Chapter 1: The UK Tax System Flashcards
Indirect Tax
An indirect tax, (VAT) is a tax collected by an intermediary (such as a retailer) from the person who bears the ultimate cost of the tax (the customer).
The intermediary later files a tax return and forwards the tax collected to the HMRC.
Direct tax
A direct tax is a tax collected by HMRC directly from the tax payer, eg income tax, corp tax, CGT
Difference between indirect and direct tax
Indirect tax collected by an intermediary and later files a return and forwards the tax collected to the HMRC
Direct tax is tax collected by HMRC
Disclosure for tax avoidance
Disclosure obligations regarding anti-avoidance tax schemes requiring the declaration of details of the scheme to HMRC.
GAAR
General anti abuse rule
stops tax advantages arising from abusive tax arrangements.
Agent between tax payer and accountant
accountant is a tax payer agent
Account prepare tax return and submit
Tax payer is responsible for the return not the accoutant
Accountant finds a material error/omission
Accountant must advise the client of the situation and to recommend disclosure to HMRC
Client fails to correct a material error/omission or failure, account must:
1) Cease to act for the client
2) Inform HMRC no longer a client (without telling them why)
3) Make a money laundering report (to MLRO who reports to NCA)
4) Do not tell client as it is tipping off
Dishonest conduct of tax agents
Civil penalty up to £50,000
Where cases exceed £5000, HMRC may publish details of penalised agent
With agreement of the tax tribunal, HMRC can access working papers of a dishonest agent
Test 1: Automatic non-UK resident
Automatically not a resident when if he is in the UK for less than:
16 days,
46 days and has not been UK resident during the three previous tax years
91 days, of which fewer than 31 days were working in the UK and he works full time overseas
Test 2: Automatic UK resident
Provided test 1 is not met, a personally is automatically a resident if he:
Is in the UK for 183 days or more (6 months) during the year
He has his only home in the UK
He works full time in the UK and more than 75% of his working days in the UK
If cannot be determined by test 1 and 2:
Test 3: Sufficient ties
How to determine if the individual is a previous UK resident?
A person is a previous UK resident if he was a UK resident in one or more of the three previous tax years.
(Usually someone leaving)
A person who was not UK resident in any of the three previous tax years is not a previous UK resident (usually someone arriving)
If cannot be determined by test 1 and 2:
Test 3: Sufficient ties
What are the ties?
4 UK ties for arrivers, 5 for leavers
1) Having close family (a spouse/civil partner/cohabitee or minor child) in the UK
2) Having UK accommodation in which the individual spends at least one night a year.
3) Doing substantive work (3 hours or more on 40 days in the tax year)
4)Being in the UK for more than 90 days during either or both of the two previous tax years.
Leavers
5) Spending more time in the UK than in any other country
Tax for uk residents and non uk residents
UK residents - UK tax on worldwide income
Non-UK residents - UK tax on income arising in the UK
