M13: Tax Admin

Question 1

What is self-assessment?

Answer 1

Self-assessment is when taxpayers assess their own tax liabilities and report their income and gains to HMRC in a tax return.

Question 2

When does an individual need to notify HMRC about chargeability to tax?

Answer 2

Need to notify HMRC about changeability by the 5th October, within 6 months of the tax year.

Question 3

When does a personal tax return need to be submitted?

Answer 3

By 31st January following the end of the tax year if filing online

or

By 31st October after the end of the tax year if using a paper return or if they want HMRC to calculate their tax liability.

Question 4

How long does an individual need to keep personal tax records for?

Answer 4

Records must be retained until the later of:
* 5 years after the 31 January following the tax year where the taxpayer is in business or 1 year after the 31 January following the tax year otherwise.
* The date any HMRC enquiries into the tax return are completed.
* The date after which no HMRC enquiry can be commenced.

Question 5

What are the methods and relevant dates for payment of income tax, capital gains tax and NIC?

Answer 5

A taxpayer who is employed will have the relevant income tax and class 1 NICs deducted from their employment income under the PAYE system. Any Class 2 NICs and capital gains tax are due on 31st January following the tax year.

When a taxpayer has income other than employment income, the income tax and any class 4 NICs due from self-employment activity are payable under a system of payments on account.

The relevant payment dates for a tax year are:
* 31 January before the end of the tax year (first payment on account for the tax year)
* 31 July after the end of the tax year (second payment on account for the tax year)
* 31 January after the end of the tax year (balancing payment for the tax year)

Question 6

What are the key penalties in the tax system?

Answer 6

1. Failure to notify chargeability to tax,
2. Filing an incorrect tax return,
3. Late filing of a tax return
4. Failure to pay tax on time.

RATES ON RATE SHEET

Question 7

What penalties are there for late notification of chargeability?

Answer 7

No penalty will apply as long as all applicable tax is paid by the following 31 January after the 5th October deadline changeability.

Penalty = % of income tax, CGT, Class 4 NIC which remain outstanding.

Question 8

What penalties are there for filing an incorrect return?

Answer 8

= % of potential lost revenue due to errors in the tax return.

Question 9

What penalties are there for late payments of tax?

Answer 9

= % of unpaid tax with additional if tax is outstanding

Question 10

How can HMRC enquire into a tax return?

Answer 10

• Give notice of enquiry within 12 months after receiving a return filed on time

Question 11

When can a self-assessment return be amended?

Answer 11

• Amend their tax returns within 12 months of the final filing deadline by the taxpayer

or

HMRC can make amendments following an enquiry or within 9 months of receiving a return.

Question 12

When will HMRC make an assessment?

Answer 12

Determination assessment if a taxpayer fails to file self-assessment returns when required

or

Discovery assessment if they discover profits have been omitted or any reliefs have been excessive due to fraud or negligence. Or Not providing hMRC with relevant information within usual time limits

Question 13

How does the appeals system work?

Answer 13

Tax payers appeal to HMRC within 30 days.

If unresolved then escalate to First-tier tribunal

If there is disagreements on points of law it escalates to:
- Upper tribunal
- Court of Appeal (E&W) or Court of Session (Scot)
- Supreme Court

OR

Alternative Dispute Resolution through independent facilitators.

Question 14

What is PAYE?

Answer 14

PAYE is the system used in the United Kingdom for collecting income tax and national insurance contributions (NICs) from employees’ earnings, pension and social security income.

Question 15

What is a PAYE code?

Answer 15

Alpha numeric code which tells the employer how much the employee can earn free of tax.

Question 16

How are adjustments made to PAYE codes?

Answer 16

Either adjusted upwards to take account of previous overpayment/allowances

or

Adjusted downwards due to underpayment or non-cash benefits.

*Over/underpaid of tax can only be made is liability/refund due is <£3000

Question 17

What is a K code?

Answer 17

K code is a negative code where the benefits and adjustments exceed their allowances. It adds an amount to ‘taxable pay’ for PAYE purposes, rather than showing tax-free pay.

Question 18

How is PAYE calculated?

Question 19

How is PAYE reported?

Answer 19

Employers keep working sheets for each employee, usually electronically detailing their pay, income tax and NICs.

PAYE must be paid to HMRC electronically within 17 days of
the end of each tax month (the 22nd of the month).

Question 20

When does a taxpayer have to make payments on account?

Answer 20

when the income tax and Class 4 NICs due for the previous tax year exceed the amount of income tax already deducted at the source during that year.

Payments on account for a tax year are each 50% of the relevant amount from the previous year.

Unless:
* The relevant amount is below £1,000.
* The taxpayer has paid 80% or more of their tax liability for the previous tax year through PAYE or other deduction at source arrangements.
* The taxpayer’s first year of self-assessment, as there’s no relevant amount from the previous year.

Question 21

When are payments on account due, for self-employed?

Answer 21

Payments on account are due as follows:
* First payment on account for the tax year: 31 January in the tax year
* Second payment on account for the tax year: 31 July after the tax year
* Balancing payment for the tax year: 31 January after the tax year.

The first two payments are made towards the liability of the current tax year but are based on the liabilities of the previous year.

The balancing payment is therefore required if the final liability is greater
than the amount already paid in the first two payments.

Question 22

How is corporation tax assessed?

Answer 22

By filing a company corporation tax return for a chargeable accounting period (CAP) under corporation tax self-assessment (CTSA).

Question 23

When does a company need to notify a liability to HMRC?

Answer 23

Companies must notify HMRC within three months of either starting to trade or acquiring a source of income.

OR

If they have never had a notice to file a tax return, they must notify HMRC of their chargeability within 12 months of the end of the Chargeable Accounting period.

Question 24

When is a company tax return (CT600) due?

Answer 24

Must be filed online in iXBRL format within 12 months from
the end of the company’s period of account or 3 months after HMRC issues a notice to file a return, if later.

Question 25

How are amendments and errors dealt with?

Answer 25

Companies have 12 months from the due date to do any amendments.

HMRC has 9 months from the actual date the return was filed to correct errors or omissions.

Question 26

How long does a company need to keep records for?

Answer 26

Companies must retain records until the latest of:
* 6 years from the end of the chargeable accounting period.
* The date any enquiries are completed.
* The date after which no enquiry can be commenced.

Question 27

When does a company need to pay its tax?

Answer 27

Typically due nine months and one day after the end of the CAP, unless the company is a ‘large’ company.

*Large companies must follow an instalment payments system where there augmented profits exceed £1,500,000 for 12 month CAP.

Question 28

State the intervals for CT instalment payments for a large company that exceeds the £1.5m augmented profits limit

Answer 28

Instalment payments for a 12-month CAP will therefore be due:
* 6 and a half months after the start of the CAP
* 9-and-a-half months after the start of the CAP
* Half a month after the end of the CAP
* 3-and-a-half months after the end of CAP

Each payment is 25% of the amount due.

Question 29

What VAT records must a business retain and for how long?

Answer 29

All taxable persons and entities must keep the following records for 6 years:
* Business and accounting records
* Copies of all VAT invoices issued by the business (retailers may issue less detailed invoices for sales (including VAT) ≤ £250)
* Credit and debit notes
* Documentation relating to the sale of goods to, and the purchase of goods from, overseas
* A VAT account, containing ‘VAT payable’ and ‘VAT allowable’

Question 30

When does VAT need to be paid?

& what’s the rule for businesses making zero rates supplies?

Answer 30

VAT-registered businesses are required to file VAT returns for each accounting period, typically every 3 months.

Businesses making zero-rated supplies can apply to make monthly VAT returns, allowing for quicker recovery of input tax.

Question 31

What if a business makes a mistake with a VAT return?

Answer 31

Businesses that identify significant errors in VAT returns must disclose them to HMRC promptly using form VAT652.

Small net errors can be corrected in the next VAT return

Question 32

What happens if a business has paid too much VAT?

Answer 32

Overpaid VAT for periods within the previous 4 years can be reclaimed if it does not ‘unjustly enrich’ the business.

Question 33

What can be adjusted on the next VAT return if there’s a net error?

Answer 33

• If the net error is less than £10,000 or
• 1% of the total VAT-exclusive turnover on the current VAT return (subject to max of £50k.)