Section 6 - UK Tax Compliance Flashcards
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 tax rate on investment income
Liabilities
Income tax on all forms of income
Class 2 and 4 NICs
CGT
High income child benefit charge
Student loan repayments (self-employed)
Tax Return
Calculate tax independently or HMRC calculate
Deadlines
Online:
31st January following end of tax year to which it relates
Paper:
31st October following end of tax year to which it relates
Payments
Payments on account:
- 31/01 in tax year (half of previous year’s liability)
- 31/07 after end of tax year (half of previous year’s liability)
- Payments on account include income tax, class 4 NICs and child benefit income tax charge
- Balancing payment 31/01 after end of tax year (adjustment to reflect actual liability due compared with amount paid on account)
- Balancing payment includes CGT, class 2 NICs and any student loan repayment
- 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
- Carried back tax relief doesn’t reduce payment on accounts
Carry back tax relief:
- You can make a claim to carry back a trading loss when you submit your Company Tax Return for the period when you made the loss. A claim should be made within 2 years of the end of the accounting period when you made the loss.
Penalties of Non-Compliance with Self Assessment
Interest and surcharges applied on late and underpayments
HMRC pays interest on overpaid tax
Interest charged where reduction of payment on account not justified
5% surcharge (extra charge) for unpaid tax more than 30 days after balancing payment due
Fixed penalties for not filing tax return
Variable penalties for not keeping adequate records of tax return
Enquiries (Compliance check)
Random or targeted by HMRC
HMRC can start an enquiry within 12 months of receiving tax return
Taxpayer would know one year after sending return that assessment is final
Pay As You Earn (PAYE)
Employers deduct income tax and employees’ NICs
Employees received net earnings
Employers pay deduction to HMRC
PAYE Coding
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 pay day procedure - calculate and deduct tax due and issue payslips
Payrolling benefits in kind - treated as cash, no need to report on P11D - doesn’t 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 - received by 6 July
- P11D: document used by an employer to list any expenses or benefits given to directors or employees
- P9D: form needed to be filed for each employee who earned less than £8,500 in a tax year
Employee P60 received by 31/05
Penalties
Employer charged penalties on monthly basis if their submissions are late
There are also penalties where inaccurate full submissions are made, or PAYE is late
Interest charged on late payments
PAYE Payments
- Wages/Salaries
- Fees
- Bonus/Commission
- Holiday Pay
- Pensions
- SSP, SMP, SPP, ShPP, SAP
Date of Payment
Employees - PAYE operated when employee entitled to receive payment
Directors - earliest of:
- Date payment made
- Date director becomes entitled to be paid
- Date amount is credited in company’s books
- Date remuneration is fixed or agreed
General Tax Planning Strategy
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 at 45%
Effective
General Tax Planning Strategy
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 at 45%
Effective marginal rate of income tax at 60% on earnings £100,000 - £125,140 (due to gradual withdrawal of personal allowance)
Changing Tax Rules
Government generally announces changes in advance, so planning may need to take into account future changes
Need to review regularly
