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- 1. School of Business, Introduction to Taxation, Topic 1 â Lecture Introduction to Taxation Introduction to Taxation
- 2. School of Business, Introduction to Taxation, Topic 1 â Lecture Learning Outcomes By the end of this lecture, you should be able to understand: ďźthe UK tax structure ďźtypes of taxation ďźincome tax computation
- 3. School of Business, Introduction to Taxation, Topic 1 â Lecture UK Government Tax Tribunal First Tier Tribunal Upper Tribunal HMRC Officers UK Tax Structure
- 4. School of Business, Introduction to Taxation, Topic 1 â Lecture Source: www.taxwiz.org UK Tax System â Tax Avoidance and Evasion
- 5. School of Business, Introduction to Taxation, Topic 1 â Lecture General Anti Abuse Rule (GAAR) HMRC Taxpayer Powers to counteract tax advantages arising from abusive tax arrangements Material error or omission Fails to File Tax Return Written notice by HMRC 45 days â Written response to HMRC 21 days â written response to Advisory Panel Appeal UK Tax System â Rules on Abuse
- 6. School of Business, Introduction to Taxation, Topic 1 â Lecture UK Tax System â Tax Year
- 7. School of Business, Introduction to Taxation, Topic 1 â Lecture Types of Tax Affected by Income Tax Individuals Corporation Tax UK Companies Capital Gains Tax Individuals and UK Companies Inheritance Tax Individuals VAT Businesses UK Tax System â Types of Tax
- 8. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax ⢠Capital Allowance ⢠Income Tax ⢠National Insurance Capital Gains Tax ⢠Chargeable Gains Inheritance Tax ⢠Inheritance Tax Corporation Tax ⢠Chargeable Gains ⢠Capital Allowance ⢠Corporation Tax VAT ⢠VAT UK Tax System â Sources of Tax Law
- 9. School of Business, Introduction to Taxation, Topic 1 â Lecture Resident? Income Tax â Scope of Income Tax UK non residents ⢠Liable for tax on UK income only UK residents ⢠Liable for tax on UK and overseas income UK residents not UK domiciled ⢠Liable for tax on UK income only ⢠UK income on remittance basis
- 10. School of Business, Introduction to Taxation, Topic 1 â Lecture Overseas Test Present in UK less than 16 days in a tax year Present in the UK for less than 46 days in a tax year and not resident during previous 3 years Work overseas full time. Not present in UK for more than 90 days in a tax year UK Resident Test Present in UK for 183 days or more in a tax year Only home is in the UK Full time work in UK Sufficient Ties Test How many ties in the UK How many days present in the UK in a tax year Income Tax â Statutory Test of Residency
- 11. School of Business, Introduction to Taxation, Topic 1 â Lecture Resident? Income Tax â Scope of Income Tax Example: Victor lives in Japan all his life where he owns a house. He came to the UK on 1st May 2014 having sold his house in Japan the day before. He decided to buy a flat in London. He lived in the London flat until 30th Sept 2014. Victor then went on an overseas holiday for a year. Is Victor a UK resident for 2014/2015?
- 12. School of Business, Introduction to Taxation, Topic 1 â Lecture Non Savings Income Savings Income Dividend Income Trading Income x Less: loss relief (x) x Employment Income x Property income x Building society/Bank interest received x 100/80 x Dividends from UK companies x 100/90 x Total income x x x Less qualifying interest paid (x) Less loss relief (x) Net income x x x Less personal allowance -10,000 Taxable Income x x x Income Tax â Computation Proforma income tax computation for 2014/2015
- 13. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax â Exempt Income ⢠Income from National Savings Certificate ⢠Statutory redundancy money ⢠Winnings ⢠Scholarships ⢠Interest on damages for personal injuries ⢠Income from investment made through ISAs ⢠Local authority grant
- 14. School of Business, Introduction to Taxation, Topic 1 â Lecture Non Savings Income Savings Income Dividend Income Trading Income 0 Less: loss relief - 0 Employment Income 9600 Property income 0 Building society/Bank interest received x 100/80 10000 Dividends from UK companies x 100/90 5000 Total income 9600 10000 5000 Less qualifying interest paid 0 Less loss relief 0 Net income 9600 10000 5000 Less personal allowance -9,600 -400 Taxable Income 0 9600 5000 Income Tax â Computation: answer
- 15. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax â PA example Rhiannon has the following income in the tax year 2014/2015: Salary: ÂŁ9,600 (PAYE ÂŁ75) Bank interest received: ÂŁ8,000 net Dividends: ÂŁ4,500 net ISA interest received: ÂŁ2,000 Calculate Rhiannonâs net income for 2014/2015.
- 16. School of Business, Introduction to Taxation, Topic 1 â Lecture Rate Band Non Savings Income Savings Income Dividend Income Additional Rate ÂŁ150,000 onwards 45% 45% 37.5% Higher Rate ÂŁ31865 - ÂŁ149,999 40% 40% 32.5% Basic Rate ÂŁ2880 - ÂŁ31864 20% 20% 10% Lower Rate < ÂŁ2879 20% 10% 10% Tax Bands and Tax Rates
- 17. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax Calculation: Savings Income 2880@ 10% 288 Savings Income - 9600 - 2880 6720@ 20% 1344 Dividend Income 5000@ 10% 500 Income Tax Liability 2132 Less dividend tax paid at source 5000@ 10% -500 Less interest tax paid at source 10000@ 20% -2000 Less PAYE - tax paid at source -75 Income Tax payable/repayable -443 Income Tax â Computation: answer
- 18. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax â Personal Allowance For 2014/2015 - ÂŁ10,000 ⢠All individuals ⢠Include children Tapering: Net income > ÂŁ100,000 ⢠Personal allowance reduced by ÂŁ1 for every ÂŁ2 excess income. ⢠Net income > ÂŁ120,000 = 0 personal allowance
- 19. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax â PA example Rhiannon earns ÂŁ105,000 a tax year in salary. What personal allowance is she entitled to for 2014/2015?
- 20. School of Business, Introduction to Taxation, Topic 1 â Lecture Basic PA ÂŁ10,000 Income: ÂŁ105,000 Less limit (ÂŁ100,000) ------------ ÂŁ5,000 x ½ (ÂŁ2500) --------- Personal Allowance ÂŁ7,500 Income Tax â PA example Rhiannon earns ÂŁ105,000 a tax year in salary. What personal allowance is she entitled to for 2014/2015? Answer:
- 21. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax â Personal Allowance Higher personal allowance Born between 6 April 1938 to 5 April 1948 = ÂŁ10,500 Born before 6 April 1938 = ÂŁ10,660 Net income > ÂŁ27,000 = Restriction on higher PA Restriction: (Net income - ÂŁ27000) x half
- 22. School of Business, Introduction to Taxation, Topic 1 â Lecture Income Tax â Personal Allowance Example: Karen was born on 2nd Sept 1932. She has a net income of ÂŁ28,000. What personal allowance does Karen receive for 2014/2015?
- 23. School of Business, Introduction to Taxation, Topic 1 â Lecture Answer: Higher PA ÂŁ10,660 Income ÂŁ28,000 Less (ÂŁ27,000) ---------- ÂŁ1,000 x ½ (ÂŁ500) -------- PA ÂŁ10,160 Income Tax â Personal Allowance
- 24. School of Business, Introduction to Taxation, Topic 1 â Lecture Gift aid donations are charitable gifts of money which qualify for tax relief Donors must make a gift aid declaration to the charity Tax Reliefs â Gift Aid
- 25. School of Business, Introduction to Taxation, Topic 1 â Lecture Gift Aid Example Jane has employment income of ÂŁ90,000. She made a gift aid donation of ÂŁ7,200 net to a charity. Calculate her tax liability for 2014/2015.
- 26. School of Business, Introduction to Taxation, Topic 1 â Lecture Gift Aid Example Answer: Gift Aid relief: ÂŁ7,200 x 100/80 = ÂŁ9000 Extend Tax band limits: BR: ÂŁ31865 + ÂŁ9000 = ÂŁ40,865 HR: ÂŁ150,000 + ÂŁ9000 = ÂŁ159,000 Employment Income ÂŁ90,000 PA (ÂŁ10,000) ----------- Taxable income ÂŁ80,000
- 27. School of Business, Introduction to Taxation, Topic 1 â Lecture Gift Aid Example Answer: Income Tax: ÂŁ40,865 x 20% ÂŁ8,173 ÂŁ39,135 x 40% ÂŁ15,654 ---------- Total income tax liability ÂŁ23, 827
- 28. School of Business, Introduction to Taxation, Topic 1 â Lecture Post-lecture Work Seminar 1, covering todayâs lecture: Read chapters 1 and 2 of Taxation â Finance Act 2014 by Alan Melville, 20th Edition, Pearson
- 29. School of Business, Introduction to Taxation, Topic 1 â Lecture End of presentation
Hinweis der Redaktion
- The Chancellor of the exchequer is responsible for the management of UK government treasury system. The admin function for tax collection is undertaken by HMRC Officers supervise the tax system and deal with collection of taxes The revenue and customs prosecutions office provides legal advice as well as conduct criminal prosecutions If anyone is prosecuted for tax â an individual can make an appeal and appeals will be heard by a tax tribunal First tier tribunal deals with most cases Upper tribunal deals with complex cases
- Tax Evasion: deliberate false information given to HMRC to pay less or no tax â this is illegal Tax avoidance = planning tax through legislation to pay less tax = legal
- Finance act 2013 introduced a general anti abusive rule into UK tax law. Applies to all taxes Aim of GAAR â counteract tax advantages where tax arrangements have been abused Abusive tax arrangements â if they cannot be regarded as reasonable in relation to relevant tax law Are consistent with principles on which tax law is based Involved in any contrived or abnormal steps Intended to exploit any shortcomings in the tax laws HMRC has powers to Make just and reasonable adjustments to increase tax liability or impose tax liability HMRC will give written notice to taxpayer explaining why they think its abusive Taxpayer has 45 days to respond to notice After written response from tax payer, if HMRC still believes that counteraction should be taken, the matter will be reffered to GAAR Advisory panel Taxpayer will be notified about HMRC action Taxpayer has 21 days to write reponse to Advisory panel Advisory panel will consider and produce an opinion notice HMRC must then issue a notice to taxpayer setting out whether tax arrangements will be counteracted Taxpayer can then appeal against HMRC decision
- Tax year â also known as fiscal year or year of assessment runs from 6th April to 5th April This syllabus covers the assessment year 2014/2015 Therefore runs from 6th April 2014 to 5th April 2015
- Note: Individuals include Partnerships Businesses are all businesses that are incorporated or unincorporated Only VAT is known as Indirect Tax All other taxes listed are Direct Taxes
- The basic rules of the UK tax system are embodied in a number of tax statutes or Acts of Parliament.
- Automatically not UK resident if you pass the overseas test Automatically UK resident if you pass the UK resident test If residence cannot be determine by either of the test then the next test is sufficient ties test 5 UK ties Have close family in UK Have a house in UK which is used in the tax year Do substantive work in the UK Present in UK more than 90 days during either of the 2 previous tax years Spend more time in UK than any other country in the tax year Any one of these 5 tests will qualify for UK residency test
- Victor is automatic UK resident as He failed the automatic overseas test because he is in UK more than 46 days in the tax year and not been a UK resident in any of the last 3 years He passes the UK resident test as he has a home and does not own a home overseas
- Go through the different types of income under each column
- Income exempt from income tax liability
- Go through the answer Explain that what she received for interest and dividends â she has to gross up but then when it comes to tax liability â we take the difference between the gross and the net away from the tax calculation
- Answer:
- SO HMRC will have to pay Rhiannon back ÂŁ443 as he already paid up too much tax
- Deduct PA against non savings income first before savings income then dividend income If any person earn more that ÂŁ100,000 â PA starts reducing Therefore earn more than ÂŁ120,000 = zero PA For e.g. ÂŁ110,000 â PA = ÂŁ5000 only instead of ÂŁ10,000
- Answer:
- Answer:
- Old folks get higher personal allowance as personal allowance is given by when a person is born If their income is more than ÂŁ27,000 â then there is a restriction on the higher PA
- Useful only for higher and additional rate tax payers. Increase their limits on tax band by grossed up donation
- Note for tutor: