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PTAX Personal Taxation

PTAX Personal Taxation. Introduction. Tax: 3 Rules of Thumb. If you increase your wealth, expect HMRC to tax it Claim all possible tax deductions Disclose all taxable income (to avoid problems later). Objectives. 3. To be able to identify: When tax years start and finish

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PTAX Personal Taxation

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  1. PTAX Personal Taxation Introduction

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

  3. Objectives 3 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

  4. Tax Year for Income Tax and CGT • Tax year 2013/2014 • starts on 6th April • Governed by Finance Act 2013

  5. Tax Return and Payment • Form SA100 • Supplementary pages • Submit by • 31/10/14 (paper) • 31/1/15 (on line) • Payment on account • 31/1/14 • 31/7/14 • Final (balancing) payment • 31/1/15

  6. Types of Income

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

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

  9. Record-keeping • Keep to: • 31/1/16 • Filing deadline + 1 year • 31/1/20if there is trading/property income • Filing deadline + 5 years Sufficient to substantiate the information provided to HMRC

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

  11. ETHICS QUIZ

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

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

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

  15. ANSWERS

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

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

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

  19. PTAX 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

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

  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 (£11,520 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. PTAX Personal Taxation Income From Property (Rental Income) Tax Returns

  29. 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

  30. Income & Expense

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

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

  33. Wear & Tear Allowance Furnished lettings 10% (rent received - rates - council tax)

  34. Non-allowable Expense Depreciation

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

  36. Rent a Room and Other Rules

  37. 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

  38. 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?

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

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

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

  42. 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

  43. 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

  44. PTAX Personal Taxation Employment (Salaries, Bonuses, Pensions)

  45. 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

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

  47. Taxation of Employment Income • Receipts basis (not accrual)

  48. 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

  49. Taxable Benefits

  50. General Rule (P11D employees) • Cash cost to employer

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