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