Taxation NI - theory Flashcards
identify any four payments to which PAYE can be applied
In addition to the normal payment of wages & salaries, PAYE can be
applied to bonuses, commissions, pension income, SSP, SMP, SPP, assets
readily converted into cash and some BIK processed through payroll.
outline the circumstances where it is permissible to transfer a % of their personal allowance to their spouse and note the maximum amount which may be transferred in 20/21
A spouse or civil partner whose taxable income is less than £12,500 is able
to transfer up to £1,250 of their unused personal allowance to their spouse or
civil partner, known as the marriage allowance.
The recipient must not be liable to tax above the basic rate.
The allowance is only available to those born after 6th April 1935.
The relief is given as a tax reducer and is deducted from the tax liability. Since
the recipient is, at most, a basic rate taxpayer, this means that the maximum
tax relief is £1,250 x 20% = £250
Explain why a taxpayer may complete form 64-8 and what this form covers.
If a taxpayer wishes to appoint an agent to deal with their tax affairs on their
behalf, they must give them authorization to do so.
Form 64-8 (signed by the taxpayer & submitted to HMRC) is used by a
taxpayer to give authorization to an agent for their individual tax affairs and
business taxes.
Explain what each of the following tax-code suffixes mean: BR
BR This informs the employer to deduct basic rate tax from all payments made to the
employee (no ‘free pay’)
Explain what each of the following tax-code suffixes mean: D0
D0 This informs the employer to deduct the higher rate of tax (40%) from all payments
made to the employee.
There is no ‘free pay’ and the basic rate is not applied
Explain what each of the following tax-code suffixes mean: D1
D1 This informs the employer to deduct the additional rate of tax (45%) from all
payments made to the employee.
There is no ‘free pay’ and neither the basic rate, not higher rate of tax, are applied
Explain what each of the following tax-code suffixes mean NT
NT This means ‘no tax’ and instructs the employer not to deduct any tax from the
payments made to the employee.
Give any FOUR examples of employment income (i.e. cash or non-cash receipts/benefits from an
employer) which are exempt from income tax.
Employment income exempt from income tax could include from the
following:
- All employer contributions to the pension scheme.
- Provision of car-parking spaces near the place of work.
- Approved mileage allowance.
- Approved subsistence rates.
- Free or subsidised canteen meals if available to all employees.
- Annual Christmas party, or similar, up to £150 per employee per annum.
• Workplace childcare or up to £55 per week to an external childcare
provider for a basic rate taxpayer with lower amounts for higher rate and
additional rate taxpayers (scheme closed to new entrants since 10/2018).
• Non-cash long service awards for service > 20 years and to a value of up
to £50 per year of service.
• Relocation expenses up to £8,000.
Outline the circumstances which would permit HMRC to make a formal VAT assessment and the time
limits for making such assessments.
HMRC may make formal VAT assessments if they believe that a VAT
return is incorrect or incomplete.
The time limit for HMRC to make a
formal assessment is 4 years after the end of a VAT period.
This period is
extended to 20 years if a trader has acted fraudulently or dishonestly.
Identify any FOUR circumstances which necessitate the submission of a self-assessment tax return.
It may be necessary to complete a tax return because the individual:
- Is self-employed with income exceeding £1,000.
- Is a company director.
• Receives income (from savings, investment or property) above a certain
level (varies according to the nature of the income).
- Has foreign income liable to UK taxation.
- Has annual income > £100,000.
• Is employed and wants to claim for expenses or professional
subscriptions of £2,500 or more.
• Owes tax to HMRC which cannot be collected through a change to their
tax code.
• Has a capital gains tax liability.
• Earned £50k or more and they, or their partner, claimed child benefit
during the year
a small taxable benefit in kind for
the first time and is wondering if there is any way he can avoid having to make a separate payment
of the tax due to HMRC or complete a tax return. Briefly, advise Dan of his options in this matter.
If the additional tax liability is small (
By what date (at the latest) should Michael have notified HMRC that he has commenced to trade
as self-employed and must complete a self-assessment?
HMRC must be notified within 6 months of the end of the first tax year i.e.
by 5/10/2020
Outline eligibility for, and the operation of, the annual accounting scheme for VAT.
: Annual Accounting Scheme (VAT), relevant points from:
• Eligible to those for whom the value of taxable supplies is less than
£1.35M.
• Eligible traders are those who are up-to-date with their VAT returns &
not convicted of a VAT offence or have been charged a VAT penalty.
• Payment is by NINE monthly payments (equal to 90% of estimated
VAT liability) OR THREE quarterly payments (equal to 75% of
estimated liability).
• There is ONE annual VAT return, due TWO months after the end of
the VAT year.
• A balancing payment is due at the same time as the submission of the
annual return.
• Traders in the scheme must leave when the value of their turnover
exceeds £1.6M.
Explain how both new furniture/appliances and replacement furniture/appliances are
treated for tax purposes (with respect to their tax deductibility, or not) in the hands of
the landlord.
) With respect to the deductibility of furniture expenses
(acquisition/replacement) borne by landlords:
• Landlords may obtain full tax relief for the cost of replacing items of
furniture/appliances (with a similar standard) in the year in which this
expenditure is incurred.
• No such tax relief is available for the cost of initial acquisition of such
furniture/appliances.
Identify the circumstances when Class 2 National Insurance Contributions become
payable and explain how they are collected.
With respect to liabilities for Class 2 National Insurance Contributions:
• Class 2 NIC are payable by the self-employed at the flat rate of
£3.05.
• The self-employed person must have profits greater than the small Profits Threshold (£6,475) before class 2 NIC become payable.
• If the Small Profits Threshold is not breached, the self-employed
person can voluntarily elect to pay Class 2 NIC.
• Class 2 NIC are collected via self-assessment and are paid in January
and July.
• Class 2 NIC liabilities do not form any part of payments on account.
Outline any four Social Security Payments which are exempt from income tax.
Child benefit, child’s special allowance, child tax credit.
- DLA.
- Cold weather payments.
- Bereavement payments.
- Incapacity benefit for first 28 weeks of entitlement.
- Council Tax Benefit.
- War widow’s pension.
- Working Tax Credit.
- Housing Benefit.
Briefly outline the circumstances in which a week 1/month 1 basis should be
applied to payroll computations.
Week 1 / Month 1 when:
HMRC advice use of a ‘D’ code;
HMRC adds a week1/month 1 marking to ANY other code;
A new employee starts & a week 1/month 1 code is on their
P45;
A new employee starts and has not received a P45.
what are direct taxes
Direct taxes are imposed on the income or profits of an individual or company, such as Income Tax and Corporation Tax.
what are indirect taxes
Indirect taxes, on the other hand, are imposed on goods and services, such as Value Added Tax.
what ministerial department is responsible for maintaining control over public spending
HM Treasury is a ministerial department of the government and is responsible for maintaining control over public spending
who formally imposes taxes and who is this managed by
The Treasury formally imposes the taxes, and is managed by the Chancellor of the Exchequer.
what is HMRC
Her Majesty’s Revenue and Customs (HMRC) is a vast non-ministerial department of the UK government, and carries out the administration function for the collection of tax
What are the main responsibilities of HMRC
- Safeguard the flow of money to the Exchequer through collection, compliance and enforcement activities;
- Make sure that money is available to fund the UK’s public services;
- Facilitate legitimate international trade, protect the UK’s fiscal, economic, social and physical security before and at the border, and collect UK trade statistics;
- Administer Statutory Payments such as Statutory Sick Pay and Statutory Maternity Pay;
- Help families and individuals with targeted financial support through payment of tax credits;
- Administer Child Benefit.
what are hmrc staff members called and what are they responsible for
HMRC staff members are referred to as “Officers” and are responsible for supervising the self-assessment system and agreeing tax liabilities
list the main taxes
Income tax
corporation tax
capital gains tax
inheritance tax
national insurance contributions
Value added tax
air passenger duty
insurance premium tax
climate change levy
soft drinks industry levy
how are tax statutes updated?
statutes are updated every year by the annual Finance Act, which incorporates the proposals set out in the annual Budget
list the guidance HMRC provides on application
statements of practice
extra-statutory concessions
leaflets
business economic notes - on a particular industry
internal guidance
tax bulletins and press releases
what is the self-assessment system
The self-assessment system places reliance on the taxpayer to file a tax return and to pay any tax due.
The system is enforced by penalties and interest charges for failure to submit returns within the relevant period.
The tax return is prepared by the taxpayer or their agent, and is submitted to HMRC for checking along with any outstanding liability.
once a taxpayer is within the self-assessment system when will they have to submit a tax return
Once the taxpayer is within the self-assessment system, they will be required to submit a tax return each year until HMRC decides that their tax affairs are straightforward and that a tax return is not required.
when does a taxpayer have to notify HMRC that they need to complete a tax return
Taxpayers who have not received a tax return, but have received an untaxed source of taxable income or gains in the year, are obliged to notify HMRC within six months of the end of the tax year i.e. by 5 October 2020 for 2020/21 .
what are the conditions that result in an individual not being subject to the Self-Assessment system
an individual is not subject to the Self-Assessment system if all of the following are satisfied:
- All income is taken into account under PAYE;
- The individual does not have any capital gains;
- The individual is not a higher rate taxpayer; and
- Income tax has been deducted at source.
what are the criteria that would result in someone needing to complete a tax return
Individual is self-employed, with income exceeding £1,000 which includes being a member of a partnership;
Individual receives income above a certain level from savings, investment or property:
Individual has received foreign income that is liable to UK tax;
- Individual’s annual income is £100,000 or more;
- Individual is employed and wants to claim for expenses or professional subscriptions of £2,500 or more;
- Individual owes tax and HMRC cannot collect it through their tax code, or the individual prefers to pay direct;
Individual has a Capital Gains Tax liability(from 6 April 2020, disposals of residential property must be reported and paid to HMRC within 30 days of the sale); or
Individual (or individual’s partner) earned income in excess of £50,000.
what are the 3 penalty rates for a failure to notify hmrc of need to complete SA return
Deliberate and concealed - 100% of tax due
Deliberate but not concealed - 70% of tax due
Otherwise - 30% of tax due
what is the tax return formally known as
The tax return is formally known as a Form SA100, and most tax returns can be submitted online
what is filing a tax return online known as
Tax returns can be completed and filed electronically using the HMRC Online Service; this process is known as “Filing-by-Internet” (FBI).
list the different sections in a tax return
tell us about you
tailor your return
completing your return: employment income self-employment income rental income capital gains foreign income UK Interest dividends
check your return
view tax calculation
save return
submit return
what does a taxpayer have to declare before they submit their tax return
Before submitting the return, the taxpayer is asked to declare that the information is complete and correct to the best of their knowledge.
what is the due date for submission of a PAPER Tax return
31 October following the relevant tax year, if submitted in paper format (unless an exclusion applies).
what is the due date for submission of an ELECTRONIC Tax return
31 January following the relevant tax year, if submitted in electronic format
what are the 3 exceptions to the due dates of filing a tax return rules
If HMRC did not issue a notice to file a tax return until after 31 July following the relevant tax year but before 31 October, the latest filing date for paper returns is three months from the date of the notice. The date for electronic filing remains 31 January;
If the notice to file a tax return was not issued until after 31 October following the tax year, the latest filing date is three months from the date of the notice;
If the taxpayer wishes HMRC to collect their tax liability through their tax code, the deadline for submission is 30 December. Tax can only be collected through the tax code if the liability is less than £3,000 and if the taxpayer has sufficient income taxed via PAYE.
list the penalties that can be imposed if a tax return is submitted after the filing deadline
One Day
Initial £100 (applies even if Nil liability)
> Three Months
Additional £10 each day – up to a maximum of £900
> Six Months
Additional £300 or 5% of tax due – whichever is the higher
> Twelve Months
Additional £300 or 5% of the tax due – whichever is the higher.
In serious cases the taxpayer may be asked to pay up to 100% of the tax due instead.
what can a taxpayer do to recover overpaid tax?
A taxpayer who overpaid their tax can claim “overpayment relief” to recover any overpaid tax.
The individual must make the overpayment relief claim within four years of the end of the relevant tax year
what are hmrcs powers in relation to the correction of a tax return
HMRC can correct obvious errors in a tax return within nine months of the date the return is filed if they believe it to be incorrect
what are the taxpayers rights in relation to the correction of a return by HMRC
If the taxpayer does not agree with HMRC’s decision, they can object within 30 days and an enquiry into the return will occur
What are the taxpayers rights in relation to the amendment of a tax return
The taxpayer has the right to amend their tax return within 12 months of the latest filing date, regardless of the actual filing date (i.e. 31st Jan 2022 for 2020/21 tax year).
what is included in a payment on account for Self assessment
payment on account – 50% of previous year’s liability incl. Class 4 NIC, less amounts deducted at source (PAYE).
what is included in a balancing payment for self assessment
Final payment to settle any remaining liability – this is the balance of income tax, Class 2 & Class 4 NICs together with all the Capital Gains Tax due for a year.
when is payment of the 1ST Payment on account due by
31 January in the tax year
when is payment of the 2ND Payment on account due by
31 July following the tax year
when is payment of the Balancing payment for SA due by
31 January following the tax year
when are Payments on account not required
Payments on Account (POA) are not required if the liability is below £1,000.
Also, POAs are not required if 80% or more of the liability for the previous year was paid through PAYE.
POAs on Capital Gains Tax liabilities are not required
how can a taxpayer claim to have Payments on Account reduced
if the taxpayer believes their liability will be lower this year they can claim to have the POAs reduced.
The POAs can be reduced to a specific amount or to nil.
The claim must state the reason why the tax liability will be lower or nil.
If the actual liability is higher than what the taxpayer estimated, the taxpayer will not have paid sufficient amounts through the POAs. In this case, he/she will suffer an interest charge on the late payment
how is interest applied in the SA system
Interest may be charged on the late payment of POAs and balancing payments.
it will be applied from the due date to the day before the actual date of payment
what are the rules concerning interest payable if a taxpayer claimed to reduce POAs and a balancing payment is still due
If a taxpayer claimed to reduce his/her POA and there is still a final balancing payment due, the interest is charged on the POA as if each of those payments had been the lower of:
The reduced amount, plus 50% of the final income tax liability; or
The amount that would have been payable had no claim for reduction been made.
what are penalties for late payment of tax applied to
Penalties are imposed on the late payment of tax and apply to balancing payments (not POAs).
Also on
Tax due following an amended tax return
Tax due following a discovery assessment by HMRC
what are the penalties for payment of tax
30 days - 5% of tax unpaid at that date
6 months - further 5%
12 months - further 5%
explain a HMRC Enquiry
HMRC has the right to enquire into a tax return submitted by an individual.
The scope of the enquiry could cover any aspect of the personal return, this might cover anything included in the return or that should have been included therein.
This also includes any claims or elections that have been made
how long does HMRC have to commence an enquiry
Generally, HMRC has 12 months from the date the tax return was submitted to commence an enquiry.
However, if the return was filed late, or an amended return was submitted, the deadline is extended until the quarter following the first anniversary of the actual filing date of the return or amended return.
Quarter days are 31 January, 30 April, 31 July and 31 October
what can the reasons be for a HMRC Enquiry
The reason for the enquiry can be any of the following:
- Suspicion that the taxpayer may have undeclared income or may be claiming tax reliefs incorrectly;
- Information in HMRC’s possession; or
- As part of a random selection process.
HMRC does not have to state the reason for the enquiry, however written notice must be issued prior to the commencement of the enquiry.
what can HMRC demand during an enquiry
During an enquiry, HMRC can demand a company or individual to produce documents and accounts for inspection and to provide full answers to specific questions.
The information requested must relate to the specific transaction or activity in question.
The individual has 30 days to provide the information to HMRC.
If it is not supplied, HMRC will issue a formal legal notice requiring the individual to provide it.
If it is still not supplied, a standard penalty is imposed of £300 and additional penalties of up to £60 per day are imposed until the information is supplied.
what are the 3 outcomes to a HMRC Enquiry
HMRC must give notice to the individual informing them that the enquiry is finished. There are three outcomes to an enquiry:
- There is no further tax liability for the individual;
- The individual paid too much tax – HMRC will amend the tax return and repay the overpaid tax and interest to the individual; or
- The individual has not paid sufficient tax – HMRC will amend the tax return and ask the individual to pay the additional tax liability, and interest, within 30 days. The individual has 30 days to appeal against HMRC’s decision (see Section 1.16).
what is a HMRC Discovery assessment
If HMRC believes that a return has been submitted, but the tax liability has been understated, they can make a discovery assessment to collect the additional tax
what are the time limits for HMRC to raise a discovery assessment
The time limit for raising a discovery assessment to correct a careless error is normally four years after the end of the tax year concerned.
However, this is extended to six years if the taxpayer is negligent or twenty years if dishonest.
what is a HMRC determination
A HMRC officer can make a determination of tax due if an individual ignores the notice to submit a tax return.
The officer can determine the tax liability to the best of their ability with the information available.
A determination cannot be appealed or postponed.
It can only be displaced if the individual submits their tax return
how long do records have to be kept by taxpayers
the records must be kept for 12 months from the return filing date
Taxpayers in business or those who let property must keep records for five years from the 31 January following the end of the tax year
HMRC can specify a shorter time limit for keeping records where records are bulky and information can be provided in another format.
what requirements are placed on taxpayers in relating to records
Taxpayers are required to keep proper records so they can make a correct return
Taxpayers can keep information rather than records but must show that they have prepared a complete and correct tax return
The information must be produced in a legible format on request.
Records can be kept in electronic format.
what are hmrc’s powers in relation to inspection of records
HMRC can inspect records which are being maintained during the tax year, i.e. before a return is submitted, if they reasonably believe that the tax position should be checked.
what is the penalty for failure to keep and retain records
The maximum penalty for failure to keep and retain records is £3,000 per tax year or accounting period.
What is the purpose of HMRC’s information powers
to ensure that taxpayers are compliant with their obligations, pay the correct amount of tax (within the required timeframe) and claim reliefs and allowances correctly.
from who can HMRC request information
HMRC can use its statutory powers to request information from taxpayers and third parties via a written information notice in circumstances where the taxpayer has not co-operated fully with previous requests for information
A notice for information that is issued to third parties must be done with the agreement of the taxpayer or approval of the Tribunal, unless the information relates only to the individual’s VAT affairs
A tax advisor or accountant cannot be asked to provide information connected with their function
what information can HMRC Request
The information that HMRC can request includes both financial records and supplementary documents such as diaries, notes and contracts.
The information requested must be reasonably required for the purposes of checking an individual’s tax position.
what information can HMRC NOT REQUEST
HMRC cannot request information that:
• Relates to a pending tax appeal;
- Constitutes journalistic material;
- Is legally privileged;
- Is over six years old – except with approval of a HMRC officer; or
- Relates to someone who died over four years earlier.
Outline HMRC’s inspection powers
HMRC authorised officers have the power to enter the business premises of a taxpayer whose liability is being checked.
They can inspect the premises, business assets, and business documents that are on the premises.
They cannot, however, access part of the premises that is used as a private dwelling.
Again, the inspection must be reasonably required for the purposes of checking the taxpayer’s tax position.
the officer can carry out the inspection at any reasonable time provided the taxpayer has received seven days written notice
There is no right of appeal against an inspection notice
what are the 2 different types of disclosures that can be made to HMRC
Unprompted
Prompted
what are the 3 different reasons for errors in tax returns
Careless
(trader failed to take reasonable care
Deliberate
(trader knowingly sent HMRC an incorrect document
Deliberate and concealed
(trader knowingly sent HMRC an incorrect document and tried to conceal the inaccuracy
what must an inaccurate return result in for a penatly to be imposed
An understatement of the taxpayer’s liability;
- A false or increased loss for the taxpayer; or
- A false or increased repayment of tax to the taxpayer
OR
where HMRC Make an assessment and
The assessment understates the liability and
• The taxpayer fails to take reasonable steps to notify HMRC of an under-assessment within 30 days.
what are the penalties charged for a careless error on a TR
Unprompted 0-30%
Prompted 15-30%
what are the penalties charged for a deliberate error on a TR
Unprompted 20-70%
Prompted 35-70%
what are the penalties charged for a deliberate and concealed error on a TR
Unprompted 30-100%
Prompted 50-100%
when will a penalty not arise on a TR
If the failure is not deliberate, a penalty will not arise if the taxpayer can show that they have a reasonable excuse
What is NOT considered to be a reasonable excuse for failure to file/pay
Reliance on a third party to prepare the return i.e. an accountant; or
• Insufficient funds to pay the liability.
what MAY be regarded as a reasonable excuse for failing to submit a tax return or make payment on time
Computer breakdown: where the records essential for the completion of a tax return are held on computer and it breaks down, either just before or during the preparation of the return. The trader must have taken reasonable steps to correct the fault.
Illness: where the person normally responsible for completing the tax return is unable to do so because of illness. The trader will need to show that there was no one else capable of completing the return. If it is a prolonged illness the trader will need to show that they have taken reasonable steps to appoint someone else to do the return.
Loss of key personnel: where the person responsible for completing the tax return leaves the job at short notice and there is no one else to complete the return on time for that period.
Unexpected cash crisis: where funds are unavailable to pay the tax liability due following the sudden reduction or withdrawal of overdraft facilities, sudden non-payment by a normally reliable customer, insolvency of a large customer, fraud, burglary or act of God (such as fire).
Loss of records: where records are stolen or destroyed. This excuse applies only to the current tax period
what are appeals normally made against
Appeals are normally made against a discovery assessment or against an amendment by HMRC to an assessment
when must an appeal be made
Appeals must be made within 30 days of the HMRC decision
what are the conditions for an appeal to be valid
For an appeal to be valid, it must:
• Be in writing;
- Specify in detail each item in the assessment against which the appeal is made; and
- Specify in detail the grounds for the appeal in respect of each item.
what are the taxpayers rights in relation to payment of tax assessed during an appeal
The taxpayer can apply to postpone payment of all or part of the tax assessed, pending settlement of the appeal.
how are most appeals settled
Most appeals are settled by informal means through internal review, where a HMRC review officer who has not previously been involved, is appointed to review the case.
This is less costly and a more effective way of resolving issues.
The taxpayer must either accept the review offer or notify an appeal to the Tribunal within 30 days of being offered the review.
The review must be carried out within 45 days.
what can a taxpayer do in terms of appeals once an internal HMRC Review has been conducted
After the review is concluded and the taxpayer notified, they have 30 days to appeal to the Tribunal or they may decide to use the Alternative Dispute Resolution (ADR) before going to tribunal
explain what ADR is
ADR is a different way of dealing with a tax dispute with HM Revenue and Customs (HMRC), by involving a third party who has not been involved in the dispute, to work with the taxpayer and the HMRC officer dealing with the case.
The person leading the ADR will act as a neutral, third party mediator. They don’t take over responsibility for the dispute.
ADR aims to help the taxpayer resolve disputes or get agreement on which issues need to be taken for a legal ruling.
The taxpayer can apply for ADR if progress has stalled with respect to their dealings with HMRC. For example, during a compliance check
who hears tax appeals?
Tax appeals are heard by Tax Tribunals
what are the two tiers of the tax tribunals
First-Tier Tribunal
Upper Tribunal
what does the First-Tier Tax Tribunal do
First-Tier Tribunal:
Appeals against less complex decisions made by HMRC will be heard by the
First-Tier Tribunal.
what does the Upper Tax Tribunal do
Upper Tribunal:
will hear appeals against more complex cases involving large sums or important issues of law.
The Upper Tribunal will also hear appeals against decisions made by the First-Tier Tribunal
what is MTD
Understanding the growing trend from paper to digital, the Government identified an opportunity to increase revenues from taxation by making digital records a compulsory requirement
The current regulations only cover VAT; however, it is the intention of the Government to introduce similar reforms for Income Tax
What are the requirements of MTD for VAT
the business will be required to maintain digital records and submit returns via Application Programming Interface (API) enabled software
what are the criteria for exemption from MTD for VAT
If it is not practical for the proprietors of the business to utilise digital tools because of age, disability, remoteness of location or for any other reason;
- The business is subject to an insolvency procedure; or
- The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
What are the three core areas that make up MTD
digital records, digital links, and API enabled software.
what are digital records
Digital records consist of designatory data, and information relating to supplies made and received.
These records must be entered into the API enabled software
what are digital links
businesses must acquire software that allows details of sales and purchases to flow from the accounting system into a VAT report which is then submitted via API enabled software to HMRC
this is the digital journey
what is API enabled software
API enabled software simply connects with HMRC’s internal system, allowing HMRC and the business to exchange updates (such as change of business address or VAT accounting scheme).
what are the purposes of the ATI Code of Professional Ethics
To set out expected standards of professional behaviour.
- To help protect the public interest.
- To help maintain Accounting Technician Ireland’s good reputation.
list the 5 fundamental principles of the ATI code of professional ethics
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
explain the fundamental principle of integrity as per ATI Code of ethics
Integrity:
Accounting technicians should be straightforward and honest in all professional and business relationships.
They should not be associated with any reports or documents they believe may be materially false or contain misleading statements
explain the fundamental principle of objectivity as per ATI Code of ethics
Objectivity:
Accounting technicians should be fair and should not allow bias, conflict of interest or undue influence of others to override professional or business judgements.
explain the fundamental principle of professional competence and due care as per ATI code of ethics
Professional Competence and Due Care:
Accounting technicians have a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantage of competent professional service based on current developments in practice, legislation and techniques
explain the fundamental principle of confidentiality as per the ATI code of ethics
Confidentiality:
Accounting technicians should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper specific authority or unless there is a legal or professional right or duty to disclose.
There are certain circumstances where disclosure by accounting technicians is specifically required by law
outline circumstances where it may be necessary to disclose confidential information
Producing documents or giving evidence in the course of legal proceedings.
• Disclosing infringements of the law to the appropriate public authorities.. Specific examples of this are money laundering or failure to disclose sources of income to HMRC
outline the points which should be considered when an accounting technician may have to disclose confidential information
When the accounting technician has determined that the confidential information can be disclosed, the following points should be considered:
- Whether all the relevant facts are known and substantiated When the situation involves unsubstantiated fact or opinion, professional judgement should be used in determining the types of disclosure to be made, if any.
- What type of communication is expected and to whom it will be communicated.
Whether or not the accounting technician would incur any legal liability having made a communication.
explain the principle of professional behaviour as per the ATI code of ethics
Professional Behaviour –
Accounting technicians should comply with relevant laws and regulations and should avoid any action that discredits the profession.
what is money laundering
Money laundering occurs when an individual does not declare income or withholds information from HMRC relating to proceeds from crime.
what should each accountancy firm appoint
Each firm should appoint a Money Laundering Reporting Officer
what should be done by firms in respect of money laundering measures
If an accountancy practice takes on a new client, a staff member should carry out the money laundering procedures to verify the identity of the individual by reliable and independent means.
If the client is an individual, the member should obtain a driving licence or passport and proof of address.
If the client is a company, the member should obtain evidence of incorporation, business address, and verify the identities of the directors.
If such verification is not available, the practice should not accept the client
how long should MLID verification be retained for
Records of the verification should be retained for at least five years after the end of the client relationship.
what should a member do if they become suspicious of client activities
If during the course of the client relationship the member becomes suspicious about the client activities, they should report the case to the Money Laundering Officer.
Transactions that do not appear to have an economic or legal purpose should be investigated, and any finding should be documented in writing.
what should a member do if they suspect a proceeds relate to proceeds of crime
If the member suspects or knows that proceeds are directly or indirectly related to proceeds of crime, the suspicions should be reported to the Serious Organised Crime Agency
what should a member do if they suspect tax evasion
If tax evasion is suspected, members should also report their suspicions to HMRC
what is tipping off in relation to Money laundering
Members should not “tip off” a client that a report has been made.
Persuading a client not to proceed with the intended crime will not constitute tipping off
list the layout a letter should take in the exam
The address of the client in the top left hand corner of the letter – if the address is not provided in the question, the student should develop their own address;
- Date – the student should include a relevant date;
- The salutation should be “Dear…..”;
- An appropriate introduction should be given in the letter, for example: “Further to our recent meeting, I have detailed below the factors which should be considered when…..”;
- The body of the letter should set out clearly the information that the client has requested;
- The letter should be concluded with a statement such as “If you require any further information, please do not hesitate to contact me.”; and
- The letter should be signed off with “Yours sincerely”.
list the layout a memo should take in the exam
To: .................................. From: .............................. Date: ............................... Re: .................................. The purpose of this memo is to outline
what is the restriction on where the basic personal allowance where income exceeds £100,000
Where an individual’s “Adjusted Net Income” is above the income limit of £100,000, the amount of the allowance will be reduced by £1 for every £2 above the income limit.
½ *(Adjusted Net Income - £100,000)
what is a personal allowance
Most individuals are entitled to a personal allowance during the year, this is in effect an amount of income that can be earned tax free.
It is deducted from an individual’s net or total income to give “Taxable Income”.
what is the blind persons allowance BPA
The blind person’s allowance may be claimed by individuals who are registered blind.
The allowance of £2,500 is deducted from the individual’s taxable income
If an individual cannot make full use of the allowance the balance can be transferred to his/her spouse.
What is the married couple allowance MCA
A married couple allowance may be available to couples who live together and are either legally married or are in a civil partnership.
It is only available if one spouse was born before 6 April 1935
The maximum amount of the MCA is £9,075 and the minimum amount is £3,510, however unlike the personal allowances, this allowance is a tax reducer which means that it is multiplied by 10% and is deducted from the taxpayer’s tax liability
If the taxpayer’s adjusted net income is more than £30,200 in the tax year, the MCA is restricted.
The amount of the reduction to the MCA is worked out by taking ½ *(Adjusted Net Income - £30,200)
What is the transferable marriage allowance
A spouse or civil partner whose taxable income is less than £12,500 is able to transfer up to £1,250 of their unused personal allowance to their spouse or civil partner provided that the recipient of the transfer is not liable to income tax above the basic rate.
The relief is given as a tax reducer and is deducted from the tax liability.
The maximum relief available is £1,250 * 20% = £250.
what are benefits in kind (BIK)
Benefits are generally in the form of goods and services such as, the provision of a company car, interest free loan, living accommodation etc.
These benefits are known as “Benefits in Kind”, or “BIKs” for short.
As these benefits are non-cash, there are specific rules for determining their taxable value
What is the general tax treatment of Benefits in Kind
The taxable value of these benefits is added to an individual’s salary and is taxed as employment income.
what are the benefits in kind that an employer can provide to the employee tax free
- £6 per week if a working from home arrangement is in place
- An employer’s contribution to a registered pension scheme.
- The provision of a car parking space near the employee’s place of work.
- “Green Commuting” benefits paid for by the employer to encourage green commuting to and from work, this includes provision of bus, rail passes and bikes and safety equipment loaned to employees.
- Approved mileage allowances – if mileage expenditure is reimbursed by an employer at the HMRC approved rates, it is not taxable when it is received by the employee.
- Subsistence rates of £5 per night for employees working away from home but within the UK. A rate of £10 per night is available for employees working abroad. This subsistence covers expenses such as food, telephone calls, laundry etc.
- Free or subsidised meals in a staff canteen, if available to all employees.
- Annual Christmas party or other event. The event must be available to all employees and must not cost more than £150 per person. If the event costs more than £150 per person then the full amount is taxable.
- Provision of workplace childcare, sports or recreation facilities.
- If workplace childcare is not provided then, up to £55 per week (£243 per month) can be paid to an approved childminder. This scheme has been closed to new applicants since October 2018, although it is still available for those who registered before October 2018.
- Non-cash long term service awards for service longer than 20 years, £50 per year is exempt, as long as no such award has been made to the employee in the previous 10 years.
- Reasonable removal expenses paid to an employee when they commence employment or transfer to a new location. This is up to a maximum of £8,000.
- Job related living accommodation is exempt. To qualify for job related accommodation the employee must be required to stay at the accommodation as part of the terms of employment. Examples include caretaker and a light housekeeper. It is also job related if staying at the accommodation results in the better performance of duties. Examples include police officers and a vicar/priest.
- Taxi home for an employee who occasionally is required to work later than usual and until at least 9pm (no more than 60 journeys a year).Reasonable gifts made by the employer to the employee in a personal capacity rather than as remuneration for services rendered (i.e. made on exam success).
- Provision of one mobile phone for an employee’s use.
- Awards of up to £5,000 made under a staff suggestion scheme.
- Cost of work-related training courses for an employee and payment of up to £15,480 per academic year to an employee attending a full-time course at a recognised educational establishment.
- Provision of an eye test and glasses for VDU use, provision of one health screening and one medical check-up per year, if available to all employees
list the main benefits in kind to which special rules exist for calculating the taxable value of that benefit
The main expenses and benefits for which special rules exist are:
- Vouchers
- Living accommodation
- General business expenses
- Company cars
- Company cars – fuel benefit
- Company vans
- Company vans – fuel benefit
- Private use of employer assets
- Preferential loans
- Expenses connected with living accommodation
what is the tax implication of a cash voucher as a benefit in kind
Subject to PAYE when given to the employee
what is the tax implication of a non-cash voucher as a benefit in kind
An assessable benefit arises on employee.
- The amount of the benefit is the cost to the employer of providing the voucher.
- Exception – certain vouchers are exempt benefits; i.e. £55 per week of child care vouchers. The excess over these amounts are taxable.
what is the tax implication of a credit token as a benefit in kind
These include a company credit card.
- A benefit arises when goods/services are purchased for private use.
- The benefit is the cost of the goods/services used for private purposes.
what is the tax implication of living accommodation as a benefit in kind
The tax implication of the provision of living accommodation depends upon whether it is job related or non job related.
If an employee is provided with job related accommodation, then a taxable benefit does not arise
If the accommodation is not job related then a taxable benefit arises and the benefit is equal to the higher of:
- Annual value of property (this amount will be given in the exam and is sometimes referred to as the “rateable value”); and
- Any rent paid by employer (if not owned by the employer).
The value of the benefit is reduced by any contribution by the employee
There is also an additional benefit if the accommodation was purchased for more than £75,000.
what are the criteria for job related accommodation where a taxable benefit DOES NOT ARISE
If an employee is provided with job related accommodation, then a taxable benefit does not arise.
Job related accommodation is that which is provided for the following reasons:
- Better performance (school caretaker)
- Customary (clergyman)
- Security reasons (Prime Minister)
What are the tax implications of general business expenses as a benefit in kind
If an individual incurs an expense in the performance of their employment duties, one of the following situations will arise:
- If the employer does not reimburse the employee for this expense, the expense can be deducted from the employee’s income for tax purposes;
- If the employer reimburses the employee, the reimbursed amount will be included as the part of the employee’s income for tax purposes. If the expense is an allowable expense it can be deducted from the taxable income
To avoid being taxed on reimbursed expenses, an individual must submit an expense claim and deduct it as an expense from their total employment income.
what are the allowable business expenses that an employee can deduct from their taxable income (BIKs)
IF they have been reimbursed by their employer
An allowable expense is one that falls into one of the following categories:
- Contribution to an occupational pension scheme, if deducted from the employee’s salary by the employer;
- Subscription to a relevant professional body;
- Donations made under payroll giving scheme;
- Travel and subsistence expenses incurred necessarily in the performance of the employment duties; and
- Other expenses incurred wholly, exclusively, and necessarily in the performance of the employment duties.
what are the tax implications of a company car as a benefit in kind (BIK)
If a car is provided to certain employees and is available for private use, then a taxable benefit arises.
Private use includes travel to and from home and the place of work.
The taxable benefit of the car is a percentage of the car’s list price based on its CO2 emissions.
The taxable benefit calculated includes all expenditure by the employer on; repairs, servicing, insurance, tax /licensing and cleaning of the car.
No additional benefit arises in respect of these items
What is the tax implications of a company van as a benefit in kind (BIK)
A taxable benefit arises if a company van is provided to certain employees for private use.
Unlike company cars, private use in this situation does not include travel to/from home and work.
If a company van is used for private use then an annual scale charge arises.
What is the tax implication of the provision of fuel for a company car as a benefit in kind
An additional taxable benefit may arise if an employee is provided with private fuel for the company car, during the tax year.
A taxable benefit will not arise if:
- Fuel is provided only for business use.
- The employee reimburses the employer in full for the private use of fuel. If the employee only makes a contribution towards part of the private use fuel then there is no reduction in the taxable benefit. An employee must repay all private fuel to avoid a taxable benefit.
The taxable benefit is calculated by multiplying the base figure by the same percentage used to calculate the car benefit.
what is the tax implication of the provision of fuel for a company van as a benefit in kind
If private fuel is provided for a company van, an annual fuel benefit will arise.
