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SELF ASSESSMENT

SELF ASSESSMENT. ORDER OF PRESENTATION:. WHAT IS SELF ASSESSMENT (SA). WHO ARE REQUIRED TO FILL OUT SA FORM. FILING & PAYMENT DATES. PENALTIES. OVERLAP PROFITS. AVAILABLE LOSS RELIEF. SELF ASSESSMENT SYSTEM! . SYSTEM INTRODUCED IN TAX YR 1996/97.

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SELF ASSESSMENT

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  1. SELF ASSESSMENT

  2. ORDER OF PRESENTATION: • WHAT IS SELF ASSESSMENT (SA). • WHO ARE REQUIRED TO FILL OUT SA FORM. • FILING & PAYMENT DATES. • PENALTIES. • OVERLAP PROFITS. • AVAILABLE LOSS RELIEF

  3. SELF ASSESSMENT SYSTEM! • SYSTEM INTRODUCED IN TAX YR 1996/97. • SYSTEM WHEREBY THE TAX PAYER ACCOUNTS FOR INCOME EITHER PARTIALLY TAX/NOT TAXED AT SOURCE. • TAX PAYER LEGALLY RESPONSIBLE FOR SA RETURN.

  4. WHO ARE REQUIRED TO FILL OUT SA FORM? • INDIVUDUAL RECEIVING INCOME NOT TAXED AT SOURCE. FOR E.G. • BUSINESS INCOME – SOLE TRADER/PARTNERSHIP. • HIGHER RATE TAXPAYER. • ALL DIRECTORS OF COMPANIES.

  5. IMPORTANT DATES - SA • TAX YEAR – 6TH APRIL TO 5TH APRIL E.G. TAX YR 2010/11 – STARTS 6TH APRIL 10 – 5TH APRIL 11. ISSUE OF SA RETURNS BY HMRC: • END OF APRIL FOLLOWING TAX YR.

  6. SELF EMPLOYED – START UP: ONLINE PHONE REGISTER • POST: • CWF1 FORM • REGRISTRATION: • 3 MTHS AFTER 1ST MTH START UP

  7. Filing Dates: REGISTERED FILE RETURN ONLINE FILE RETURN PAPER BASED 31ST JAN FOLLOWING TAX YR 31ST OCT FOLLOWING TAX YR

  8. TIME LINE FOR RETURN. TAX YR 10/11 6TH APRIL 2010 5TH APRIL 2011 31 ST OCT 2011 31ST JAN 2012

  9. FILE PENALTIES: FIXED PENALTIES: • THE INITIAL PENALTY IS £100 IF THE RETURN IS NOT FILED BY THE DUE DATE. • A DAILY PENALTY CAN BE IMPOSED OF £60 PER DAY. TAX GEARED PENALTIES: • IF THE RETURN HAS NOT BEEN FILED OVER 12 MONTHS OF ITS DUE DATE THEN A TAX GEARED PENALTY MAY BE IMPOSED.

  10. PAYMENT DATES: • DEAD LINE 31ST JAN FOLLOWING TAX YEAR. E.G. TAX YR 2010/11 – 31ST JAN 2012 Due – Income Tax on income earned in 2010/11 Capital Gains Tax on Gains made in 2010/11

  11. Payments on Account (POA) • Required by Revenue – if previous tax years’ tax liability over £1000. • 1st POA – 31st January in the Relevant tax year. • 2nd POA – 31st July After the Relevant tax year. • Each POA = Half of tax due for previous tax year. • Balancing Payment – due 31st Jan after Tax year.

  12. POA TIME LINE: TAX YR 2009/10 TAX LIABILITY- £1500 TAX YR 2010/11 6TH APRIL 2010 5TH APRIL 2011 31ST JAN 2011: 1ST POA - £750 31ST JULY 2011: 2ND POA - £750 31ST JAN 2012: BALANCING PAYMENT

  13. PAYMENT PENALTIES: • INTEREST – FROM DUE DATE TO PAYMENT DATE. • SURCHARGE: 5% CHARGE ON BALANCING PAYMENT NOT PAID BY 28TH FEB • SURCHARGE: TAX DUE ON 31ST JAN STILL NOT PAID BY 31ST JULY – 2ND SURCHARGE OF 5%

  14. 1st years of Trading • Profits Earned - Assessment of profits - Overlap Profits - Selection of Accounting yr end • Losses Incurred – Loss Relief Available

  15. Assessment Rules: Year of Assessment Basis of Assessment First tax year – tax year when trade starts Date of Business start to following 5th April Second tax year (a) Is there an accounting period ending in the tax year? Yes! Is it a 12 month period Is it less than 12 months More than 12 months (b) No accounting year end in the 2nd year of trading That period of account. The first 12 months of trading. 12 months from the accounting date ending in the 2nd tax year. Actual profits in the 2nd tax year: from 6th April to 5th April Third tax year 12 months from accounting date ending in 3rd tax year 4th tax year onwards Normal Current year basis

  16. Assessment of profits: E.G. Eric started to trade on 1st July 2008 His tax adjusted trading profits are as follows, 1st July 2008 to 30th April 2009 £20000 Year ended 30th April 2010 £38400

  17. Choice of Accounting Date & Overlap Profits: E.G. A trader starts to trade on 1st January 2009 and is considering preparing his first accounts to 31st March 2010or 30th April 2010. His estimated tax adjusted trading profits are: £2000 per month for the first 12 months £3000 per month for the second 12 months £4000 thereafter per month

  18. Available Loss Relief – Opening yrs Trading Loss relief in opening years S83 – Carry Forward S72 – Against total Income S64 – Against total income Loss relief set off against future trade profits of same business. Trading loss must occur within 1st four yrs of trading. Carried back 3 tax yrs only! S261B – Relief against Capital Gains.

  19. INCOME SOURCES: EMPLOYMENT INCOME TRADING INCOME RENTAL INCOME SAVINGS INCOME DIVIDEND INCOME

  20. CLASSIFICATION OF INCOME: EMPLOYMENT INCOME OTHER INCOME RENTAL INCOME TRADING INCOME SAVINGS INCOME INTEREST INCOME – BANK/BUILDING SOCIETY DIVIDEND INCOME DIVIDEND INCOME – EQUITY SHARES PERSONAL ALLOWANCE – TAX YR 2010/11 £6475

  21. BASIC TAX INFORMATION –TAX ORDER:

  22. BASIC INFORMATION – INCOME TAX RATES. INCOME TAX RATES & TAXABLE BANDS -2010/11 BR: 20% £0 - £37400 HR: 40% £37401 - £150000 AR: 50% £150001 & ABOVE (APPLIES TO OTHER INCOME & SAVINGS INCOME) DIVIDENDS - BASIC RATE 10% DIVIDENDS - HIGHER RATE 32.5% DIVIDENDS - ADDITIONAL RATE 42.5%

  23. NATIONAL INSURANCE CONTRIBUTIONS – SELF EMPLOYED: 2010/11 CLASS 2 AND CLASS 4: CLASS 2 - £2.30 PER WEEK. CLASS 4 – BASED ON TRADE PROFITS. LOWER PROFIT LIMIT £5,715 UPPER PROFIT LIMIT £43,875 ABOVE UPPER PROFIT LIMIT 8% 1%

  24. USEFUL INFORMATION FOR THE PREPARATION OF ACCOUNTS YOUR BASIC RECORDS WILL NORMALLY INCLUDE: • A RECORD OF ALL YOUR SALES, WITH COPIES OF ANY INVOICES YOU'VE ISSUED • A RECORD OF ALL YOUR BUSINESS PURCHASES AND EXPENSES • DETAILS OF ANY AMOUNTS YOU PERSONALLY PAY INTO OR TAKE FROM THE BUSINESS • COPIES OF BUSINESS BANK STATEMENTS

  25. CASE STUDY – TOM JONES. FACTS: • EMPLOYED • HIGHER RATE TAXPAYER • INCOME NOT TAXED AT SOURCE – RENTAL. • WIFE VOLUNTARILY UNEMPLOYED.

  26. TOM JONES – RENTAL INCOME TAX YR 2010/11 £ £ RENT RECEIVABLE 9750 LESS: RELATED EXPENSES • INSURANCE 480 • UTILITY COST (WATER £500) 1500 • INT ON LOAN (IMPROVEMENTS) 500 • AGENTS FEES 500 • REPAIRS 300 • WEAR & TEAR ALLOWANCE (9750 – 500) * 10% 925 (4205) ASSESSABLE INCOME 5545

  27. TOM JONES:INCOME STREAMS • GROSS EMPLOYMENT INCOME - £45000 (PAYE £6750) • PROPERTY INCOME - £5545 • BANK INT £650 *100/80 - £813

  28. TOM JONES – TAX COMPUTATION 2010/11 TOTAL OTHER SAVING EMPLOYMENT INCOME 45000 45000 PROPERTY INCOME 5545 5545 BANK INT – 650 *100/80 813 813 TOTAL INCOME 51358 50545 813 LESS: PA (6475)(6475) TAXABLE INCOME 4488344070813

  29. TOM JONES – TAX COMPUTATION 2010/11 TAX CALCULATION: INCOME TYPE RATE£ OTHER INCOME £37400BASIC @20% 7480 OTHER INCOME £ 6670 HIGHER @40% 2668 £44070 SAVINGS INCOME £813 HIGHER @40% 325 £44883 INCOME TAX LIABILITY 10473 LESS TAX DEDUCTED AT SOURCE: PAYE (6750) BANK INTEREST £813 *20% (163) INCOME TAX PAYABLE £3560

  30. TOM JONES – TAX TIPS • SAVINGS INCOME: CASH ISA: £5100 PER YR STOCKS & SHARES ISA: (£5100 PER YR) INTEREST : NO INCOME TAX DIVIDENDS: NO INCOME TAX

  31. TOM JONES – TAX TIPS • PERSONAL ALLOWANCE OF WIFE • TRANSFER OF RENTAL PROPERTY TO WIFE (NO INHERITANCE TAX, CAPITAL GAINS TAX, STAMP DUTY CONSEQUENCES) WIFE’S TAX COMPUTATION: TAX YR 2010/11 £ PROPERTY INCOME 5545 LESS PERSONAL ALLOWANCE (6475) TAX PAYABLE £NIL Income Tax saved by Family: • Original Tax Calculation (Tom owns property) - £5545 @ 40% = £2218 • Transferring property to Wife - £Nil * 20% £nil • IT Saved £ 2218

  32. CASE STUDY 2- JONES HARDWARE. FACTS: • SELF EMPLOYED. • BUSINESS 3 YRS OLD. • LOSSES MADE IN YR 1 AND YR 2. • LOSS RELIEF IN OPENING YEARS.

  33. JONES HARDWARE. £ £ ACCOUNTING PROFIT 69500 ADJUSTMENTS TAX PURPOSES: ADD BACK – • DEPRECIATION ON CAR 1500 • NON TRADE SUBSCRIPTION 500 2000 ADJUSTED PROFITS BEFORE CAPITAL ALLOWANCES 71500 LESS CAPITAL ALLOWANCES (4200) ADJUSTED TAXABLE PROFITS 67300

  34. JONES HARDWARE – PROFIT HISTORY YR1 YR2 YR3 TRADING PROFITS £NIL £NIL £67300 LOSSES SUMMARY: YR 1 - £20000 YR 2 - £10000 S83 – TRADE LOSSES CAN BE CARRIED FORWARD TO FIRST AVAILABLE TRADE PROFITS.

  35. MR. JONES -TAX COMPUTATION £ TRADE PROFITS 67300 LESS: BROUGHT FORWARD LOSSESS S83 (30000) TOTAL TRADE PROFITS 37300 LESS PERSONAL ALLOWANCE (6475) TAXABLE TRADE PROFITS 30825 INCOME TAX: BASIC RATE BAND - £30825 * 20% = 6165

  36. JONES HARDWARE - NIC • CLASS 2 NIC: FLAT RATE £2.40 PER WEEK - £2.40 *52 = £125 • CLASS 4 NIC: PERCENTAGE BASED ON PROFITS ABOVE £5715 TOTAL TRADE PROFITS £37300 - £5715 = £31585 * 8% CLASS 4 NIC - £2527

  37. THE END.

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