6 - Self-Assessment and Tax Mitigation Flashcards
What taxes are paid via self-assessment?
Income tax
Class 2 and 4 NICs
Capital Gains Tax (CGT)
Which type of people may use self-assessment?
Self-employed
Directors
Company Partners
Those with investment and/or property income
Those who are liable to pay High Income Child Benefit Charge
What is the High Income Child Benefit Charge threshold and how/when is the benefit tapered down?
It is a tax charge that applies to anyone with an income over £50,000 who gets Child Benefit, or whose partner gets it.
For every £100 over the threshold, the benefit is reduced by 1% and effectively lost at £60,000.
How is the High Income Child Benefit Charge collected?
Via self-assessment
What is a Notification of Chargeability and when does it need to me made by?
Advising HMRC of your intent to do a tax return, for the first time.
Before 5 October (window of 6 months after tax year end it relates to)
Can a penalty apply for failing to supply a Notification of Chargeability?
Yes
What are the deadlines to submit a tax return and when is the owed tax then due?
Paper – 31 October
Electronic – 31 January
Owed by midnight on 31 January
What is the late penalty for failing to submit a tax return before the due date?
£100 applied immediately
£10 per day, charged once the return is 3 months late for a maximum of 90 days
the higher of £300 or 5% of the tax due, applied if the form is 6 months late
a further £300 or 5% of the tax due (whichever is higher), applied if the form is 12 months late.
What will HMRC do if you pay too little tax or pay too late?
Charge interest and penalties
What will HMRC do if you pay too much tax?
Pay interest
HMRC interest charges and penalties are set using which rates?
Usually the Bank of England rates
HMRC can carry out a compliance check on anyone’s tax return, what are these also known as?
An enquiry
Why might HMRC carry out a compliance check on your tax return?
Suspicion or random check
How soon after submitting your tax return do HMRC normally perform a compliance check, if required?
Within 12 months
What is the likely outcome of a compliance check on your tax return?
Amendment to your tax return
At what point does a tax return become un-submitted?
When it becomes amended
For how long can a taxpayer amend their own tax return after it’s been submitted?
Within a year of submitting, or 15 months if submitted by paper
What is GAAR and what is it’s purpose?
General Anti-Abuse Rule - it prevents taxpayers entering into abusive tax arrangements/avoidance schemes, not yet registered with HMRC. It also helps them pay the right amount of tax.
What is the penalty if a case is tackled through GAAR?
Up to 60% of the counteracted tax
Tax avoidance schemes should be disclosed to HMRC as per which set of rules?
Disclosure of Tax Avoidance Schemes (DOTAS)
What is an Accelerated Payment Notice?
A notice to pay a tax charge before a dispute has been settled under GAAR
What is the purpose of an Accelerated Payment Notice?
To prevent people using tax avoidance schemes having advantage over those who do not
What are the 5 reasons that an Accelerated Payment Notice might be issued to a taxpayer?
Caught out by GAAR
Taxpayer been involved in a tax avoidance scheme under DOTAS
Received a follower notice
Compliance check or open appeal
Tax advantage declared by use of avoidance scheme
What is a Follower Notice?
A notice for a taxpayer to amend their tax return due to an illegitimate tax advantage.
What is the penalty for failing to act upon a Follower Notice?
30% of the disputed tax
Further 20% charged depending on the outcome
Is there a right to appeal an APN?
No
When are the first two payments on account and the final balancing payment due?
- Payment on account - 31 January (of the tax year concerned)
- Payment on account - 31 July (after tax year concerned)
- Balance of payment - 31 January (after tax year concerned)
What is the penalty for a late balancing payment?
5% after 30 days
Then 5% at 5 months
Then 5% after another 6 months (11 months total)
Payments on account are liable to which 3 types of taxes?
Income tax
Class 4 NICs
High Income Child Benefit Charge
What taxes are paid on the balancing payment?
Class 2 NICs
Capital Gains Tax (CGT)
Student loan repayments
How is the balancing payment calculated?
The difference between the actual tax payable and the tax already paid by payments on account
In which 2 circumstances might the payments on account not be required?
Income in the last tax year was less than £1,000
80% of their income tax was taken via PAYE
A taxpayer can claim a reduction in the payments on account if they would result in an
over payment of tax. This could arise because of 3 reasons:
- Lower income tax this year
- Higher tax deductions
- Higher proportion of tax deducted via PAYE
What is the main difference between tax avoidance and evasion?
Avoidance - minimising taxes
Evasion - not paying taxes
Summarise the Ramsay principle in one sentence.
HMRC ignore a series of transactions undertaken solely for tax avoidance, determining transactions’ tax liability by the end result
HMRC has the option of collecting tax without bringing taxpayers into the self assessment system. What do HMRC raise in order to do this?
A simple assessment
Balancing payments can be collected via PAYE in a later year, if the taxpayer owes how much and files the tax return by when?
Less than £3,000 and by 30 December online. (31 October by paper)
If the total tax due for 2022/23 was £50,000, what would the next 2 payments on account be due and when?
£25,000 31 January 2024
£25,000 31 July 2024
Some tax reliefs can be carried back to previous years, e.g. gift aid donations to charity.
Relief is calculated as if it were being given for which year?
What affect does this have on the payments on account for this year?
The relief is calculated as if it were being given for the earlier year.
Payments carried back do not amend the previous year’s assessment and therefore do
not reduce payments on account for the current year.
Why might HMRC charge interest or apply a penalty on a payment on account?
Interest charged if a reduction in payment on account is unjustified
Penalty if reduction was negligent (i.e., excessive)
Individuals and businesses unable to pay the full tax due on time may be able to make a time to pay arrangement online, but they must owe less than how much?
£30,000
If a time to pay arrangement has been made online, how soon would you need to pay off the tax owed?
Is interest applied?
Up to 12 months
Interest is applied, but can void penalties by doing this
Joe pays his balancing payment for 2023/24 on 7 August 2025. What penalties will be due?
The due date was 31 January 2025, so there will be a penalty of 5% of the tax unpaid at 3 March 2025, with a further penalty of 5% of the tax unpaid at 3 August 2025.
Sometimes a taxpayer has to include an estimate in a tax return if full information is not available. How are estimates rectified?
Estimates must be corrected by “amendment”.
Why might HMRC carry out a compliance check after 12 months of a tax return submission?
Potential fraudulent or negligent conduct
Taxpayer has not provided enough information to enable HMRC to be satisfied that the return is accurate and complete.
When is a taxpayer given a K code on their coding notice?
A K-code is set when taxable benefits in kind and other deductions are more than the employee’s allowances.
For example, you might still owe tax from a previous tax year.
What is the electronic system used when employers send tax and NIC information to HMRC electronically every time employees are paid?
RTI - Real Time Information
If not using RTI, what can smaller employers of less than 10 employees use?
HMRC’s Basic PAYE Tools
What is full payment submission and what is the submission deadline?
It’s when the employer reports details of pay and deductions to HMRC and must be submitted before the employees are paid, or at time of payment
Benefits in kind that have been payrolled do not need to be reported on form P11D at the end of the tax year. True or false?
True, otherwise you would duplicate the tax
There are certain benefits that cannot be payrolled. Name 2.
Living accommodation and interest-free or low-interest loans.
By which day of the month must the employer pay to HMRC all money owed for PAYE and NICs for the tax month?
Day 22 (day 19 if not electronic)
What does the tax month start and finish for payroll purposes?
Starts 6th and finishes 5th, the month after
When should employers pay employer NICs on benefits in kind by?
22 July in most cases
P11D and P11D(b) are submitted by who, and what is the submission deadline?
P11D = employer
P11D(b) = employee
6 July
How soon should an employee be given their P60?
By 31 May
Why do employees need a P60?
Complete self-assessment
Claim universal credit
Claim working or child tax credits
The PAYE system covers a wide range of payments. Broadly, what does it include?
Broadly, any sum paid to employees as a result of their employment is within the scope of the PAYE system.
Bloggs Ltd holds its December 2023 board meeting on the 14th of that month and decides to pay managing director Bill Bloggs a special bonus of £10,000 as soon as possible. The payment is actually made on 8 January 2024, and ratified formally at the company’s AGM on 28 February 2024.
When should PAYE be operated?
The earliest of these 3 dates; i.e., 14 December 2023
Tax avoidance vs. evasion. Which one is legal?
Avoidance
When it’s not clear if tax mitigation or evasion has taken place, and is disputed between HMRC and the taxpayer, who is called upon to decide?
Courts
What is the time limit for HMRC to investigate offshore non-compliance? (i.e., taxpayers failing to declare tax on overseas affairs)
12 years
Which HMRC campaign is aimed at landlords who owe tax on rental income whether through misunderstanding the rules or because of deliberate evasion?
Let property campaign (as at April 2023)
Who do the Affluent Compliance Team at HMRC target?
Targeting tax evasion of additional rate taxpayers or those with a net wealth of £1m +
What is meant by an aggravated penalty?
One applied on top of other penalties already incurred
What is the aggravated penalty applied when taxpayers hide their wealth by diverting assets to more secretive jurisdictions?
50%
If a business is convicted for failure to prevent the facilitation of tax evasion, what is the penalty?
Unlimited financial penalties
What does the case of Duke of Westminster v. IRC (1936) suggest?
That everyone can arrange their affairs so as that the tax is less than it otherwise could be.
A couple gets married simply to benefit from exemptions from CGT and IHT for transfers between themselves. Is this tax avoidance or evasion?
Avoidance (legal mitigation)
What is a tax sham?
Misleading HMRC to thinking ‘transaction A’ is actually ‘transaction B’
The courts have held that when a taxpayer enters into a preordained series of transactions that includes one or more steps that have no commercial purpose other than tax avoidance,
those steps and their tax consequences can be ignored for tax purposes. This is known as what principle and proven in which legal case?
The Ramsay Principle
Ramsay (WT) Ltd v. IRC (1981)
What are the 3 conditions which must be met in order for the Ramsay principle to apply to a tax avoidance scheme?
- There must be a preordained series of transactions or a single composite transaction
- There should be no commercial purpose apart from avoiding, deferring or mitigating tax
- The series of transactions does not have to form part of a legally binding arrangement.
Very simply summarise the Ramsay principle
A series of transactions should be ignored and instead a total of transactions should be scrutinised
GAAR applies to all taxes except for which one?
VAT
How do GAAR and TAAR work together?
GAAR attacks tax planning arrangements not already caught by TAAR
Who ensures GAAR is applied consistently?
GAAR advisory panel
If a case is tackled by GAAR, what is the maximum tax penalty applied?
Up to 60% of the counteracted tax
What does it mean for a taxpayer who receives an APN (accelerated payment notice)?
They have to pay tax up front because of potential tax abuse already proven in court, on a similar case
Taxpayers who fail to correct their tax return after receiving an APN, will receive a penalty of how much?
30% of the tax disputed, plus 20% depending on the outcome of the dispute
There is right to appeal an APN. True or false?
False
What is the penalty applied to a tax avoidance scheme enabler, if found to be defeated in court?
Up to the value of fees they received in enabling the scheme
