tax Flashcards
Tax year runs from
6 April 2022 to 5 April 2023
In a partnership each partner is liable for
income tax on share of profit, CGT on share of gains
In a partnership, partners are jointly liable for
Income tax of employees, NICs as employers, VAT as supplier
Companies rules for financial year which run
1 April 2022 - 31 March 2023
HRMC responsibilities
Collect and administer income tax, CGT, NIC, Corporation Tax, VAT
Pay and administer Universal credit tax credits and child benefits
Collect repayment of student loan
ensure employers pay minimum wage
protect us from tax fraud, alcohol and tobacco smuggling, drug importation
Sources of tax law and practice
Legislation - in acts of parliament (statutes)
Legislation amended by finance act (based on budget, FA 2022 is for 2022/23)
Statutory instruments (secondary, automatically law in stated period if no objection)
case law
Publications by HMRC
Manuals
Statements of practice
extra statutory concessions
Press release
leaflets
Income tax - chargeable income
Employment income
Trading income
Property income
Savings income (interest and dividends)
Miscellaneous income
Exempt / taxable
Interest on National Saving certificates
Exempt
Income taxed at source (net of tax)
Employment income (PAYE)
Income received without deduction at source
Trading income
property income
Savings income
Dividend income
Savings income - nil rate band basic tax payer
1000 on 0%
Savings income - nil rate band higher rate tax payer
500 at 0%
Savings income - nil rate band additional tax payer
not entitled to NRB
Direct tax
Paid by those who generate the funds to pay the tax
Indirect tax
Tax related to consumption
Progressive tax
rises as a proportion of income as income risies
Regressive taxes
rise as a proportion of income as income falls
Unit taxes
calculated flat rate per item regardless of value
value taxes
calculated as a % of the value of the imte
capital tax
tax based on value of capital assets or wealth
Transaction based taxes
Taxes incurred due to a specific transaction taking place
Non savings income
employment income, trading profit, property income, miscellaneous income, income not categorised as from specific source taxed as misc
savings income
interest from investments
Dividend income
Dividends from UK and overseas companies
Gift aid conditions
donor must give gift aid declaration in writing by telephone or via internet
donor must pay amount of income/CGT at least equal to the. amount of Gift Aid reclaimed by the charity in respect of donation
General earnings basis of assessments
receipts basis
General earnings consisting of money are treated as received on the earlier of
when payment is made
when person becomes entitled to payment
Taxable / exempt benefit
Vouchers
Taxable
Taxable / exempt benefit
Living accommodation
taxable
Taxable / exempt benefit
Expenses connected with provision of living accommodation
Taxable
Taxable / exempt benefit
Cars and fuel provided for private use
Taxable
Taxable / exempt benefit
Vans provided for private use
Taxable
Taxable / exempt benefit
Assets made available for private sue
Taxable
Taxable / exempt benefit
Any other non-monetary benefit provided by reason of the employment
taxable
When can taxable benefits be reduced to nil?
If the employee pays the full monetary value of the benefit to the employer on or before 6 July following the tax year
Cash voucher taxable amount
sum of money for which voucher capable of being exchanges
Credit tokens used to obtain money g/s taxable
cost to the employer of providing the benefit less amount paid by employee
Voucher exchangeable for g/s taxable
cost to the employer of providing the benefit less any amount paid by the employee
Accommodation is job related if
- Necessary for proper performance of duties OR
- Provided for better performance of duties and employment is of a kind in which it is customary to provide accommodation OR
- accommodation is provided as part of arrangements in force due to special threat to security
(director owning 5% or lesson shares can only claim first two and either full time working director or not for profit making or charity company)
Living accommodation taxable/exempt
taxable on the provision of living accommodation unless job related accommodation
Accommodation benefit basic rental benefit taxable
- if owned by employer, benefit is rent taht would have been paid if let on annual value
- if rented by employer amount of benefit is higher of annual value and rent actually paid by employer
Expensive accommodation
costs Moore than £75,000 to provide
Expensive accommodation additional benefit
(cost of providing accommodation - £75,000) * official rate of interest at the start of the tax year
Use market value of property when first provided + cost of subsequent improvements when
Property acquired by employer more than 6 years before first provided to employee
Taxable benefit on:
heating
council tax
water
lighting
cleaning repairs maintenance and decoration
Cost to employer less any employee contribution
Taxable/exempt
Pool car
Exempt if available for use by any employee and not normally kept overnight at or near employees residence
Taxable benefit on cars and fuel
List price * percentage
List price of car
List price _ any optional accessories additionally provided and further accessories costing more than £100 provided at a later date
Fuel benefit fixed rate
25300
Taxable amount on assets available for private use
Higher of annual value of asset or any rent / hire charge payable by employer expenses related to provision of asset are added, reduced by employee contribution and no benefit if private use is insignificant
Asset for private use annual value
20% of market value when first provided for private use to any employee
Taxable / exempt
Contribution by employer to registered pension scheme
exempt
Taxable / exempt
trivial benefit (<£50) not cash or cash voucher provided for non wok reason (annual cap 300 provided to certain directors)
exempt
Taxable / exempt pension advice and associated tax planning available to all employees up to £500 per year
Exempt (above 500 full amount taxable)
Taxable / exempt
one mobile telephone available for private use by employee including all calls
exempt
Taxable / exempt
Free / subsidised meals in canteen where meals available to all staff
exempt
Taxable / exempt
annual social events paid for by employer up to £150 per head per tax year
Exempt
if > £150 whole amount is taxable if one event,
if multiple aggregate > 150 then up to £150 exempt and others
staff party not annual event taxable irrespective of cost
Taxable / exempt
Entertainment provided by third party
Exempt
Taxable / exempt
Non cash gift from third party up to £250 per year from the same donor
exempt
Taxable / exempt
Provision of parking space at or near place of work
exempt
Taxable / exempt
Awards of up to £5000 made under staff suggestion scheme
exempt
Taxable / exempt
Work related training courses
exempt
Taxable / exempt
Sports and recreation facilities available to employees generally but not to general public
Exempt
Taxable / exempt
Childcare facilities run by or on behalf of employer
exempt
Taxable / exempt
Payment towards additional cost of employee wfh (up to £6pw no supporting evidence more than £6 per week need documentary evidence)
exempt
Taxable / exempt
Personal incidental expenses while required to stay overnight on business (£5/night UK £10/night abroad)
exempt
Taxable / exempt
Work buses and subsidies for employees to use public bus services
Exempt
Taxable / exempt
Travel expenses when public transport disrupted, late night journeys and where car sharing arrangements break down
exempt
Taxable / exempt
Use of bicycles or cyclists safety equipment if available to all employees
Exempt
Taxable / exempt
Reasonable removal expenses (up to £8000) paid for by employer on new employment position or on relocation
exempt
Taxable / exempt
Non-cash long service awards in respect of at least 20 years of service not exceeding £50 / year of service
exempt
Taxable / exempt
Eye tests required under health and safety legislation and specially prescribed glasses for employees using VDU equipment
exempt
Taxable / exempt
Health screening assessment or medical checkup provided for an employee by employer
exempt
Taxable / exempt
Up to £500 pa for recommended medical treatment to assist return to work
exempt
Taxable / exempt
Vehicle battery charging facilities at or near place of work where vehicle used by employee and is not taxable car nor van
exempt
PAYE code calculation
Personal allowance + allowable expenses + adj for overpaid tax - taxable benefits if not taxed through voluntary payrolling - adjustment for underpaid tax
PAYE code
if total allowances - total deductions give positive figure
remove last digit and add L at the end
PAYE code
If transfer part of allowance the letter
N
M
respectively
PAYE code
if allowances less total deceptions negative
Letter K at the beginning - taxable pay will be increased rather than decreased
PAYE unpaid tax
Gross up unpaid tax by estimated marginal rate (100/20 for basic rate)
Badge of trade
Profit seeking motive
Trading requires profit motive to exist when asset is acquired - if can establish asset bought with intention to resell at profit indication of trading activity
allowable expenditure
expenditure incurred wholly and exclusively for purpose of trade not specifically disallowed by legislation
If expenditure is disallowable it must…
be added back to accounting profit or loss
Allowable/disallowable
Capital expenditure
Disallowable e.g. improvement or enhancement,
Allowable/Disallowable
Maintenance and repairs (returning to original condition)
Allowable
Allowable/Disallowable
Depreciation of capital assets
Disallowable
Allowable/Disallowable
Profit/loss on sale of fixed assets
Disallowable
Allowable/Disallowable
Appropriation of profit (salary to sole trader/partner, payment to family not reasonable remuneration, owners personal income and NIC and other personal expenses)
Disallowable
Allowable/Disallowable
General provision for bad debt
Disallowable
Allowable/Disallowable
Specific provision for bad debt
Allowable
Allowable/Disallowable
Bad debt
Trade bad debts are allowable
Non-trade bad debts are disallowable
Allowable/Disallowable
Gifts of trade samples given away in ordinary course of business to advertise to public
gifts to customers if incorporate conspicuous advertisement for business, are not food drink tobacco or vouchers and total cost not more than £50
Gifts to employees
Allowable
all other gifts are disallowable
Allowable/Disallowable
Donations and subscriptions
to local charities if gift enhances public image of trade, gifting trade stock or used plant and machinery to charities or UK educational establishments, subscription to trade and professional association
Allowable
donation to national charities, gift aid, and political donations are generally disallowable
Allowable/Disallowable
Fines and penalties
Disallowable
exception is parking fine incurred by employee on business activity
Allowable/Disallowable
Interest on money borrowed for business purposes
allowable,
disallowable interest on late payment of tax
Allowable/Disallowable
Legal and professional fees
legal costs relating to renewing short lease (50 years or less), costs of registering patent or copyright for trade use, incidental costs of raising LT finance
Allowable
Allowable/Disallowable
Legal and professional fees relating to income
allowable
Allowable/Disallowable
Legal and professional fees dealing with HMRC enquiry / appeal to HMRC
related to capital expenditure
Disallowable
Allowable/Disallowable
Irrecoverable VAT
allowable if item of expenditure is allowable
Allowable/Disallowable
Employment payment and pension
earnings to employees, redundancy payments and compensation for loss of office, cost of educational courses for trade purposes, contribution to pension scheme in period of paymentt, payment of NIC
allowable
Allowable/Disallowable
Car leasing and rental costs
Leases on cars 15% flat rate disallowance on payments related to polluting cars
from 6/4/21 above 50g/km
6/4/18-4/3/21 - 110g/km
before 6/4/18 130g/km
Exempt / Taxable income
Income from ISAs
Exempt
Exempt / Taxable income
betting, competition and premium bonds
Exempt
Exempt / Taxable income
some social security benefits (housing benefit)
Exempt
Exempt / Taxable income
scholarships
Exempt
Exempt / Taxable income
income tax repayment interest
Exempt
Exempt / Taxable income
apprentice bursaries paid to individuals leaving care of local authority
Exempt
Exempt / Taxable income
compensation payments made under ‘qualifying payment’ schemes (windrush)
Exempt
Badge of trade
Number of transactions
Transaction which alone may be regarded as of capital nature may be treated as trading activity if a number of similar transactions are entered into
Badge of trade
Nature of asset
Subject matter of transaction may indicate whether trade carried on
three reasons to purchase an asset:
- Personal use
- investment for aesthetic value
= to resell at profit
Badge of trade
existence of similar trading transactions and interests
Consider other activities of taxpayer to see whether any similarities exist
Badge of trade
Changes to the asset
If purchased and subjected to process to enhance marketability, sale more likely to be regarded as a trading activity
Badge of trade
how the sale was carried out
If sale carried out in way typical of trading organisation (through agent) more likely to be considered as trading
Badge of trade
Source of finance
Money borrowed short term to buy or improve asset, likely to be trade, especially if loan could only be repaid by selling the asset
Badge of trade
Interval of time between purchase and sale
Asset bought and resold shortly after indicates trading activity
Badge of trade
Method of acquisition
Asset acquired by inheritance or as a gift less likely to be the subject of trade
WDA % on cars for employee personal use
Full 18% no deductions for personal use
Current year basis
Basis period for tax year is taxable profit for 12 month period of account ending in that tax year
Opening Tax year basis
Actual basis - taxable trading profit from date of commencement to following 5 April
Second year tax basis
Less than 12 months long
basis period = first 12 months of trading
Second year tax basis
12 months long
that 12 month period of account
Second year tax basis
More than 12 months long
12 months to the end of the period of account ending in the second tax year
Period of account ending in tax year
No such period of account
Actual basis 6 April to 5 april
Class 1 NIC
Paid by employees and employers
Class 1 A NIC
Paid by employers on taxable benefits at 15.05%
Class 2 NIC
Paid by self employed nidividuals
Class 4 NIC
Paid by self employed individuals
Newly self employed individual is required to register with HMRC by
5 October following end of tax year self employment commences
Requirement to register for class 2 NIC is immediately on being self employed but there is no late registration penalty provided they are paid by
31 January in tax year following commencement of trade
Class 1A NIC (benefits) paid by employer on
22 July after end of Tax year
Who is the independent standard setting body aiming to serve public interest by setting robust, internationally appropriate ethics standards for professional accountants worldwide
International Ethics Standards Board for Accountants (IESBA)
Five fundamental ethical principals are
Professional Behaviour
Integrity
Professional Competence and Due care
Confidentiality
Objectivity
Being straight forward and honest in all professional and business relationships
Integrity
Not allow bias, conflict of interest or undue influence of others to override professional or business judgements
Objectivity
Maintain professional knowledge and skill at level required to ensure client or employer receives competent professional service based on current developments in practice, legislation and techniques
act diligently and in accordance with applicable technical and professional standards
Professional competence and due care
Respect the confidentiality of information acquired as a result of professional and business relationships and therefore not disclose such information without proper and specific authority unless there is a legal or professional right or duty to disclose, nor use the information for their personal advantage or advantage of third parties
Confidentiality
Comply with relevant laws and regulations and avoid any action that discredits the profession
Professional behaviour
Threat due to financial or other interest of professional accountant or of an immediate or close family member
Self interest threat
Threat may occur when previous judgement needs to be re evaluated by the professional accountant responsible for that judgement
Self review threat
Threat may occur when professional accountant promotes a position or opinion to the point that objectivity may be compromised
Advocacy
Threat may occur due to close relationship where professional accountant becomes too sympathetic to interests of others
Familiarity threat
Threat may occur when professional accountant may be deterred from acting objectively by actual or perceived pressures including attempts to exercise undue influence over the professional accountant
Intimidation threat
What to consider when initiating an ethical conflict resolution process
Relevant facts
relevant parties
ethical issues involved
fundamental principles related to matter
established internal procedures
alternative courses of action
Tax avoidance
any legal method of reducing a tax payer’s liability
Certain schemes must be disclosed to HMRC, loop holes being closed, planning scheme
Tax evasion
illegal - seeking to pay less tax than due by deliberately misleading HMRC
methods of tax evasion
surpassing information to which HMRC is entitled
Providing HMRC with false information
Managing the economy - government seeks to encourage
saving
donation to charities
investing in business
entrepreneurs
Managing the economy - Government seeks to discourage
smoking
drinking alcohol
Motoring
Direct/indirect principle
Direct taxes only paid by those who generate funds to pay
Indirect taxes relate to consumption and up to individuals whether they spend money on such goods
Progressive/regressive principle
Progressive taxes rise as a proportion of income as income rises - income tax
Regressive tax rise as a proportion of income as income falls - cigarettes
Unit/value principle
Unit tax is flat rate per item
Value tax based on percentage of value of item (VAT)
Income/Capital/expenditure principle
Income tax paid by those who generate income
Capital taxes are just as people should not be able to live of the sale of capital assets
Taxes on expenditure paid by those who incur expenditure - transaction based
Ability to pay/benefit principle
Taxes should be based on ability of taxpayer to pay
taxes should be based at least in part on the benefit recieved
Neutrality principal
Tax should be neutral to not distort choice
Equity principle
tax should be equitable or just
Efficiency principle
cost of collecting tax should be low in relation to tax paid
Capital allowance
Tax allowances for certain types of capital allowances (depreciation not allowed, so give tax relief by allowing part of the cost each year)
Qualify for capital expenditure
Building alternations incidental to installation of plant and machinery
Qualify
Qualify for capital expenditure
License to use computer software
Qualify
what assets are included in the main pool
Machinery, fixtures fittings and equipment
vans, forklift trucks, lorries, motorcycles
Cars with CO2 emissions < 50g/km purchased after 6/4/21
First year allowance qualifying assets
New zero emissions goods vehicles
charging points for electric vehicles 23/11/17 and 5/4/23
low emissions cars (0g/km)
AIA can be used against
most plant and machinery except cars
Balancing charge on capital allowances occurs when
too many capital allowances given on asset over lifetime (sold for amount in excess of TWDV)
Balancing allowance on capital allowance occurs when
Too few capital allowances given on an asset over lifetime (sold for amount less than TWDV)
Exempt/Chargeable person
Individuals
Chargeable
Exempt/Chargeable person
Business partners
Chargeable
Exempt/Chargeable person
Companies
Chargeable
Exempt/Chargeable person
Registered charities
Exempt
Exempt/Chargeable person
Friendly Societies
Exempt
Exempt/Chargeable person
Local Authorities
Exempt
Exempt/Chargeable person
registered pension schemes
Exempt
Exempt/Chargeable person
Investment trusts
Exempt
Exempt/Chargeable person
Approved scientific research associations
Exempt
Exempt/chargeable disposals
Sale of whole/part of asset
Chargeable
Exempt/Chargeable disposal
Gift of whole/part of asset
Chargeable
Exempt/Chargeable disposal
Loss/destruction of the whole or part of an asset
Chargeable
Exempt/Chargeable disposal
Gifts to registered charities
Exempt
Exempt/Chargeable disposal
Gifts to art galleries/museums and similar institutions
Exempt (so long as asset is used for purposes of institutions
Exempt/Chargeable disposal
Death
Not a disposal - assets acquired at probate value (MV at date of death) - tax free uplift on death
Date of disposal is the date…
When contract for sale is made
if conditional, then date is the date when all conditions are satisfied
Chargeable/exempt assets
Land, furniture workings of art
chargeable
Chargeable/exempt assets
Goodwill, shares, leases
chargeable
Chargeable/exempt assets
Legal tender (cash)
Exempt
Chargeable/exempt assets
Motor cars
Exempt
Chargeable/exempt assets
Most wasting chattels
exempt
Chargeable/exempt assets
non wasting chattels if acquisition and gross disposal are < 6000
exempt
Chargeable/exempt assets
Gilt edged securities (exchequer or treasury stock)
Exempt
Chargeable/exempt assets
National savings certificates and premium bonds
Exempt
Chargeable/exempt assets
Shares and investments in an ISA
Exempt
Capital gain
if asset sold in commercial arms length transaction disposal consideration is…
Gross sale proceeds
Capital gain
if asset is not sold at arms length (e.g. gifted) the disposal consideration is…
Market value
Allowable costs for CGT
Acquisition costs (purchase price/MV/Probate value)
incidental costs of acquisition (legal fees, surveyor/valuers fees, stamp duty, land duty)
Enhancement expenditure - capital costs of additions and improvements to the asset (extensions, planning permissions)
Annual exempt amount for which no CGT is payable
12,300
Chattel
item of tangible moveable property that specifically does not include goodwill, shares or leases
Wasting chattel
predictable life at date of disposal not exceeding 50 years. (caravans, boars, computers, mechanical objects animals) Plant and machinery always have UL < 50 years
Non-wasting chattel
predictable life at the date of disposal of more than 50 years (antiques, jewellery and works of art)
Exempt/subject to CGT
Wasting chattels are…
usually exempt from CGT but if used solely used for business and capital allowances claimed/could be claimed then treated as non-wasting
Exempt/subject to CGT
Non wasting chattels
Chargeable to CGT, unless gross disposal proceeds and cost < 6000
If non-wasting chattel disposed for gross disposal proceeds of more than 6000 but acquired for less than 6000 then marginal relief for gain as gain cannot exceed….
5/3(gross proceeds - 6000)
Special rules if more than two assets from a set of chattels owned by the same person are disposed to….
the same person
persons acting in concert
connected persons
TTP Allowable/not allowable
interest in respect of trading loan
Allowable
TTP Allowable/not allowable
Dividends paid by company
not allowable in calculating trading income
Exempt ABGH distributions
other than those received from companies which are 51% of the receiving company or 51% subsidiaries of a company of which the receiving company is a 51% subsidiary are added to TTP
Due date for corporation atx
9 months and 1 day after the end of the accounting period
Corporation tax
Large companies
1.5 million < Augmented profit < 20 million
Corporation tax company is not treated as large if
tax liability < 10,000 OR
not a large company in preceding 12 months and augmented profits are 10million or less in this period
Large company must pay corporation tax in …
Four equal instalments on the 14th day of the 7th, 10th 13th and 16th month after the start of a 12 month accounting period (based on estimated liability)
Very large companies have augmented profit
exceeding 20 million
Very large companies must pay corporation tax in
Four equal instalments on the 14th day of months 3,6,9 and 12 of the accounting period
Output VAT
As goods / service go through production and distribution each VAT registered business charges VAT on value of goods / services supplied
Input VAT
Each VAT registered business receives credit for any VAT paid
Supplies outside the scope of vat
supplies that do not have any effect for VAT (payment of wages and dividends)
Exempt supplies from VAT
supply on which output VAT cannot be charged (land, insurance and postal services)
VAT registration is compulsory when…
total value of taxable supplies (taxable turnover) made by person making taxable supplies exceeds £85,000
Future prospects test for VAT
Person must register for VAT if at any time there are reasonable grounds to believe the taxable turnover in the next 30 days alone will exceed the threshold
Notify HMRC by the end of the period
registration takes effect from beginning of same 30 day period
Historic test for VAT
Person must register for VAT if at the end of any month the taxable turnover in the prior period exceeds the threshold.
notify HMRC within 30 days of the end of the month in which threshold was exceeded and registration takes effect from first day after the end fo the month following the relevant month (when threshold first exceeded§
Deregistration is compulsory when
person ceases to make taxable supplies and has no intention of making taxable supplies
notify HMRC within 30 days and deregistration takes effect on date taxable supplies ceased
Voluntary deregistration when
Estimated taxable turnover for next 12 months will not exceed statutory deregistration threshold (83,000) takes effect from date on which request is made / on agreed later date
On deregistration, VAT charge is made…
on the deemed supply of trading stock and capital assets on which input VAT has been recovered. Output tax is then paid, but if less than 1000 don’t have to pay
Basic tax point for VAT
Date on which goods are removed or made available to customer or services completed
Actual tax point for VAT
1. Payment received before basic tax point
2. Invoice issued before basic tax point
3. Invoice issued within 14 days of basic tax point
- actual tax point is date of payment
- Invoice issued before basic tax point - date of invoice
- actual tax point is date of invoice
Irrecoverable / recoverable VAT
Motor cars unless used exclusively for business
irrecoverable
Irrecoverable/recoverable VAT
G/S used for business entertaining
usually recovered for staff entertainment and entertaining foreign customers
Irrecoverable
Irrecoverable/recoverable VAT
Non business items
irrecoverable
Irrecoverable/recoverable VAT
items for which no VAT receipt is held
irrecoverable
VAT return must be submitted to HMRC not later than
7 calendar days after the last day of the month following the end of the return period (also usually due date for payment)
Substantial traders who make payments on account are taxable persons with annual VAT liability in excess of
2.3 million
Payments on account for substantial traders are made
at the end of the second and third months of a quarter and the amount is 1/24 of the total liability from PY
balancing payment for the quarter si due with VAT return at end of month following the end of the quarter
Scheme available to small businesses allowing them to make payments on account of VAT during the year based on PY VAT. Single VAT return filed within two months of year end with balancing VAT due
Annual accounting scheme
annual accounting scheme is available to businesses if the value of taxable supplies in the following year is not expected to exceed
1.35 million
annual accounting scheme requires payments on account either as
nine interim payments monthly intervals throughout the year or
three quarterly interim payments throughout the year
Annual accounting scheme
9 equal monthly payments each payment must be electronic and will be
10% total VAT liability PY or estimate for CY
Registered less than 12 months, first payment due at end of forth month, no 7 day extension and every month thereafter
Annual accounting scheme
three quarterly instalments each payment must be electronic and will be
25% of PY VAT liability or estimated year for CY
payment due by end of month 4,7 10
advantages of annual accounting scheme
reduce VAT returns required
two months to complete annual return and make balancing payment
cash accounting scheme
allows businesses to account for VAT on cash basis rather than invoices received and issued basis
Businesses may join cash accounting scheme if
Value of taxable supplies in following year not expected to exceed 1.35m
all VAT returns to date submitted and outstanding VAT paid
not convicted of VAT offence / penalty in previous 12 months
Main advantages of cash accounting scheme
Output VAT doesn’t need to be accounted for until payment received
automatic bad debt relief since no output VAT payable if payment not recieved
Flat rate scheme for VAT
Business can calculate net VAT due to HMRC by applying flat rate percentage to vat inclusive turnover
1% reduction in first year of trading
Business may join flat rate scheme for VAT if
value of annual taxable supplies < 150,000
Main advantages of flat rate scheme
reduction in a admin preparing VAT return
less VAT payable
Main VAT records to be kept
Sales invoices
order/delivery notes
purchase invoice/copy sales invoice/credit note
Purchase/sales day book
records of daily takings
cash book
bank statements and paying in slip
annual accounts
VAT invoice must show
unique ID number
business name address and contact info
name and address of customer
clear description of G/S
date of invoice and tax point
price quantity and VAT rate
discount offered
amount excluding VAT
VAT
Simplified VAT invoice can be issued for
supplies under £250
Modified VAT invoice can be issued
for retail supplies over £250
Type of inaccuracy
Keeping inaccurate books and records taht are incomplete in some respects
careless
Type of inaccuracy
Omitting occasional items of income/gains
careless
Type of inaccuracy
Filling to heck return consistent with underlying records
Careless
Type of inaccuracy
making arithmetical errors that are too large / many to be isolated mistakes
careless
Type of inaccuracy
systematically paying wages without operating PAYE
deliberate
Type of inaccuracy
not keeping books and records at all
deliberate
Type of inaccuracy
including personal expenditure on business expenditure
deliberate
Type of inaccuracy
omitting significant amount of income related to overall liability
deliberate
Type of inaccuracy
Creating false invoices
Deliberate and concealed
Type of inaccuracy
Back/post dating invoices
Deliberate and concealed
Type of inaccuracy
altering invoices or other docuemnts
deliberate and concealed
Type of inaccuracy
Destroying books, records and documents so they are not available
deliberate and concealed
Type of inaccuracy
creating fictitious minutes of meetings or minutes of fictitious meetings
deliberate and concealed
Reasonable excuses to not meet an obligation
death of close relative
unexpected stay in hospital life threatening illness or delays relating to disability
computer software failure or server issues
fire flood theft and postal delays
Time limit for keeping corporation tax records
6 Years from end of accounting period
Time limit for keeping income and capital gains tax records
5th anniversary of 31 January following end of the tax year if still in business or 1st anniversary of 31 January following end of tax year if not in business
Time limits for keeping VAT records
six years
If a tax return or notice to file for self assessment is not automatically issued, the individual must notify HMRC by
5 October following end of tax year unless certain not required
If HMRC has issued a tax return to a self employed person and subsequently withdraws it, the individual must notify HMRC by
later of
5 October following end of tax year
30 days from day after notice withdrawn if required
Due date for submission of tax return online
later of 31 January followign end of tax year or three months after issued
due date for submitting paper tax return
later of 31 October following end of tax year
three months after return was issued
Deadline for submission of short tax return
31 October following end of tax year paper
31 January for online return
three months after the issue of the tax return if later than these dats
HMRC can correct return for obvious errors within
9 months of teh date the return is actually filed
taxpayer has right to amend tax return for any reason
within 12 months of normal due submission date (later of 31 January following end of tax year or 3 months after issued)
Taxpayer may claim for ‘overpayment relief’ within
four years of the end of the tax year to which the tax return relates
Income tax and class 4 NIC are due
Payment on account
1 - 31 Jan in the tax year
2 - 31 July following end of tax year
Balancing payment - by 31 Jan followign end of tax year
Class 2 NIC also paid within self assessment system on 31 January following end of tax year
Payments on account are not required when the amount paid under self assessment in PY was
less than
1000 or
20% of total liability
Companies have to notify HMRC when their first accounting period begins within
3 months of the start of the first accounitng peirod
Where a notice/return is not issued a company is required to notify HMRC where it has TTP for an accounting period , notification must be made
within 12 months of the accounting period
Full corporation tax return must be submitted
within 12 months of the end of the period of account
HMRC has the power to conduct a compliance check - two main types of check
- pre return compliance check
formal enquiries into returns, claims or elections already submitted
Pre return compliance check may be carried out
to assist with clearances or rulign requests
where previous check identified poor record keeping
check computer systems will produce info to support return
to find out about plannign and avoidance
fraud suspected
person regularly discloses error after submission of VAT return
Notice must be given by HMRC of intention to enquire into submitted return by
first anniversary of actual submission date
or
if return is filed after due submission date, the quarter day following the first anniversary of the actual submission date (31 jan, 30 April, 31 July, 31 October)
How many opportunities does HMRC have to open a formal enquiry into a tax return
once
Discovery assessment
Gives HMRC the power where discovers loss of tax to collect extra tax even if normal time period when could open compliance check has passed
Discovery assessment limit
not due to careless or deliberate behaviour
4 years
Discovery assessment limit
due to careless behaviour
6 years
Discovery assessment limit
Due to deliberate behaviour
20 years
Taxpayer can appeal against
request by HMRC to submit documents / records
amendments made to self assessment resulting from compliance check
HMRC right to raise discovery assessment
discovery assessment
VAT assessment
Imposition of penalty
Tax payer must appeal within
30 days of relevant event
in writing
specify grounds for appeal
HMRC has 2 types of power
information and inspection powers
HMRC information powers
General provisions
taxpayer notices
third party notices
unknown identity notices
Right of appeal against HMRC information powers
allowed unless
- first tier tribunal has approved issue of the notice or
- information / documents relate to taxpayer statutory records
HMRC inspection powers - can enter business premises of taxpayer whose liability is being checked at any reasonable time if either
- tax payer given at least 7 days written notice
or
inspection carried out by or with approval of authorised HMRC officer
no right of appeal
HMRC powers regarding dishonest conduct by tax agents
issue conduct notice if determined agent engaged in dishonest conduct
issue a file access notice to obtain working papers of tax agent found to have engaged in dishonest conduct
publish information about tax agent (name and address) if paenalty > 5000
Safeguards - ICAEW
educational, training and experience to enter a professional body
CPD
ICAEW Code of ethics
complaints within firm and ICAEW
Professional conduct in relation to taxation (PCRT)
Guidance written by professional bodies for members working in tax setting out fundamental principals and standards of behaviour which members are expected to follow
PCRT Standards
Client specific
lawful
disclosure and transparency
advising on tax planning arrangement
professional judgement and appropriate documentation
Client specific
tax planning must be specific to client’s fact and circumstances, clients must be alerted to the wider risks and implications of courses of actions
Lawful
All times members must act lawfully and with integrity and expect same from clients, tax planning should be based on realistic assessments of facts and on credible view of law. Members should draw attention to where law is materially uncertain
members should consider taking further advice appropriate to risks and circumstances of the particular case
Disclosure and transparency
Tax advice must not rely for its effectiveness on HMRC having less than relevant facts. disclosure must fairly represent all the relevant facts
Advising on tax planning arrangements
members must not create, encourage or promote arrangements / structures that set out to achieve results contrary to the clear intention of Parliament in enacting legislation or are highly artificial or contrived and seek to exploit shortcomoings
Professional judgement and appropriate documentation
Applying to particular client advisory situations require members to exercise prof judgement on a number of matters. members keep notes on timely basis of rationale for judgements exercised in seeking to adhere to these requirements
Ethical conflict resolution process (6 factors)
Relevant facts
relevant parties
ethical issues involved
fundamental principles
established internal procedures
alternative courses of actions
If conflict cannot be resolved…
obtain professional advice from ICAEW/Legal advisors and obtain guidance without breaching confidentiality
document issue and details of discussions held
May need to resign
Confidentiality requires…
Accountant respect confidentiality of information acquired as a result of professional and business relationships and therefore not disclose any such info to third parties without proper and specific authority unless legal or professional right or duty to disclose nor use information for personal advantage of member / third parties
When can disclose confidential info
Authorised by client/employer
required by law (evidence in court, AML)
Professional duty / right when not prohibited by law (comply with quality review of prof body, respond to an inquiry or investigation by member body / regulatory body, protect professional interests of professional accountant in legal proceeding, comply with technical standards and ethics requirement)
Conflict of interest can threaten the principal of
objectivity
Conflict of interest where:
- client has specific interest which conflict with those of the firm?
Yes
Conflict of interest where
Financial involvement between client and firm (e.g. loan)
Yes
Conflict of interest acting for both husband and wife in divorce settlement?
Yes
Conflict of interest acting for company and directors in their personal capacity?
Yes
Conflict of interest acting for parternship and partners in personal capacity
Yes
Conflict of interest in acting fro two competing business?
Yes
Safeguard for conflict of interest
Notify client of the business interest / activity that may represent conflict of interest
notify all known relevant parties that the professional accountant is actign for two or more parties
notify client that the professional accountant does not act exclusively for any one client in provision of proposed services
obtain consent to act
if consent refused have to give one client up
additional safeguard to consider for conflict of interest
Use separate engagement teams
procedures to prevent access to information (separate physical and confidential and secure data filing)
clear guidelines for engagement team on issues of security and confidentiality
use of actual and perceived confidentiality agreements signed by employees and partners of firm to ensure actual and perceived confidentiality
regular review of application of safeguards by independent senior individual
Safeguards against conflict of interest when seconded to HMRC
not involved in matters related to secondign organisation or clients it is representing while working for HMRC
Following end of secondment, second should not be involved in affairs of any taxpayer they were involved with at HMRC for a significant period
Contractual relationship with a client should be governed by
an appropriate engagement letter, making client and accountant responsibilities clear
Who is responsible for submitting correct and complete return to best of knowledge and belief and makes final decision to disclose any issues
client
Who is responsible for preparing return and for the accuracy of the return based on info provided
Accountant, acting as agent for client where acting as tax agent, not required to audit figures but must take reasonable care and appropriate prof step when making statements/asserting facts on client behalf
Professional Indemnity insurance
gives protection against claims made by clients for loss/damages due to negligent advice or services provided
ICAEW PII Requirement if gross fee income of firm less than £600,000
minimum limit PII = 2.5*gross fee income, minimum 100k
ICAEW requirement gross fee income > 600k
1.5million
Members ceasing to be in public practice should ensure PII cover remains in place for
at least 2 years
recommended consider maintaining 6 years
GDPR
LEgislation to enforce anyone who handles personal info regarding UK and EU citizens to protect them from privacy and data breaches
Penalty for main ML offences
Up to 14 years
Penalty for tipping off
up to 2 y in prison
penalty for not disclosing ML
up to5 years in prison
ML contravention of systems requirements of regulations
up to 2 year in prison
AML Procedures
Register with appropriate supervisory authority
appoint MLRO
Train staff to ensure aware of relevant legislation, know how to recognise and deal with ML and report MLRO and identify clients
establish appropriate internal procedures related to risk assessment and management to deter and prevent ML and make relevant individuals aware of procedures
carry out customer DD on new client and monitor existing client
Verify identify of new client and maintain evidence
Report suspicions to NCA using suspcisoiu activity report
from 1 April 2023, AML levy payable, for regulated entities (accountants, solicitors, banks and insurers) fixed fee.
small firm size and amount
small < 10.2m
amount = exempt
from 1 April 2023, AML levy payable, for regulated entities (accountants, solicitors, banks and insurers) fixed fee.
Medium firm
10.2 mil - 36 mil
10,000
from 1 April 2023, AML levy payable, for regulated entities (accountants, solicitors, banks and insurers) fixed fee.
Large
36 mil - 1 bil
36000
from 1 April 2023, AML levy payable, for regulated entities (accountants, solicitors, banks and insurers) fixed fee.
v large
> 1 bil
250k
Benefits of MTDfB
Record keeping software- keep on top of business finance on move
digital tax account - use info from record keeping software
digital tax - tax info in real time
set up employees and register new services digital tax account
HMRC helps with interactive guidance
Can choose to make single quarterly payment to cover self assessment and VAT
Income to child from gift from parent > £100
treated as parent income
Exempt income?
Interest on national saving certificates?
Yes
Exempt income?
ISA income
Yes
Exempt income?
Betting, lottery and premium bond
Yes
Exempt income?
Social security benefit (housing, child)
Yes
Exempt income?
First 7,500 from gross annual rent from letting under rent a room scheme
Yes
Exempt income?
Scholarships
Yes
Exempt income?
Income tax repayment interest
Yes
Exempt income?
Universal credit
Yes
Exempt income?
Apprenticeship bursaries paid to care leavers
Yes
Exempt income
Payments made under compensation schemes
Yes
Gifting assets - amount deducted is
MV of shares/securities at date of disposal+
incidental costs of disposing -
consideration given in return -
value of other benefits received by donor
Qualifying shares ?
-listed/dealt on recognised stock exchange?
Yes
Qualifying shares
Units in authorised unit trust?
Yfes
Qualifying shares
shares in open-ended investment company
Yes
Qualifying shares
Holdings in certain foreign collective investment schemes
Yes
Interest payments deductable from total income when
- buy plant/machinery for partnership or employment
- to buy interest in close company (ordinary shares) or lending
- To buy shares in employee controlled company
- to invest in partnership (borrower be partner)
- Buy shares /lend to cooperative (work for them)
- to pay inheritance tax
What is a money purchases scheme
value of pension depneds on value of the investments in the pension scheme at the date you set aside funds to produce these benefits.
Disallow for rental car
15% lease amount if emission > 50g/km
Disallow/allow
Donation to big charities
disallow
Disallow/allow interest on overdue tax
not deductable
Disallow/allow
entertianing customer
not deductible
Deductible/not deductible
pre trading expendtiure
Yes - deemed to be incurred on first day if incurred within 7 years of starting date of trade and would have been deductible if incurred in trade
Fixed rate deduction - deduction for car / goods vehicle
45p . mile 10k miles 25p after
Fixed rate deduction for motorcycle
24p/mile
Monthly fixed rate deduction for home for business
25 - 50 hours = 10
51 - 100 = 18
101 + hours = 26
Business premises partly as home, add back based on occupant:
1 = 350
2 = 500
3+ = 650
When is change of accuonting date accepted
first 3 years of business
Notify HMRC of change by 31 jan after tax year, POA not greater than 18 months, no previous change in last 5 tax years unless genuine groudns
Special rate pool WDA for 12 months
6%
Special rate pool includes
Long life assets?
Yes
Special rate pool includes thermal insulation of buildings
Yes - not residential property
Special rate pool includes integral features
Yes
Special rate pool includes solar panels
Yes
Special rate pool includes cars
Yes if CO2 > 50g/km
Integral feature
Electric systems?
yes
Integral features
cold water system?
Yes
integral feature
space/water heating system, powered ventilation system, air cooling/purification, ceiling comprised in system
Yes
Integrall feature
lift/escalator/moving walkway
Yes
Integral feature
external solar shading
Yes
SBA Qualifying structure
Offices
Yes
SBA Qualifying structure
Retail and wholesale premises
Yes
SBA Qualifying structure
Factories
Yes
SBA Qualifying structure
Warehouses
Yes
SBA Qualifying structure
Hotels
Yes
SBA Qualifying structure
Care homes
Yes
SBA Qualifying structure
Roads, walls, bridges and tunnels
Yes
SBA Qualifying structure
Residential property or building functioning ass dwelling (student/military accommodation/prison)
No
SBA Qualifying expenditure
Construction cost/acquistion cost (if bought from developer)
Yes
SBA Qualifying expenditure
Cost of land
No
SBA Qualifying expenditure
Cost of planning permission
No
SBA Qualifying expenditure
Fees
no
SBA Qualifying expenditure
Stamp duty
No
S83 Losses - carry forward
Carry forward
set against future trading profit from same trade
carries forward until used/cease to trade
automatic, cannot restrict use to preserve PA
agree amount of loss within 4 years of end of tax year in which loss arose
S64 Loss - current year and or prior year
Current year and or prior year
Set against total income (SI, SI and Div)
limited to current and prior year
optional, but all or nothing can be claimed in one or both years, and set off in any order
S261B Losses - TCGA - relief against gains
Set against gain before other capital losses,
limited to current and or prior year (offset using s64 in first year of gain)
Max loss v gain is lower of unrelieved trading loss/CY gains - CY capital losses and B/F Capital losses
S261B TCGA Conditions
Maximum loss v gains is lower of
unrelieved trading loss or
CY gain - CY capital losses and BF capital losses
S72 loss in first four tax years
Set against total income
carry back to prior 3 years on FIFO basis
optional, but all or nothing
S.89 terminal loss relief on cessation
Set against trading profit from same trade
carry back to prior 3 years on LIFO basis
optional but all or nothing
S64 claim dates
within 12 months from 31 jan followign end of tax year in which loss arose
s261b claim dates
within 31 months from 31 January followign end of tax year in which loss arose
S71 claim dates
within 12 months from 31 January following end of tax year in which loss arose
s89 claim dates
within 4 years of endow last tax year in which business operated
S64 income restriction
higher of £50,000 or 25% of ani
S72 income restriction
higher of 5000 or 25% of ANI
S64 non-active trader restriction
Max 25000
S261b TCGA non active trader restriction
max 25000
S72 non active trader restriction
Max 25,000
Long life asset if
When new working life > 25 years, and total expenditure on this kind of asset is greater than £100,000 in the 12 month accounting period, pro rate shorter periods and 51% related companies
Tax evasion definition
Illegal suppression of information or deliberate provision of false information
