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TRANSCRIPT
School of Business, Introduction to Taxation, Topic 1 – Lecture
Introduction to Taxation
Introduction to Taxation
School of Business, Introduction to Taxation, Topic 1 – Lecture
Learning Outcomes
By the end of this lecture, you should be able to understand:
the UK tax structuretypes of taxationincome tax computation
School of Business, Introduction to Taxation, Topic 1 – Lecture
UK Governmen
t
Tax Tribunal
First Tier Tribunal
Upper Tribunal
HMRC
Officers
UK Tax Structure
School of Business, Introduction to Taxation, Topic 1 – Lecture Source: www.taxwiz.org
UK Tax System – Tax Avoidance and Evasion
School of Business, Introduction to Taxation, Topic 1 – Lecture
General Anti Abuse Rule (GAAR)
HMRC
Taxpayer
Powers to counteract tax advantages arising from abusive tax arrangementsMaterial error or omission
Fails to File Tax Return
Written notice by HMRC45 days – Written
response to HMRC
21 days – written response
to Advisory Panel
Appeal
UK Tax System – Rules on Abuse
School of Business, Introduction to Taxation, Topic 1 – Lecture
UK Tax System – Tax Year
School of Business, Introduction to Taxation, Topic 1 – Lecture
Types of Tax Affected by
Income Tax IndividualsCorporation Tax UK CompaniesCapital Gains Tax Individuals and UK Companies
Inheritance Tax IndividualsVAT Businesses
UK Tax System – Types of Tax
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax
• Capital Allowance
• Income Tax • National
Insurance
Capital Gains Tax
• Chargeable Gains
Inheritance Tax
• Inheritance Tax
Corporation Tax
• Chargeable Gains
• Capital Allowance
• Corporation Tax
VAT
• VAT
UK Tax System – Sources of Tax Law
School of Business, Introduction to Taxation, Topic 1 – Lecture
Resident?
Income Tax – Scope of Income Tax
UK non residents• Liable for tax on UK income only
UK residents • Liable for tax on UK and overseas income
UK residents not UK domiciled• Liable for tax on UK income only• UK income on remittance basis
School of Business, Introduction to Taxation, Topic 1 – Lecture
Overseas Test
Present in UK less than 16 days in a tax
year
Present in the UK for less than 46 days in a tax year and not
resident during previous 3 years
Work overseas full time. Not present in UK for more than 90 days in a tax year
UK Resident Test
Present in UK for 183 days or
more in a tax year
Only home is in the UK
Full time work in UK
Sufficient Ties Test
How many ties in the UK
How many days present in the
UK in a tax year
Income Tax – Statutory Test of Residency
School of Business, Introduction to Taxation, Topic 1 – Lecture
Resident?
Income Tax – Scope of Income Tax
Example:
Victor lives in Japan all his life where he owns a house. He came to the UK on 1st May 2014 having sold his house in Japan the day before.He decided to buy a flat in London.He lived in the London flat until 30th Sept 2014.Victor then went on an overseas holiday for a year.
Is Victor a UK resident for 2014/2015?
School of Business, Introduction to Taxation, Topic 1 – Lecture
Non Savings Income
Savings Income
Dividend Income
Trading Income xLess: loss relief (x)
xEmployment Income xProperty income xBuilding society/Bank interest received x 100/80 xDividends from UK companies x 100/90 xTotal income x x xLess qualifying interest paid (x)Less loss relief (x) Net income x x xLess personal allowance -10,000 Taxable Income x x x
Income Tax – ComputationProforma income tax computation for 2014/2015
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax – Exempt Income
• Income from National Savings Certificate
• Statutory redundancy money
• Winnings
• Scholarships
• Interest on damages for personal injuries
• Income from investment made through ISAs
• Local authority grant
School of Business, Introduction to Taxation, Topic 1 – Lecture
Non Savings Income Savings Income Dividend IncomeTrading Income 0Less: loss relief -
0Employment Income 9600Property income 0Building society/Bank interest received x 100/80 10000Dividends from UK companies x 100/90 5000Total income 9600 10000 5000Less qualifying interest paid 0Less loss relief 0 Net income 9600 10000 5000Less personal allowance -9,600 -400 Taxable Income 0 9600 5000
Income Tax – Computation: answer
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax – PA example
Rhiannon has the following income in the tax year 2014/2015:
Salary: £9,600 (PAYE £75)Bank interest received: £8,000 netDividends: £4,500 netISA interest received: £2,000
Calculate Rhiannon’s net income for 2014/2015.
School of Business, Introduction to Taxation, Topic 1 – Lecture
Rate Band Non Savings Income
Savings Income Dividend Income
Additional Rate £150,000 onwards
45% 45% 37.5%
Higher Rate £31865 - £149,999
40% 40% 32.5%
Basic Rate£2880 - £31864
20% 20% 10%
Lower Rate< £2879
20% 10% 10%
Tax Bands and Tax Rates
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax Calculation:
Savings Income 2880@ 10% 288
Savings Income - 9600 - 2880 6720@ 20% 1344
Dividend Income 5000@ 10% 500
Income Tax Liability 2132
Less dividend tax paid at source 5000@ 10% -500
Less interest tax paid at source 10000@ 20% -2000
Less PAYE - tax paid at source -75
Income Tax payable/repayable -443
Income Tax – Computation: answer
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax – Personal Allowance
For 2014/2015 - £10,000
• All individuals • Include children
Tapering:Net income > £100,000
• Personal allowance reduced by £1 for every £2 excess income.
• Net income > £120,000 = 0 personal allowance
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax – PA example
Rhiannon earns £105,000 a tax year in salary.
What personal allowance is she entitled to for 2014/2015?
School of Business, Introduction to Taxation, Topic 1 – Lecture
Basic PA £10,000Income: £105,000Less limit (£100,000)
------------£5,000 x ½ (£2500)
---------Personal Allowance £7,500
Income Tax – PA example
Rhiannon earns £105,000 a tax year in salary.What personal allowance is she entitled to for 2014/2015?
Answer:
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax – Personal Allowance
Higher personal allowance
Born between 6 April 1938 to 5 April 1948 = £10,500
Born before 6 April 1938 = £10,660
Net income > £27,000 = Restriction on higher PA
Restriction: (Net income - £27000) x half
School of Business, Introduction to Taxation, Topic 1 – Lecture
Income Tax – Personal Allowance
Example:
Karen was born on 2nd Sept 1932. She has a net income of £28,000.
What personal allowance does Karen receive for 2014/2015?
School of Business, Introduction to Taxation, Topic 1 – Lecture
Answer:
Higher PA £10,660
Income £28,000Less (£27,000)
----------£1,000 x ½ (£500)
--------PA £10,160
Income Tax – Personal Allowance
School of Business, Introduction to Taxation, Topic 1 – Lecture
Gift aid
donations are
charitable gifts of
money
which
qualify for tax
relief
Donors
must make a gift aid
declaration to the
charity
Tax Reliefs – Gift Aid
School of Business, Introduction to Taxation, Topic 1 – Lecture
Gift Aid Example
Jane has employment income of £90,000.She made a gift aid donation of £7,200 net to a charity.
Calculate her tax liability for 2014/2015.
School of Business, Introduction to Taxation, Topic 1 – Lecture
Gift Aid Example
Answer:
Gift Aid relief: £7,200 x 100/80 = £9000
Extend Tax band limits:BR: £31865 + £9000 = £40,865HR: £150,000 + £9000 = £159,000Employment Income £90,000PA (£10,000)
-----------Taxable income £80,000
School of Business, Introduction to Taxation, Topic 1 – Lecture
Gift Aid Example
Answer:
Income Tax:
£40,865 x 20% £8,173£39,135 x 40% £15,654
----------Total income tax liability £23, 827
School of Business, Introduction to Taxation, Topic 1 – Lecture
Post-lecture Work
Seminar 1, covering today’s lecture:
Read chapters 1 and 2 ofTaxation – Finance Act 2014by Alan Melville,20th Edition, Pearson
School of Business, Introduction to Taxation, Topic 1 – Lecture
End of presentation