1. PTX Personal Taxation Introduction

2. Tax: 3 Rules of Thumb 1. If you increase your wealth, expect HMRC to tax it 2. Claim all possible tax deductions 3. Disclose all taxable income (to avoid problems later) 2

3. Objectives To be able to identify: When tax years start and finish The deadline for submitting a tax return Deadlines for paying tax What basis should be used to assess different types of income Income which is exempt from Income Tax How long records must be retained Responsibilities of a tax practitioner 3

4. Tax Year for Income Tax and CGT Tax year 2012/2013 starts on 6 th April Governed by Finance Act 2012 4

5. Tax Return and Payment Form SA100 Supplementary pages Submit by 31/10/13 (paper) 31/1/14 (on line) Payment on account 31/1/13 31/7/13 Final (balancing) payment 31/1/14 5

6. Types of Income Type of IncomeBasis of Assessment Property Income (Rent)Accruals Trading IncomeAccounting year which ends in 2012/13 Employment/pension IncomeReceipts Savings and Investment IncomeReceipts 6

7. Tax Computation See tax data and pro-forma Personal Allowance Tax Bands: Non-savings (General) Savings Dividends 7

8. Exempt Income ISAs NS&I Savings Certificates (not savings accounts) Prizes (eg. Premium Bonds) Damages 8

9. Record-keeping Keep to: 31/1/15 Filing deadline + 1 year 31/1/19 if there is trading/property income Filing deadline + 5 years Sufficient to substantiate the information provided to HMRC 9

10. Duties and Responsibilities of a Tax Practitioner Put forward the best position in favour of a client or employer 10

11. ETHICS QUIZ 11

12. Q1 When is a tax practitioner allowed to disclose information about a client without their authority 12

13. Q2 If an accountant suspects money laundering, to whom should he/she report it 13

14. Q3 Describe the types of communication with which an accountant should not be associated 14

15. ANSWERS 15

16. Q1 If there is legal, regulatory or professional duty 16

17. Q2 Money Laundering Reporting Officer, Serious Organised Crime Agency 17

18. Q3 False, misleading, reckless, omitting/obscuring information 18

19. PTX Personal Taxation Savings & Investments (Interest & dividends)

20. Objectives To be able to: Explain the basis on which investment income is taxed Identify income which is not taxed at source Identify income which is exempt from tax Gross-up income and calculate the tax due Explain record-keeping requirements 20

21. Taxation of Investment Income Receipts basis (not accrual) 21

22. Tax at source Most interest has tax deducted at source Basic rate Not NS&I accounts and income bonds Gilts Dividends are “deemed” to have tax deducted at source Not repayable

23. Gross (assessable) income: Questions Net savings income = £160 20% tax already deducted Gross = ??? Net dividend income = £270 10% tax already deducted Gross = ???

24. Tax-free Income These do not need to be reported on tax returns: ISAs (£11,280 per year) National Savings Certificates Premium Bonds

25. Record-keeping: Question What records might you keep relating to investment income?

26. Gross (assessable) income: Answers Net savings income = £160 20% tax already deducted Gross = £200 Net dividend income = £270 10% tax already deducted Gross = £300

27. Record-keeping: Answer What records might you keep relating to investment income? Tax deduction certificates Dividend vouchers Account details Working papers

28. PTX Personal Taxation Employment (Salaries, Bonuses, Pensions)

29. Objectives To be able to: Decide whether a taxpayer is employed or self-employed Decide when employment income is taxable Assess the taxable amount on a variety of benefits in kind Identify expenses which are allowable in calculating taxable income Explain record-keeping requirements 29

30. Income received + benefits in kind - allowable deductions Employment Income

31. Taxation of Employment Income Receipts basis (not accrual) 31

32. Indicators of Self-Employment (Contract for Services) Can employ substitute decide how/when/where to work choose work hours financial risk provide own equipment work for several people/organisations 32

33. Taxable Benefits 33

34. General Rule (P11D employees) Cash cost to employer 34

35. Employee contribution Reduces benefit (except fuel) 35

36. List price – employee contribution x scale charge % - employee contribution to running cost Company Car Benefit

37. Below 100g/km: see data sheet 100g/km: 11% +1% per 5g/km Max 35% Diesel: +3% Scale Charge %

38. £20,200 x scale charge % Ignore part contribution Fuel Benefit

39. Car & fuel benefits are time- apportioned if the car is not available for the whole tax year Timing

40. Pool Car Not a benefit if: Private use is incidental Used by several employees Not normally kept at employee’s home 40

41. Company Van No benefit if insignificant private use £3,000 for private use £550 for fuel for private use 41

42. Beneficial Loan Loan x (Official interest – Actual interest) No benefit if total loans <£5,000 If loan written off: Benefit = Amount of loan 42

43. Accomodation Annual value (or rent paid by employer if higher) +(Cost - £75,000) x Official interest + Cleaning etc + Assets x 20% Time apportioned 43

44. Accomodation Exempt for Representative occupier (Caretaker) Customary (Vicar) Security In these cases: Running expenses limited to 10% of earnings 44

45. Gift/Loan of Asset Gift Benefit = Market value Loan Benefit = 20% of value when first provided 45

46. Gift of asset previously loaned Higher of: market value when transferred market value when first provided less benefits already assessed (less employee contribution) 46

47. Tax-free benefits 47

48. Tax-free benefits Money: First £30,000 redundancy (not strictly a benefit) £8,000 relocation £5,000 suggestion scheme, long service award (20yrs, £50/yr) £5 per night incidental expenses (£10 overseas) £2/week for work at home 48

49. Tax-free benefits employers pension contribution one mobile phone + calls Childcare: workplace creche £55 approved childcare Food: staff canteen 15p/day luncheon vouchers Staff entertainments (£150pa per person, events above this disallowed) 49

50. Tax-free benefits Transport: use of bicycle company bus workplace parking Other: sports facilities counselling eye checks certain state benefits 50

51. Wholly, exclusively, necessarily in performance of duties Allowable deductions

52. Professional subscriptions Approved Mileage Allowance Payments Reimbursed subsistence and customer entertaining P60 pay shown after: Pension contributions Payroll giving 52

53. Home to normal workplace travel Not Allowable

54. Dispensation Reimbursed expenses not need to be entered on the tax return 54

55. Records to keep P60 P11D P45 Receipts Tax return 55

56. PTX Personal Taxation Exempt Income Personal Allowance Pensions, Gift Aid Administration

57. Objectives To be able to: Identify income which is exempt from Income Tax Determine a taxpayer’s personal allowance Compute Income Tax payable, making appropriate adjustments for: Personal Pensions Gift Aid Determine payments on account Determine penalties due for lateness and error 57

58. Tax-free Income These do not need to be reported on tax returns: ISAs (£11,280 per year) National Savings Certificates Premium Bonds

59. Tax-free benefits Money: First £30,000 redundancy (not strictly a benefit) £8,000 relocation £5,000 suggestion scheme, long service award (20yrs, £50/yr) £5 per night incidental expenses (£10 overseas) £2/week for work at home 59

60. Tax-free benefits employers pension contribution one mobile phone + calls Childcare: workplace creche £55 approved childcare Food and entertainment: staff canteen 15p/day luncheon vouchers Staff entertainments (£150pa per person, events above this disallowed) 60

61. Tax-free benefits Transport: use of bicycle company bus workplace parking Other: sports facilities counselling eye checks certain state benefits 61

62. Other Exempt Income Income from scholarships Disability pensions Some social security benefits (eg. housing benefit) Most commissions, discounts, cashbacks received by retail customers Damages or compensation Home-generated electricity

63. 63 Personal Allowance (High Income) If adjusted net income is above £100,000If adjusted net income is above £100,000 Reduce personal allowance byReduce personal allowance by 50% of the difference until the allowance = £0

64. 64 Adjusted net income Income less: Gross gift aid and personal pension contributions

65. 65 Personal Allowance (Age-related) Allowance:Allowance: £10,500 65-74£10,500 65-74 £10,660 75+£10,660 75+ If adjusted net income is above: £25,400If adjusted net income is above: £25,400 Reduce personal allowance byReduce personal allowance by 50% of the difference until the allowance = Basic Allowance

66. 66 Basic rate taxpayer: No Action Gift Aid & Pension Contributions

67. 67 Higher rate taxpayer: Increase basic rate band by gross amount Gift Aid & Pension Contributions

68. 68 50% x Previous year’s tax (less deducted at source) 31/Jan 31/July Payments on Account

69. 69 Late Return Penalties: £100 after 31/Jan £10/day after 3 months (max £900) +5% (min £300) after 6 months and again after 6 months

70. 70 Late Payment 1. Interest From due date to day before payment 2. Penalties: 5% of tax if >30 days + 5% on 31/July + 5% if 12 months late Balancing payment only

71. Incorrect Returns Tax due multiplied by: 0-30%Lack of reasonable care 20-70%Deliberate 30-100%Deliberate and concealed Limited to half of maximum if unprompted 71

72. PTX Personal Taxation Income From Property (Rental Income) Tax Returns

73. Objectives To be able to: Identify allowable expenses Calculate taxable property income Treat property losses correctly Make suitable elections for Rent-a-Room relief Calculate taxable income from furnished holiday lets Prepare tax return supplements for Employment Income Property Income 73

74. Income & Expense

75. Expenses The general rules for expenditure to be allowable: 1. Revenue, not capital. ie. Not improvements (central heating) 2. Wholly and exclusively for purpose of lettings

76. Allowable Expenses Irrecoverable rent (NOT deducted from income) Expenditure before a property is rented out But not renovation Expenditure in void periods

77. Wear & Tear Allowance Furnished lettings 10% (rent received - rates - council tax) Or Renewals Basis

78. Non-allowable Expense Depreciation

79. Property loss Offset against: 1. Other properties in the same tax year 2. Future property income Of same type

80. Rent a Room and Other Rules

81. Rent a Room Relief £4,250 /year Example If you rent out part of your own home for £5,000 a year, taxable income is: £5,000 less expenses OR £5,000 less £4,250 Rent a Room Relief See p2.9

82. Rent a Room Relief: Question If you rent out part of your own home for £6,000 a year, incurring expenses of £3,200, what is your taxable income?

83. Holiday Lets Different rules: Capital allowances (furniture, equipment) Pensionable

84. Holiday Lets View to making a profit Max 31 continuous days per tenant Actually let for 105 days Available for twice this (210 days)

85. Question What records might you keep relating to property income?

86. Income Tax Returns Employment Property

87. Rent a Room Relief: Answer If you rent out part of your own home for £6,000 a year, incurring expenses of £3,200, what is your taxable income? £6,000-£3,200 = £2,800 Or elect for rent a room relief £6,000-£4,250=£1,750

88. Answer What records might you keep relating to property income? Accounting records cash books bank statements rental agreements invoices for expenses working papers copies of tax returns

89. PTX Personal Taxation Capital Gains Tax

90. Objectives To be able to: Identify chargeable persons, assets, disposals Calculate gain on disposal Calculate CGT liability Calculate gains on Part-disposals Chattels Shares 90

91. Objectives To be able to: Identify exempt assets Calculate PPR relief Complete CGT pages of Tax Return Explain record-keeping requirements 91

92. 92 CHARGEABLE DISPOSALS 92

93. 93 Chargeable Disposals of Assets Sell Give away Lose Destroy 93

94. 94 Exempt Gains Death Spouse/civil partner Transfer at original cost

95. 95 Connected person Transfer at no less than market value

96. Connected person Ancestors Siblings lineal descendants (self and spouse) 96

97. 97 GAIN ON DISPOSAL 97

98. 98 Calculate Gain Proceeds - Costs of disposal =Net proceeds - Original cost (+ incidental costs) - Improvements = Gain

99. 99 CGT CALCULATION 99

100. 100 Calculate CGT Total gains for year - Annual exemption = Gains subject to CGT Gains @ 18% + Gains @ 28% = CGT

101. 101 Calculate CGT with losses Total gains for year - Losses for year - Annual exemption - Losses b/f = Gains subject to CGT Gains @ 18% + Gains @ 28% = CGT

102. CGT Above income in the tax bands Payable 31 January 102

103. 103 Capital losses Set against gains for year May lose exempt amount Then carry forward against future gains

104. 104 PART DISPOSALS & CHATTELS 104

105. 105 Part-disposal Cost = Whole cost x Proceeds Proceeds + value of remainder 105

106. 106 Chattels Bought & sold for <£6,000 Exempt Bought for >£6,000 sold for <£6,000 Proceeds assumed to be £6,000 Otherwise Gain limited to 5/3(Proceeds - £6,000)

107. Wasting Chattel Exempt Expected life less than 50 years 107

108. 108 SHARES 108

109. 109 Shares: match sale to purchase 1. Same day 2. Next 30 days 3. 1985 pool

110. Shares: question Against which acquisitions will each disposal be matched? DateNumber of shares 5 June 2010acquisition1,000 17 May 2011acquisition500 17 May 2011disposal800 9 June 2011acquisition200 13 March 2013 disposal2,000 28 March 2013 acquisition1,750 110

111. Shares Bonus Rights issue 111

112. 112 EXEMPT ASSETS, PPR 112

113. 113 Exempt assets Cars Gilts PPR Wasting chattels Chattels bought and sold for £6,000 max

114. 114 PPR Exempt Periods Last 3 years PLUS (if PPR before and after): Any time employed abroad 4 years due to UK employment 3 years for any other reason

115. 115 Letting relief Owner’s residence, let in part or for part of the time Lower of Gain related to let % (after allowing for deemed occupation) PPR exemption £40,000

116. 116 CGT TAX RETURN & RECORDS 116

117. Records Keep 1 year after online filing deadline 117

118. Records: Question What records should you keep for capital gains 118

119. Shares: answer 119

120. Records: Answer purchase and sale documents Valuations schedules of purchase and disposal 120