Stamp Duty
Stamp Duty is an indirect transaction
tax on land, buildings shares and
securities
© Just Asked Ltd 2012
Stamp Duty Land Tax
• Tax on land transactions and paid under the Self
Assessment procedures
• Paid within 30 days of the “effective date” by the
purchaser
© Just Asked Ltd 2012
Stamp Duty Land Tax Rates
Value of property
£0 - £125.000
£0 - £250,000 (FTB)
£0 - £150,000 (Disadvantaged)
© Just Asked Ltd 2012
% of total value
0%
Stamp Duty Land Tax Rates
Value of property
% of total value
£125,001 - £250,000
1%
£0 - £125.000
£0 - £250,000 (FTB)
£0 - £150,000 (Disadvantaged)
0%
© Just Asked Ltd 2012
Stamp Duty Land Tax Rates
Value of property
% of total value
£250,001 - £500,000
3%
£125,001 - £250,000
1%
£0 - £125.000
£0 - £250,000 (FTB)
£0 - £150,000 (Disadvantaged)
0%
© Just Asked Ltd 2012
Stamp Duty Land Tax Rates
Value of property
% of total value
£500,001 and above (nonresidential)
4%
£250,001 - £500,000
3%
£125,001 - £250,000
1%
£0 - £125.000
£0 - £250,000 (FTB)
£0 - £150,000 (Disadvantaged)
0%
© Just Asked Ltd 2012
Stamp Duty Land Tax Rates
Value of property
% of total value
£1,000,000 and over
5%
£500,001 and above (nonresidential)
4%
£250,001 - £500,000
3%
£125,001 - £250,000
1%
£0 - £125.000
£0 - £250,000 (FTB)
£0 - £150,000 (Disadvantaged)
0%
© Just Asked Ltd 2012
Example
Non First Time Buyer
Purchase £262,000
£262,000 @ 3% = £7,860
© Just Asked Ltd 2012
Fixtures and fittings
• Not payable
• Carpets, Curtains ….
© Just Asked Ltd 2012
Example
Non First Time Buyer
Purchase £262,000
£11,000 (Fixtures and Fittings)
£262,000 - £11,000 @ 3% = £7,530
© Just Asked Ltd 2012
Example
Non First Time Buyer
Purchase £262,000
£12,500 (Fixtures and Fittings)
£262,00 - £12,500 @ 1% = £2,495
© Just Asked Ltd 2012
Stamp Duty Land Tax
• Unrealistic valuations may be challenged by
HMRC
• If house exchange with or without cash payment
SDLT based upon market values
• No SDLT on divorce (not third party)
© Just Asked Ltd 2012
Stamp Duty Reserve Tax
• Payable on documents including stock transfer
forms, paperless transfers also included
• 0.5% Stamp Duty Reserve Tax payable
• Rounded up or down to nearest penny if
paperless
• Rounded up to nearest £5 if paper based
(minimum £1,000 transaction payable)
© Just Asked Ltd 2012
Stamp Duty Gap 77
What we covered:
To understand:
• Stamp duty land tax
• Who is liable
• Transactions subject to tax
• Rates of tax
• Main reliefs
© Just Asked Ltd 2012
Question
Len buys a house valued at £550,000. He is not a first
time buyer. How much stamp duty land tax must Len
pay?
© Just Asked Ltd 2012
A
£22,000
B
£11,000
C
£5,500
D
£16,500
Answer
Len buys a house valued at £550,000. He is not a first
time buyer. How much stamp duty land tax must Len
pay?
© Just Asked Ltd 2012
A
£22,000
B
£11,000
C
£5,500
D
£16,500
Question
Andy recently purchased £750 worth of shares in a UK
Ltd Company through his stockbroker.
How much Stamp Duty Reserve Tax, if any, will be
payable?
© Just Asked Ltd 2012
A
Nil
B
£3.75
C
£4.00
D
£5.00
Answer
Andy recently purchased £750 worth of shares in a UK
Ltd Company through his stockbroker.
How much Stamp Duty Reserve Tax, if any, will be
payable?
© Just Asked Ltd 2012
A
Nil
B
£3.75
C
£4.00
D
£5.00
Value Added Tax (VAT) Gap 78
© Just Asked Ltd 2012
Value Added Tax (VAT) Gap 78
Learning point:
To understand:
• Overview of VAT system
• Registration process
• What is taxable
• Exempt or zero rated
• Special schemes
© Just Asked Ltd 2012
Value Added Tax (VAT)
Value added tax (VAT) is charged on
the value of supplies of taxable goods
and services made in the UK, including
some exports to EU countries.
© Just Asked Ltd 2012
VAT overview
• Standard Rate – 20%
© Just Asked Ltd 2012
VAT overview
• Standard Rate – 20%
• Zero rate
• Domestic supplies of water and sewage, public transport of passengers
© Just Asked Ltd 2012
VAT overview
• Standard Rate – 20%
• Zero rate
• Domestic supplies of water and sewage, public transport of passengers
• Reduced rate – 5%
• Domestic fuel
© Just Asked Ltd 2012
VAT overview
• Standard Rate – 20%
• Zero rate
• Domestic supplies of water and sewage, public transport of passengers
• Reduced rate – 5%
• Domestic fuel
• Exempt
• Insurance, health, education
© Just Asked Ltd 2012
VAT Registration
• Previous twelve months is more than £73,000 (from 1
April 2011)
• or is likely to exceed this annual limit within the next 30
days, a trader has to register within 30 days.
• Voluntary registration is possible for traders with a lower
level of taxable supplies.
• Ability to reclaim VAT on business purchases
© Just Asked Ltd 2012
Input and output VAT
Taxable Supply
(Output VAT)
Input
VAT
© Just Asked Ltd 2012
Input
VAT
Input
VAT
Flat Rate for small businesses
• Based upon % taxable turnover as opposed to input /
output
• Flat rate varies according to trade sector
• To be eligible turnover must be under £150,000
(excluding VAT)
• Customer is charged VAT as normal
© Just Asked Ltd 2012
Second-hand goods
• Account for difference
– Price paid and Price sold
• VAT not applied when sales made to EU Registered
businesses
• VAT must be charged on sales to private individuals in
other EU countries
© Just Asked Ltd 2012
Bad debts
• VAT Is based upon a supply date which is known as the
tax point
• Non payment results in supplier still having to pay VAT
to HMRC
• With no immediate relief for trader on bad debts
© Just Asked Ltd 2012
Collection of VAT
• VAT returns and payments submitted every three
months unless large company that operates a pay
monthly scheme
• Where regular VAT reclaims occur these can be
submitted monthly
• If taxable supplies are under £1,350,000 a year 9
monthly or 3 quarterly payments on account with final
year end adjustment and paid on cash received not
invoice issued basis
© Just Asked Ltd 2012
Question
Samantha has purchased domestic fuel for her home
heating system. The cost before Value Added Tax (VAT)
was £200. How much did she pay after VAT was added?
© Just Asked Ltd 2012
A
£240
B
£230
C
£210
D
£235
Answer
Samantha has purchased domestic fuel for her home
heating system. The cost before Value Added Tax (VAT)
was £200. How much did she pay after VAT was added?
© Just Asked Ltd 2012
A
£240
B
£230
C
£210
D
£235
Value Added Tax (VAT) Gap 78
What we covered:
To understand:
• Overview of VAT system
• Registration process
• What is taxable
• Exempt or zero rated
• Special schemes
© Just Asked Ltd 2012
Gaps covered today
• Gap 74 – National Insurance Contributions
• Gap 75 – UK Tax Compliance and Self-Assessment
• Gap 76 – Residence and Domicile
• Gap 77 – Stamp Duty Land Tax
• Gap 78 – Value Added Tax (VAT)
© Just Asked Ltd 2012
edward.grant@justasked.co.uk
07850 576559
© Just Asked Ltd 2012
HANDOUT NOTES DISCLAIMER
These notes have been produced for the guidance of delegates at the PFS gap
fill session for which they were prepared and are not a substitute for detailed
professional advice.
No responsibility can be accepted for the consequences of any action taken or
refrained from as a result of these notes or the talk for which they were
prepared.
The tax and legislation information contained in this document is based on Just
Asked Ltd current understanding as at January 2012 and may change in the
future.
HM Revenue and Customs (HMRC) practice, and the laws relating to taxation
are complex and subject to individual circumstances and changes which cannot
be foreseen.
© Just Asked Ltd 2012