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Taxation FA22 > Tax administration for individuals > Flashcards

Tax administration for individuals Flashcards

1
Q

Self-assessment - own tax liability

A
  • the taxpayer will be sent a notice to complete a self-assessment tax return annually. A return must be completed and filed - either on paper or online
  • different deadlines exist for filing paper and electronic (online) returns
  • the tax return covers income tax, class 2 and class 4 NICs and capital gains tax liabilities for the tax year
  • payment of the tax must be made by 31 January following the end of the tax year to which it relates
  • interim payments on account in respect of income tax and class 4 NIC maybe required on 31 January in the tax year and 31 July following the tax year for certain taxpayers
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2
Q

When is the return - filing deadline for self-assessment?

A
  • 31 October for a paper return
  • 31 January for an electronic (online) return
  • or if later, three months after HM Revenue and Customs issue a formal notice requiring completion of a 2022/2023 tax return
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3
Q

Return - calculation of tax where a return is filed electronically

A
  • a calculation of the tax liability is automatically provided as part of the online filing process
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4
Q

Return - calculation of tax, where a paper return is submitted

A
  • HMRC will calculate the tax liability on behalf of the taxpayer, provided the return is submitted by the 31 October deadline. The taxpayer also has the option of calculating the tax instead of HMRC
  • the calculation by HMRC is treated as a self-assessment on behalf of the taxpayer
  • HMRC merely calculates the tax liability based on the information submitted
  • HMRC normally communicates with the taxpayer by issuing a statement of account, which is a reminder of amounts owing to HMRC
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5
Q

What statement of account sets out? (issued by HMRC)

A
  • the tax charges
  • any charges of interest of penalties
  • any payments already made by the taxpayer
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6
Q

Within what time are amendments possible to the return?

A
  • HMRC may correct any obvious errors or mistakes within nine months of the date that the return is filed with them
  • the taxpayer can amend the return within 12 months of 31 January filling date
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7
Q

Where a self-assessment tax return is not filed by the filing date, HMRC may determine the amount of tax due. The impact of this is:

A
  • the determination is treated as a self-assessment by the taxpayer
  • the determination can only be replaced by the actual self-assessment when it is submitted by the taxpayer
  • there is no appeal against a determination, which therefore encourages the taxpayer to displace it with the actual self-assessment
  • determination can be made at any time within three years of the filing date
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8
Q

Taxpayers with a business, records that must be kept include:

A
  • all receipts and expenses
  • all goods purchased and sold
  • all supporting documents relating to the transactions of the business, such as accounts, books, contracts, vouchers and receipts
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9
Q

How long the records need to be kept?

A
  • until five years after the 31 January filling
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10
Q

Other taxpayer records what should be kept as evidence of income

A
  • dividend vouchers
  • p60
  • p11d
  • bank statements
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11
Q

The records of other taxpayers must be retained until the later of:

A
  • 12 months after the 31 January filing date
  • the date on which a compliance check into the return is completed
  • the date on which it becomes impossible for a compliance check to be started
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12
Q

A taxpayer is required to settle liabilities by 31 January following the end of the tax year for:

A
  • income tax
  • class 2 NICs
  • class 4 NICs
  • capital gains tax
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13
Q

What are the exceptions for payment on account?

A
  • the total liability (income tax plus class 4 NIC) less PAYE for the previous tax year is less than £1,000
  • more than 80% of the total tax liability (income tax plus class 4 NICs) for previous tax year was met by deduction of tax at source
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14
Q

When is the due date for payments on account?

A
  • first POA - 31 January in tax year
  • second POA - 31 July
  • any remaining liability is then settled on the balancing payment date 31 January
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15
Q

Self-assessment POA are only required for:

A
  • income tax
  • class 4 NICs
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16
Q

How is calculated POA?

A
  • it is using the previous tax year’s relevant amount
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17
Q

Calculation of relevant amount

A

Total tax liability for the year (income tax and class 4 NICs )
Less: PAYE

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18
Q

When can a taxpayer claim to reduce POAs?

A
  • if taxpayer expects the actual income tax and class 4 NIC liability (net of PAYE) for the tax year to be lower than the last year tax
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19
Q

Following the claim to reduce POAs

A
  • the POAs will be reduced
  • each POA will be for half the reduced amount, unless the taxpayer claims that there is no tax liability at all
  • if POAs based on the prior year figures are paid before the claim, then HMRC will refund the overpayment
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20
Q

What if incorrect claims to reduce POAs?

A
  • interest will be charged on the tax underpaid
  • a penalty may be charged if a taxpayer fraudulently or negligently claims to reduce POAs
  • a penalty will not be sought in cases of innocent error
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21
Q

Calculation of balancing payment

A

Total tax liability for the year
(Income tax, class 2 NICs, class 4 NICs and CGT)
Less: PAYE
Less: POAs

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22
Q

What are two types of interest?

A
  • late payment interest - 3.25% p.a.
  • repayment interest - 0.5% p.a.
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23
Q

When can interest arise?

A
  • payments on account
  • balancing payments
  • any tax payable following an amendment to a self-assessment
  • any tax payable following a discovery assessment
    It is charged on a daily basis from the date the tax was due to pay to the date of payment
24
Q

What is the interest charge based on incorrect claims to reduce POAs?

A
  • on the difference between the amounts actually paid and the amounts that should have been paid
  • the amount that should have been paid is the lower of: the original POAs based on the ‘relevant amount’ for the previous year or 50% of the final tax liability (excluding CGT, class 2 NICs, net of PAYE) for the current year
25
Q

Repayment interest if applicable when interest runs?

A
  • from the later of the date the tax was due or the date HMRC actually received the tax
  • to the date of repayment
26
Q

Penalties for late payment of income tax, class 2 NIC, class 4 NIC or CGT

A

More than 1 month late - 5% of tax due
More than 6 months late - additional 5% of tax due
More than 12 months late - additional 5% of tax due

27
Q

When can taxpayer claim for overpayment relief?

A
  • withing four years of the end of the tax year concerned
28
Q

Compliance check

A

-HMRC have the right to enquire into the completeness and accuracy of any self-assessment tax return
- HMRC must give written notice before commencing a compliance check
- the written notice must be issued within 12 months of the date the return is filed with HMRC
- once the deadline is passed, the taxpayer can normally consider the self-assessment for that year as final
- the information requested by HMRC should be limited to that connected with the return
- an appeal can be made against the request
- the compliance check ends when HMRC gives written notice that it has been completed
- the taxpayer has 30 days to appeal against any amendments by HMRC. The appeal must be in writing

29
Q

The compliance check may be made as result of:

A
  • a suspicion that income is undeclared
  • deductions being incorrectly claimed
  • other information in HMRC’s possession
  • being part of a random review process
30
Q

What can HMRC demand on compliance check?

A
  • documents
  • accounts
  • other written particulars
  • full answers to specific questions
31
Q

What closure notice must include regarding compliance check?

A

-confirmation that no amendments are required
- HMRC’s amendments to the self-assessment

32
Q

Discovery assessment can be raised at a later date to prevent the loss of tax. What is the time limit for issuing a discovery assessment?

A

Basic time limit - four years 5 April
Careless error - six years 5 April
Deliberate error - twenty years 5 April

33
Q

Appeals against the decision made by HMRC

A
  • within 30 days
  • mostly settled amicably by discussion
  • if not satisfied then: request that the case is reviewed by another HMRC officer, or have the case referred to an independent Tax Tribunal
34
Q

What is the Tax Tribunal?

A
  • is an independent body where cases are heard by independently appointed tax judges and/or panel members
35
Q

What are two tiers of the Tax Tribunal system?

A
  • First-tier Tribunal
  • Upper Tribunal
36
Q

What First-tier Tribunal deals with?

A
  • default paper case - no hearing
  • basic cases - min. exchange papers, short hearing
  • standard cases - more details, formal hearing
  • complex cases - mostly moved into Upper Tribunal
37
Q

What Upper Tribunal deals with?

A
  • reviews and decides appeals form the First-tier Tribunal on a point of law
  • detailed specialised knowledge
  • hearings are held in public and decisions are made public
38
Q

The standard penalty applies to two keys areas:

A
  • submission of incorrect returns - all taxes
  • failure to notify liability to tax - income tax, CGT, corporation tax, VAT and NIC
39
Q

The penalty is calculated as a percentage of ‘potential lost revenue’ which is generally the tax unpaid. What are the taxpayer behaviour and max penalty?

A

Genuine mistake
(for incorrect returns only) - no penalty
Careless/ Failure to take reasonable care - 30%
Deliberate but no concealment - 70%
Deliberate with concealment -100%

40
Q

What includes an incorrect return?

A
  • deliberately supplying false information
  • deliberately withholding information
  • inflating a loss and/or claims for allowances and reliefs
  • inflating a tax repayment claim
  • submitting incorrect accounts in relation to a liability
41
Q

The maximum penalties can be reduced where:

A
  • the taxpayer informs HMRC of the error
  • co-operates with HMRC to establish the amount of tax unpaid
  • with larger reductions given for unprompted disclosure
42
Q

There are minimum penalties that vary based on:

A
  • behaviour
  • whether disclosure was prompted or unprompted
43
Q

An unprompted disclosure is where taxpayer:

A
  • makes a disclosure
  • has no reason to believe that HMRC have, or are about to, discover the error
44
Q

A taxpayer can appeal to the First-Tier Tribunal against:

A
  • a penalty being charged
  • the amount of the penalty
45
Q

Penalties for late filing of returns

A

After due date - £100 fixed penalty
3 months late - daily penalties of £10 per day + £100 fixed penalty
6 months late - 5% of tax due (min. £300) plus above penalties
More than 12 months after due date where withholding information was:
- not deliberate - all above plus additional 5% of tax due ( minimum of £300)
- deliberate but no concealment - … 70% of tax due (minimum £300)
- deliberate with concealment - …. 100% of tax due (minimum of £300)

46
Q

What is the penalty for fraud or negligence on claiming reduced payments on account?

A

POAs should have paid x
Less POAs actually paid (x)

47
Q

What is the penalty for failure to keep and retain required records?

A
  • up to £3,000 per tax year
48
Q

What coding system enables?

A
  • different amounts of tax to be collected from different taxpayers, in varying personal circumstances
  • shows the employee’s reliefs and allowances for the tax year, less non-payrolled taxable benefits
49
Q

What can code number useful for?

A
  • the employer can calculate the correct amount of tax to deduct from pay each week or moth
  • L means ordinary personal allowance
  • prefix K non-payrolled taxable benefits exceed tax allowances, code number is negative, is added to pay before calculating tax, instead of being deducted
  • if no tax code then emergency tax code is issued
50
Q

Tax code calculation of allowances:

A

personal allowance x
allowable expenses x
adjustment for overpaid tax x
TOTAL

51
Q

Tax code calculation of deductions:

A

benefits x
adjustment for underpaid tax (must be less than £3,000) x
other income x
TOTAL DEDUCTIONS

52
Q

Tax code calculation

A

(Total allowances less total deductions) x 1/10

53
Q

Payments to HMRC PAYE

A
  • due for the payment to HMRC not later than 14 days after the tax month end
  • tax months runs from 6th day till 5th day of following month, therefore payment due is 19th of each month
  • 250 employees or more must pay PAYE electronically, 22nd day of each month
  • under 250 employees could by check 19th or electronically 22nd
  • employers whose average monthly payments of PAYE and NICs are less than £1,500 in total are allowed to make quarterly
54
Q

Penalty for late submission of RTI returns - real time information for PAYE

A

1-9 employees = £100
10-49 employees = £200
50 - 249 employees = £300
250 or more = £400
If submission is more than 3 months late, an additional penalty is charged of 5% of the tax and national insurance which should have been reported

55
Q

Key PAYE forms

A

P45 - Provided by employer to the employee when the employee, leaves; ongoing use for staffing changes
P60 - Year end summary; provided to the employee by 31 May following the tax year
P11D - Summary of benefits; Provided to HMRC and a copy to the employee by 6 July following tax year

56
Q

What form P60 shows?

A
  • employee’s national insurance number
  • employer’s name and address
  • employee’s name and address
  • total earnings for the year
  • final PAYE code
  • total income tax deducted for the year
  • total class 1 NIC for the year

Taxation FA22 (25 decks)

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