Chapter 6 - UK Tax Compliance

Question 1

Self Assessment

What is included?

Tax Return

Answer 1

Self-Assessment
- Tax return showing all income and gains
- Tax is paid directly to HMRC on set payment dates
-Mainly self- employed, most company directors and those paying higher rate tax on
investment income

Liabilities

• Income tax on all forms of income
• Class 2 and 4 NICs
• CGT
• High income chid benefit charge
• Student loan repayments (self-employed)

Tax Return
- Calculate tax independently or HMRC calculate

Question 2

Deadlines

Answer 2

Online - 31 January following end of tax year to which it relates
Paper - 31 October following end of tax year to which it relates

Question 3

Payments

Answer 3

• Payments on account
  o 31/01 in tax year (half of previous year’s liability)
  o 31/07 after end of tax year (half of previous year’s liability)
  o Payments on account include income tax, class 4 NICs and child benefit income
  tax charge

o Balancing payment 31/01 after end of tax year (adjustment to reflect actual liability due compared with amount paid on account)
o Balancing payment includes CGT, class 2 NICs and any student loan repayment
o Reducing payments on account is possible (e.g. lower income, higher deduction, more tax paid under PAYE) but need to forecast reduction before payment is due

o Carried back tax relief does not reduce payment on accounts

Example for balancing payments
Total Tax due for 2020/21: £30,000
Total Tax due for 2021/22: £22,000

First payment on account: £15,000 - 31 January 2022
Second payment on account: £15,000 - 31 July 2022
Balancing Repayment - Payments on account minus total tax due: £8,000

Question 4

Penalties of Non-Compliance with Self-Assessment

Answer 4

• Interest and surcharges applied on late and underpayments
• HMRC pays interest on overpaid tax
• Interest charged where reduction of payment on account is not justified
• 5% surcharge for unpaid tax more than 30 days after balancing payment due
  - Fixed Penalty of £100 for any return that is not submitted by 31 January. If a return is more than three months late, a £10 daily penalty will be charged for a maximum of 90 days
  - If a return is more than six months late, there will be a penalty of the higher £300 and 5% of the tax outstanding
  - Minimum penalty after 12 months is £1,600
• Fixed penalties for not filing tax return
• Variable penalties for not keeping adequate records for tax return

Question 5

PAYE Coding

Answer 5

• Designed to deduct correct amount of tax/avoid need to complete self-assessment
• Includes taxable benefits in kind
• Real time reporting from October 2013
• Employer payday procedure - calculate and deduct tax due and issue payslips
• Payrolling benefits in kind – treated as cash, no need to report on P11D – does not apply to living accommodation or beneficial loans
• Employer month end procedure - pay HMRC all PAYE and NIC money
• Employer year end procedure - P11D or P9D - 6 July
• Employee P60 received by 31/05
• Copy of P11D or P9D received by 6 July

Question 6

PAYE Payments

Answer 6

• Wages/salaries
• Fees
• Bonus/commission
• Holiday pay
• Pensions
• SSP, SMP, SPP, ShPP, SAP

Question 7

General Tax Planning Strategy

Answer 7

• When tax planning, remember priorities
• Balance costs, risks or complexity with potential to pay less tax
• Use available allowances and reliefs
• Beware additional rate of income tax @ 45%
• Effective marginal rate of income tax @ 60% on earnings £100,000 - £125,140 (due to
  gradual withdrawal of personal allowance)

Question 8

Tax Mitigation/Tax Evasion

Answer 8

• Financial advisers are obliged to report tax evasion under money laundering regulations
• Legal tax mitigation
  o Choosing the method that results in smallest amount of tax being payable
• Anti-avoidance legislation
  o Disclosure of Tax Avoidance Schemes - tax avoidance schemes must be
  registered with HMRC - number given and used on tax returns
  o Promoters of tax avoidance schemes must provide quarterly list of clients
  o General Anti-Abuse Rules (GAAR) introduced July 2013
  o Over a 100 countries have agreed to exchange information under the Organisation for Economic Co-ooperation and development (OECD) and Common Reporting Standard (CRS).
  o FTC penalty starts at 200% of the underpaid taxes, but may be mitigated down to a minimum of 100% with full co-operation and disclosures
  o Accelerated payment notices – if use scheme court has found to fail must make
  upfront payment of disputed tax
  o Penalty for enablers (those who design, manage, market or facilitate) defeated tax
  avoidance arrangements – penalty is equal to fee paid to enabler for enabling,
  applies on or after 16 November 2017
  o Criminal Finances Act 2017 – criminal offence for firms to fail to prevent tax
  evasion
  o Disguised remuneration schemes – charge on balance of loans from 9 December
  2010 to 5 April 2019, loans added up and taxed as income over 3 years – tax may therefore be paid at higher rate than normal