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TAX ADMINISTRATION FOR INDIVIDUALS AND COMPANY

TAX ADMINISTRATION FOR INDIVIDUALS AND COMPANY. TAX ADMINISTRATION FOR INDIVIDUALS. Self-Assessment System. KEY ASPECTS. Self-Assessment System. KEY ASPECTS. Self-Assessment System. Tax Return. The time limits for filing the self-assessment tax return depends on how the return is filed

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TAX ADMINISTRATION FOR INDIVIDUALS AND COMPANY

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  1. TAX ADMINISTRATION FOR INDIVIDUALS AND COMPANY

  2. TAX ADMINISTRATION FOR INDIVIDUALS

  3. Self-Assessment System KEY ASPECTS

  4. Self-Assessment System KEY ASPECTS

  5. Self-Assessment System

  6. Tax Return • The time limits for filing the self-assessment tax return depends on how the return is filed • Deadline for the 2009/10 tax return: 31 October 2010 – paper return 31 January 2011 – electronic return • Penalties will be imposed for failure to submit a return

  7. Records • Taxpayers are required to keep records necessary to make a correct and complete return • All the records must be kept until 5 years from 31 January following the end of the tax year e.g. for 2009/2010 records must be retained until 31 January 2016 • Failure to keep or retain adequate records may be penalized • Maximum penalty most likely to be imposed in most serious cases such as where the taxpayer purposely destroys his records in order to obstruct HMRC enquiry

  8. Rights to enquire

  9. Tax Payment

  10. Payments on Account (POA) • POA’s is required if: • the taxpayer has an excess income tax liability after any deduction at source (relevant amount) in the previous year • relevant amount of the previous year > £1,000 and > 20% of the total tax liability • Basis of POA’s calculation: • Using the previous year’s tax liability • 2009/10 are based on the tax liability for 2008/2009

  11. Payments on Account (POA) • POA’s are only for: • Income tax • Class 4 NICs • No POA’s for CGT • Due dates for POA’s 2009/10: • First POA: 31 January 2010 • Second POA: 31 July 2010 • Balancing payment: 31 January 2011

  12. POA : Example Ahmad’ tax liability for 2008/09 was as follows: £ Income tax 9,400 Less: Tax deducted at source ( 2,100) 7,300 Class 4 NIC 700 CGT 3,500 Total tax liability 11,500 Calculate the POA’s for 2009/10

  13. POA : Example Solution: Relevant amount = £7,300 + £700 = £8,000 Total tax liability = £ 9,400 + £700 = £ 10,100 Since, relevant amount of the previous year > £1,000 and > 20% of the total tax liability (20%x£10,100=£2,020), POA’s are required Therefore, POA’s due for 2009/10: 31 January 2010 (£8,000 x ½) £4,000 31 July 2010 £4,000

  14. Balancing Payment

  15. BP: Example Peter’s tax liability for 2009/10 was as follows: £ Income tax 10,800 Less: Tax deducted at source ( 2,500) 8,300 Class 4 NIC 800 CGT 4,600 Total tax liability 13,700 He made POA’s of £8,000 in respect of 2009/10 Identify the balancing payment to be made for 2009/10, the first POA for 2010/11 and state the due date for payment of both.

  16. BP : Example Solution: Balancing payment 2009/10: £ Total tax liability 13,700 Less: POA’s 8,000 5,700 Relevant amount 2009/10: Income tax 10,800 Less: Tax deducted at source ( 2,500) 8,300 Class 4 NIC 800 9,100 Therefore, Balancing payment 2009/10 5,700 First POA 2010/11 (9,100 x ½) 4,550 Total payable due on 31 January 2011 10,250

  17. Interest on Overdue Tax • Interest for late payment will be charged at a rate of 2.5% pa (assumed rate) from the due date to the date before actual payment E.g. A taxpayer pays his 2009/10 POA’s on 15 March 2010 and 10 August 2010. The balancing payment is paid on 15 April 2011. Therefore, interest will be charged for the period as follows: First POA: from 31 January 2010 to 14 March 2010 Second POA: from 31 July 2010 to August 2010 Balancing payment: from 31 January 2011 to 14 April 2011 • Calculation of interest payable: Amount paid x Interest rate x (No of days overdue/365)

  18. Surcharges • Income tax • Class 4 NIC (National Insurance Company) • Capital Gain Tax (CGT)

  19. Surcharges Calculation of Surcharges

  20. Surcharges Example: A taxpayer’s balancing payment due for 2009/10 is £7000. Only £1500 of this was paid on 31 January 2011. Set out the Interest and Surcharge that will be payable. Solution: • Interest Interest will be charged on £5500 (£7000-£1500) from 31 January 2011 to the date of payment. • Surcharge A surcharge of £275 (5% of £5500) will be due if the tax of £5500 is not paid by 28 February 2011. A further surcharge of £275 will be imposed if the tax is still unpaid by 31 July 2011. In the event that either of the surcharges are not paid within 30days of their issue, interest will be assessed on these amount as well.

  21. Penalties Taxpayer Behavior Maximum penalty (% of revenue lost) No penalty 30% 70% 100%

  22. Penalties PENALTY OFFENCE

  23. Penalties OFFENCE PENALTY

  24. Late submission of income tax return SUBMISSION PENALTY

  25. The PAYE System The Pay As You Earn (PAYE) system is the system used for collecting income tax and national insurance at source from the earnings paid to employees.

  26. Key PAYE Forms

  27. FORM TIMING PURPOSE OF USE

  28. TAX ADMINISTRATION FOR A COMPANY

  29. Company’s responsibility • Calculate their own corporation tax liability for each accounting period • Submit a self-assessment corporation tax return within 12 months after the end of the accounting period • Pay any corporation tax due within 9 months after the end of the accounting period • Keep financial records for 6 years after the end of the accounting period

  30. TAX ADMINISTRATION FOR COMPANY

  31. Time Limits Within 12 months One year 1 Jan 2009 31 Dec 2009 31 Dec 2010

  32. What you need to submit?

  33. Amendments and Errors Within 9 months FOR HMRC: FOR A COMPANY: Within 12 months Within 12 months

  34. Error discovered at later date • Company can claim relief to recover any corporation tax overpaid • Claim must be made within 4 years of the accounting period • Criteria of claim: • Arithmetical errors • Mistakes arising from not understanding the law

  35. PENALTIES • Standard penalty - standardizing penalties across taxes for different offences mainly in two areas: • Inaccuracies in returns • Failure to notify liability to tax OFFENCE PENALTY

  36. Late submission of corporation tax return SUBMISSION PENALTY

  37. OFFENCE PENALTY

  38. Example on Penalties Within 12 months 8 months late Answer: Fixed penalty = £200 Tax geared penalty [£50,000 x 10%] = £5,000 30 Nov 2011 31 Mar 2010 31 Mar 2011

  39. HMRC RIGHTS TO ENQUIRE • Completeness and accuracy of any self-assessment tax return • Suspicion that income is undeclared or a deduction incorrectly claimed • Information in HMRC’s possession • The choice of return as part of a random selection process • Written notice given before commencing enquiry within 12 months of the actual delivery of the tax return to HMRC

  40. Enquiry Procedures Company has 30 days to comply with the request and another 30 days to amend self-assessment Written notice will be given if enquiry process ends If company declines to amend, HMRC have another 30 days to impose their amendments and company has a further 30 days to appeal against HMRC’s amendment.

  41. Discovery Assessments • Raising additional assessments to prevent loss of corporation tax • Key Points: • Discovery assessment can be raised at a later date after submission • Loss of corporation tax is due to fraud or negligence • Time limit: • 4 years from the end of the accounting period • 6 years, careless error • 20 years, deliberate error

  42. HMRC sets criteria for large company HMRC defines a large company only if: • A company is paying the full rate of corporation tax (i.e. 28%) • A company without any associated companies and its profits are at least £1.5 million. (This limit is reduced where a company has associated companies) • Companies that become large during an Accounting period provided that their profits for the Accounting Period exceeds £10 million.

  43. Basis of Payment • Installments are based on the expected corporation tax liability for the current accounting period. • Companies will normally be able to obtain a refund, if they subsequently find that installments have been overpaid.

  44. Installment Months • The Four Quarterly Months • For a company having less than 12 months accounting period, the installments are due on the 14th of the relevant month.

  45. Example on Quarterly Installment Payments for Large Companies • ABC plc estimates that its corporation tax liability for the year ended 31 December 2009, will be $800,000. • ABC plc is a large company for the purposes of quarterly installment payments. • Show when ABC plc’s corporation tax liability will be due. • Answer • ABC plc’s corporation tax liability is due by installments. • $200,000 on 14 July 2009 • $200,000 on 14 October 2009 • $200,000 on 14 January 2010 • $200,000 on 14 April 2010

  46. Interestpaid to HMRC • Both non-large and large companies will have to pay for interests to HMRC if: • Corporation tax is paid late. • There is an amendment on self-assessment. • Rate applicable is 2.5%. • Interest paid to HMRC on corporation tax paid late is a deductible expense from interest income.

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