SELF ASSESSMENT

ORDER OF PRESENTATION:1. WHAT IS SELF ASSESSMENT (SA).2. WHO ARE REQUIRED TO FILL OUT SA

FORM.3. FILING & PAYMENT DATES.4. PENALTIES. 5. OVERLAP PROFITS. 6. AVAILABLE LOSS RELIEF

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.

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.

IMPORTANT DATES - SA

• TAX YEAR – 6TH APRIL TO 5TH APRILE.G. TAX YR 2010/11 – STARTS 6TH APRIL 10

– 5TH APRIL 11.

ISSUE OF SA RETURNS BY HMRC:• END OF APRIL FOLLOWING TAX YR.

SELF EMPLOYED – START UP:

REGISTER

ONLINE

PHONE

POST: • CWF1

FORM

REGRISTRATION:• 3 MTHS AFTER 1ST

MTH START UP

Filing Dates:

REGISTERED

FILE RETURN ONLINE

FILE RETURN PAPER BASED

31ST JAN FOLLOWING

TAX YR

31ST OCT FOLLOWING

TAX YR

TIME LINE FOR RETURN.

6TH APRIL 2010

5TH APRIL 2011

TAX YR 10/11

31 ST OCT 2011

31ST JAN 2012

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.

PAYMENT DATES:

• DEAD LINE 31ST JAN FOLLOWING TAX YEAR.

E.G. TAX YR 2010/11 – 31ST JAN 2012Due – Income Tax on income earned in 2010/11

Capital Gains Tax on Gains made in 2010/11

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.

POA TIME LINE:

6TH APRIL 2010

5TH APRIL 2011

TAX YR 2010/11

31ST JAN 2011:

1ST POA - £750

31ST JULY 2011:

2ND POA - £750

31ST JAN 2012:

BALANCINGPAYMENT

TAX YR 2009/10

TAX LIABILITY-

£1500

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%

1st years of Trading

• Profits Earned - Assessment of profits - Overlap Profits- Selection of Accounting yr

end

• Losses Incurred – Loss Relief Available

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!(1) Is it a 12 month period(2) Is it less than 12 months(3) More than 12 months

(b) No accounting year end in the 2nd year of trading

Third tax year

4th tax year onwards

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

12 months from accounting date ending in 3rd tax year

Normal Current year basis

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 £20000Year ended 30th April 2010 £38400

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

Available Loss Relief – Opening yrs

Trading Loss relief in opening

years

S83 – Carry Forward

S72 – Against total Income

S64 – Against total income

Trading loss must occur within 1st four yrs of

trading. Carried back 3 tax yrs only!

Loss relief set off against future trade

profits of same business.

S261B – Relief against Capital

Gains.

INCOME SOURCES:EMPLOYMENT

INCOME

RENTAL INCOME

TRADING INCOME

SAVINGS INCOME

DIVIDEND INCOME

CLASSIFICATION OF INCOME:

OTHER INCOME

EMPLOYMENT 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

BASIC TAX INFORMATION –TAX ORDER:

DIVIDENDS – 3RD

SAVINGS – 2ND. E.G.1. BANK INTEREST.

2. BUILDING SOCIETY INTEREST.

OTHER INCOME - 1ST. E.G. 1.EMPLOYMENT INCOME

2.RENTAL INCOME 3.TRADE INCOME

BASIC INFORMATION – INCOME TAX RATES.

INCOME TAX RATES & TAXABLE BANDS -2010/11

BR: 20% £0 - £37400HR: 40% £37401 - £150000AR: 50% £150001 & ABOVE(APPLIES TO OTHER INCOME & SAVINGS INCOME)DIVIDENDS - BASIC RATE 10%DIVIDENDS - HIGHER RATE 32.5%DIVIDENDS - ADDITIONAL RATE 42.5%

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 £43,875ABOVE UPPER PROFIT LIMIT

8%

1%

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

CASE STUDY – TOM JONES.

FACTS:EMPLOYEDHIGHER RATE TAXPAYERINCOME NOT TAXED AT SOURCE –

RENTAL.WIFE VOLUNTARILY UNEMPLOYED.

TOM JONES – RENTAL INCOME TAX YR 2010/11

£ £RENT RECEIVABLE 9750LESS: 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

TOM JONES:INCOME STREAMS

• GROSS EMPLOYMENT INCOME - £45000(PAYE £6750)• PROPERTY INCOME - £5545• BANK INT £650 *100/80 - £813

TOM JONES – TAX COMPUTATION 2010/11

TOTAL OTHER SAVINGEMPLOYMENT INCOME 45000 45000PROPERTY INCOME 5545 5545BANK INT – 650 *100/80 813 813TOTAL INCOME 51358 50545 813LESS: PA (6475) (6475)TAXABLE INCOME 44883 44070 813

TOM JONES – TAX COMPUTATION 2010/11

TAX CALCULATION:INCOME TYPE RATE £OTHER INCOME £37400 BASIC @20% 7480OTHER INCOME £ 6670 HIGHER @40% 2668

£44070SAVINGS INCOME £813 HIGHER @40% 325

£44883INCOME TAX LIABILITY 10473LESS TAX DEDUCTED AT SOURCE:PAYE (6750)BANK INTEREST £813 *20% (163)INCOME TAX PAYABLE £3560

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

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 5545LESS 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

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.

JONES HARDWARE.£ £

ACCOUNTING PROFIT 69500ADJUSTMENTS TAX PURPOSES:ADD BACK – • DEPRECIATION ON CAR 1500• NON TRADE SUBSCRIPTION 500

2000ADJUSTED PROFITS BEFORE CAPITAL ALLOWANCES 71500LESS CAPITAL ALLOWANCES (4200)

ADJUSTED TAXABLE PROFITS 67300

JONES HARDWARE – PROFIT HISTORY

YR1 YR2 YR3TRADING PROFITS £NIL £NIL £67300

LOSSES SUMMARY:YR 1 - £20000YR 2 - £10000S83 – TRADE LOSSES CAN BE CARRIED FORWARD TO FIRST AVAILABLE TRADE PROFITS.

MR. JONES -TAX COMPUTATION

£

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

JONES HARDWARE - NIC

• CLASS 2 NIC:FLAT RATE £2.40 PER WEEK - £2.40 *52 = £125

• CLASS 4 NIC:PERCENTAGE BASED ON PROFITS ABOVE £5715TOTAL TRADE PROFITS £37300 - £5715 = £31585 *

8%CLASS 4 NIC - £2527

THE END.