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					Accounting
Technicians
Ireland




                                      Advanced Taxation – Northern Ireland 2
Dublin
47-49 Pearse Street
Dublin 2

Tel: 01 649 8100
Fax: 01 633 6846


Belfast
The Linenhall
32-38 Linenhall Street
Belfast BT2 8BG

Tel: 028 90 435 840
Fax: 028 90 23 0071

www.AccountingTechniciansIreland.ie




                                      Course Manual
                                                                               Advanced Taxation
                                                                               Northern Ireland
                                                                                                             2
                                                                               Course Manual




                                                                                                   Academic Year 2011/2012
0000 0161
A
                        Advanced Taxation (NI)




Advanced Taxation
Northern Ireland (NI)




Course Manual
                                                                                                                                        Advanced Taxation (NI)


     TABLE OF CONTENTS 


        FOREWORD .......................................................................................................................................................... VI 
        COPYRIGHT .......................................................................................................................................................... VIII 
        SYLLABUS   ............................................................................................................................................................ X 
                                                                                                                                                                               I

1    CHAPTER 1:  ADMINISTRATION AND PROCEDURES ....................................................................................... 1 

        1.1           UK TAX SYSTEM ...................................................................................................................................... 2 
        1.2           SUMMARY OF MAIN TAXES ........................................................................................................................ 2 
        1.3           SELF ASSESSMENT SYSTEM ........................................................................................................................ 4 
        1.4           TAX RETURNS  ......................................................................................................................................... 6 
                                      .
        1.5           DUE DATE FOR SUBMISSION OF TAX RETURNS ............................................................................................. 12 
        1.6           DUE DATE FOR PAYMENT OF TAX LIABILITY ................................................................................................. 14 
        1.7           INTEREST AND PENALTIES ON LATE PAYMENT .............................................................................................. 14 
        1.8           ENQUIRIES ............................................................................................................................................ 15 
        1.9           DISCOVERY ASSESSMENTS ....................................................................................................................... 16 
        1.10          DETERMINATION  ................................................................................................................................... 17 
                                          .
        1.11          RECORDS  ............................................................................................................................................. 17 
                                .
        1.12          HMRC’S INFORMATION POWERS ............................................................................................................. 18 
        1.13          HMRC’S INSPECTION POWERS ................................................................................................................. 19 
        1.14          PENALTIES ............................................................................................................................................ 19 
        1.15          ETHICS ................................................................................................................................................. 22 
        1.16          COMMUNICATION .................................................................................................................................. 25 

2    CHAPTER 2: INTRODUCTION TO INCOME TAX ............................................................................................. 33 

        2.1           RESIDENT, ORDINARILY RESIDENT & DOMICILE ............................................................................................ 34 
        2.2           COMPUTING TOTAL INCOME .................................................................................................................... 35 
        2.3           WHAT IS TAXABLE INCOME? .................................................................................................................... 36 
        2.4           WHAT IS EXEMPT INCOME? ..................................................................................................................... 37 
        2.5           SAVINGS INCOME ................................................................................................................................... 40 
        2.6           DIVIDEND INCOME ................................................................................................................................. 41 
        2.7           PAYMENTS AND GIFTS QUALIFYING FOR TAX RELIEF (FORMERLY KNOWN AS “CHARGES ON INCOME”) ................... 42 
        2.8           PERSONAL ALLOWANCES ......................................................................................................................... 43 
        2.9           BLIND PERSON’S ALLOWANCE (“BPA”) ..................................................................................................... 48 
        2.10          MARRIED COUPLE ALLOWANCE (“MCA”) .................................................................................................. 49 
        2.11          COMPUTING INCOME TAX PAYABLE ........................................................................................................... 51 
        2.12          EXTENSION OF THE BASIC RATE BAND ........................................................................................................ 60 
        2.13          JOINT INCOME ....................................................................................................................................... 62 
        2.14          TRADE LOSS AND CLAIMING LOSS RELIEF .................................................................................................... 63 
        2.15          TERMINAL LOSS RELIEF ........................................................................................................................... 67 

3    CHAPTER 3: EMPLOYMENT INCOME ........................................................................................................... 88 

        3.1           EMPLOYMENT VERSUS SELF EMPLOYMENT ................................................................................................. 88 
        3.2           WHAT IS EMPLOYMENT INCOME? ............................................................................................................. 90 
        3.3           NON‐TAXABLE EMPLOYMENT INCOME ....................................................................................................... 91 
        3.4           WHEN IS EMPLOYMENT INCOME TAXED ‐ EMPLOYEES .................................................................................. 93 
        3.5           WHEN IS EMPLOYMENT INCOME TAXED – DIRECTORS .................................................................................. 94 
        3.6           ALLOWABLE DEDUCTIONS  ....................................................................................................................... 96 
                                           .


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          3.7       TRAVEL EXPENSES .................................................................................................................................. 97 
          3.8       WHOLLY, EXCLUSIVELY & NECESSARILY .................................................................................................... 102 
          3.9       EMPLOYMENT INCOME & PERSONAL TAX COMPUTATION ............................................................................ 104 

4    CHAPTER 4: EMPLOYMENT INCOME – BENEFITS IN KIND ...........................................................................  19 
                                                                                                                                1

          4.1       BENEFITS IN KIND (“BIK”) ..................................................................................................................... 119 
          4.2       TYPES OF EMPLOYEES ........................................................................................................................... 121 
          4.3       TAXABLE BENEFITS ............................................................................................................................... 123 
          4.4       GENERAL BUSINESS EXPENSES ................................................................................................................ 130 
          4.5       COMPANY CARS .................................................................................................................................. 130 
          4.6       POOL CARS ......................................................................................................................................... 136 
          4.7       COMPANY CARS – FUEL BENEFIT ............................................................................................................ 136 
          4.8       COMPANY VANS .................................................................................................................................. 141 
          4.9       PRIVATE USE OF EMPLOYER ASSETS ......................................................................................................... 141 
          4.10      COMPUTERS ....................................................................................................................................... 144 
          4.11      PREFERENTIAL LOANS ........................................................................................................................... 145 
          4.12      EXPENSES CONNECTED WITH LIVING ACCOMMODATION ............................................................................. 148 
          4.13      OTHER BENEFITS  ................................................................................................................................. 149 
                                     .
          4.14      NATIONAL INSURANCE CONTRIBUTIONS (“NICS”) ...................................................................................... 149 
          4.15      HOW CLASS 1 NICS ARE CALCULATED  ..................................................................................................... 150 
                                                                 .

5    CHAPTER 5: RENTAL INCOME ....................................................................................................................  72 
                                                                                                                                                  1

          5.1       SCOPE OF TAXATION ON RENTAL INCOME ................................................................................................. 172 
          5.2       CALCULATION OF INCOME ASSESSABLE FROM RENTAL INCOME ...................................................................... 172 
          5.3       ALLOWABLE DEDUCTIONS AGAINST RENTS ................................................................................................ 173 
          5.4       NON‐DEDUCTIBLE EXPENSES: ................................................................................................................. 175 
          5.5       TREATMENT OF PRE‐LETTING EXPENSES .................................................................................................... 176 
          5.6       RENT A ROOM RELIEF ............................................................................................................................ 176 
          5.7       FURNISHED HOLIDAY LETTINGS ............................................................................................................... 177 
          5.8       WEAR AND TEAR ALLOWANCES .............................................................................................................. 178 
          5.9       PREMIUMS ON LEASES – IMPLICATIONS FOR LANDLORDS ............................................................................. 181 
          5.10      PREMIUMS ON LEASES – RELIEF FOR TENANTS ........................................................................................... 182 
          5.11      RENTAL LOSSES ................................................................................................................................... 183 

6    CHAPTER 6: CAPITAL GAINS TAX ................................................................................................................  93 
                                                                                                                                                  1

          6.1       PRINCIPLES AND SCOPE OF CGT  ............................................................................................................. 194 
                                                        .
          6.2       COMPUTING TAXABLE GAINS ................................................................................................................. 199 
          6.3       ANNUAL EXEMPTION ............................................................................................................................ 199 
          6.4       CAPITAL LOSSES ................................................................................................................................... 200 
          6.5       ANTI AVOIDANCE RELATING TO CAPITAL LOSSES ........................................................................................ 201 
          6.6       COMPUTATION OF CAPITAL GAINS TAX PAYABLE  ....................................................................................... 201 
                                                                              .
          6.7       TRANSFER OF ASSETS BETWEEN MARRIED COUPLES/CIVIL PARTNERS  ............................................................ 204 
                                                                                                         .
          6.8       ASSETS PASSING BETWEEN CONNECTED PERSONS AND ASSETS DISPOSED OF IN A SERIES OF TRANSACTIONS ......... 205 
          6.9       ASSETS PASSING ON DEATH OR BY WAY OF GIFT ........................................................................................ 206 
          6.10      DISPOSAL OF ASSETS PURCHASED PRIOR TO 31 MARCH 1982 ..................................................................... 206 
          6.11      PART DISPOSAL OF ASSET ...................................................................................................................... 207 
          6.12      DISPOSAL OF SHARES ............................................................................................................................ 209 
          6.13      CHATTELS, WASTING CHATTELS AND WASTING ASSETS ............................................................................... 214 
          6.14      ENTREPRENEURS’ RELIEF ....................................................................................................................... 219 


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                                                                                                                                       Advanced Taxation (NI)


          6.15        PRINCIPLE PRIVATE RESIDENCE (PPR) ...................................................................................................... 222 

7     CHAPTER 7:  TAXING INCOME FROM SELF EMPLOYMENT ..........................................................................  52 
                                                                                                                               2

          7.1         THE BADGES OF TRADE ......................................................................................................................... 252 
          7.2         ADJUSTMENT OF PROFIT ....................................................................................................................... 254 
          7.3         DISALLOWABLE EXPENDITURE................................................................................................................. 254 
          7.4         CAPITAL EXPENDITURE .......................................................................................................................... 254 
          7.5         WHOLLY AND EXCLUSIVELY .................................................................................................................... 256 
          7.6         INCOME NOT TAXED AS TRADING INCOME ............................................................................................... 268 
          7.7         TRADING INCOME NOT SHOWN IN THE ACCOUNTS ..................................................................................... 272 
          7.8         PRE TRADING EXPENDITURE ................................................................................................................... 272 
          7.9         SELF EMPLOYED – CLASS 2 & CLASS 4 ..................................................................................................... 272 

8     CHAPTER 8: CAPITAL ALLOWANCES ...........................................................................................................  85 
                                                                                                                                               2

          8.1         INTRODUCTION TO CAPITAL ALLOWANCES ................................................................................................ 285 
          8.2         QUALIFYING PLANT & MACHINERY ......................................................................................................... 286 
          8.3         WRITTEN DOWN ALLOWANCES .............................................................................................................. 288 
          8.4         ANNUAL INVESTMENT ALLOWANCE ......................................................................................................... 292 
          8.5         100% FIRST YEAR ALLOWANCE (“FYA”) ................................................................................................. 293 
          8.6         DISPOSAL OF ASSETS ............................................................................................................................ 293 
          8.7         SINGLE ASSET POOL ............................................................................................................................. 295 
          8.8         SPECIAL RATE POOL ............................................................................................................................. 296 
          8.9         CARS ................................................................................................................................................. 296 
          8.10        SMALL POOL WDA .............................................................................................................................. 298 

9     CHAPTER 9: BASIS PERIODS .......................................................................................................................  12 
                                                                                                                                                      3

          9.1         CONTINUING BUSINESS ......................................................................................................................... 313 
          9.2         COMMENCEMENT OF TRADING  .............................................................................................................. 314 
                                                    .
          9.3         CESSATION OF TRADING ........................................................................................................................ 324 

10  CHAPTER 10: CORPORATION TAX ..............................................................................................................  39 
                                                                                                                                              3

          10.1        PRINCIPLES AND SCOPE OF CORPORATION TAX .......................................................................................... 339 
          10.2        ACCOUNTING PERIODS .......................................................................................................................... 340 
          10.3        PROFITS CHARGEABLE TO CORPORATION TAX (PCTCT) .............................................................................. 343 
          10.4        TAX ADJUSTED TRADING PROFITS ........................................................................................................... 344 
          10.5        PRE TRADING EXPENDITURE ................................................................................................................... 347 
          10.6        CAPITAL ALLOWANCES .......................................................................................................................... 348 
          10.7        INTEREST INCOME ................................................................................................................................ 352 
          10.8        MISCELLANEOUS INCOME ...................................................................................................................... 353 
          10.9        INCOME FROM PROPERTY ...................................................................................................................... 353 
          10.10       GIFT AID DONATIONS ........................................................................................................................... 354 
          10.11       DIVIDENDS & FRANKED INVESTMENT INCOME ........................................................................................... 355 
          10.12       CHARGEABLE GAINS ............................................................................................................................. 355 
          10.13       RATES OF CORPORATION TAX ................................................................................................................. 355 
          10.14       MARGINAL RELIEF ................................................................................................................................ 357 
          10.15       EFFECTIVE MARGINAL RATE OF TAX  ........................................................................................................ 358 
                                                             .
          10.16       ACCOUNTING PERIOD FALLING IN MORE THAN ONE FINANCIAL YEAR ............................................................ 359 
          10.17       SHORT PERIODS OF ACCOUNT ................................................................................................................ 360 
          10.18       ASSOCIATED COMPANIES  ...................................................................................................................... 361 
                                               .


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      Advanced Taxation (NI)


           10.19      TRADING LOSSES  ................................................................................................................................. 363 
                                     .
           10.20      TERMINAL LOSS RELIEF ......................................................................................................................... 367 
           10.21      CHOICE OF LOSS RELIEF ......................................................................................................................... 367 

11  CHAPTER 11: CHARGEABLE GAINS, CLOSE COMPANIES AND SELF ASSESSMENT FOR COMPANIES ..............  99 
                                                                                                  3

           11.1       CHARGEABLE GAINS ............................................................................................................................. 399 
           11.2       PRO‐FORMA COMPUTATION – COMPANIES .............................................................................................. 401 
           11.3       INDEXATION ALLOWANCE ...................................................................................................................... 402 
           11.4       DISPOSAL OF SHARES BY COMPANIES ....................................................................................................... 404 
           11.5       CAPITAL LOSSES ................................................................................................................................... 409 
           11.6       CLOSE COMPANIES ............................................................................................................................... 410 
           11.7       SELF ASSESSMENT ‐ COMPANIES ............................................................................................................. 414 
           11.8       NOTIFICATION OF CHARGEABILITY ........................................................................................................... 415 
           11.9       CORPORATION TAX RETURNS & RECORDS ................................................................................................ 415 
           11.10      CORPORATION TAX RECORDS ................................................................................................................. 419 
           11.11      PAYMENT OF CORPORATION TAX ............................................................................................................ 423 

12  CHAPTER 12: VALUE ADDED TAX ...............................................................................................................  31 
                                                                                                                                               4

           12.1       INTRODUCTION TO VAT AND THE PROCESS ............................................................................................... 431 
           12.2       TAXABLE PERSONS ............................................................................................................................... 433 
           12.3       TAXABLE SUPPLIES ............................................................................................................................... 433 
           12.4       RATES OF VAT .................................................................................................................................... 434 
           12.5       REGISTRATION FOR VAT ....................................................................................................................... 437 
           12.6       COMPULSORY REGISTRATION ................................................................................................................. 437 
           12.7       VOLUNTARY REGISTRATION – ELECTION TO REGISTER ................................................................................. 439 
           12.8       DEREGISTRATION FOR VAT .................................................................................................................... 440 
           12.9       VALUE OF A SUPPLY .............................................................................................................................. 441 
           12.10      CASH DISCOUNT .................................................................................................................................. 443 
           12.11      MIXED & COMPOSITE SUPPLIES .............................................................................................................. 444 
           12.12      PARTIAL EXEMPTION ............................................................................................................................ 446 
           12.13      TAX POINT  ......................................................................................................................................... 454 
                                .
           12.14      VAT INVOICES  .................................................................................................................................... 456 
                                     .
           12.15      VAT RECORDS .................................................................................................................................... 457 
           12.16      PRE‐REGISTRATION INPUT VAT .............................................................................................................. 458 

13  CHAPTER 13: VAT – DETAILED COMPUTATIONAL ASPECTS .........................................................................  69 
                                                                                                                              4

           13.1       NON DEDUCTIBLE INPUT TAX ................................................................................................................. 469 
           13.2       MOTORING EXPENSES........................................................................................................................... 474 
           13.3       BAD DEBTS ......................................................................................................................................... 477 
           13.4       ACQUISITIONS, DISPATCHES, IMPORTS AND EXPORTS, ................................................................................. 478 
           13.5       PLACE OF SUPPLY RULES  ....................................................................................................................... 478 
                                                    .
           13.6       VAT CONSEQUENCES OF TRADE WITH EU COUNTRIES ................................................................................ 480 
           13.7       VAT CONSEQUENCES OF TRADE WITH COUNTRIES OUTSIDE OF EU ............................................................... 481 
           13.8       VAT CONSEQUENCES OF SERVICES SUPPLIED FROM ABROAD ....................................................................... 482 
           13.9       GIFTS ................................................................................................................................................ 484 
           13.10      SELF SUPPLY ON GOODS FOR OWN USE ................................................................................................... 484 
           13.11      SPECIAL SCHEMES ................................................................................................................................ 484 
           13.12      VAT RETURNS  .................................................................................................................................... 490 
                                       .
           13.13      RECONCILIATION OF VAT RETURNS TO FINANCIAL STATEMENTS ................................................................... 493 


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                                                                                                                        Advanced Taxation (NI)


13.14        SUBSTANTIAL TRADERS ......................................................................................................................... 494 
13.15        ADMINISTRATION AND ASSESSMENTS ...................................................................................................... 494 
13.16        SURCHARGES, PENALTIES AND INTEREST ................................................................................................... 495 


APPENDIX 1 – TAXATION REFERENCE MATERIAL ....................................................................................................... 535 
APPENDIX 2 – INCOME TAX FORMS ........................................................................................................................ 546 
APPENDIX 3 – RETAIL PRICE INDEX ......................................................................................................................... 535 
APPENDIX 4 – CORPORATION TAX FORMS ............................................................................................................... 548 




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Advanced Taxation (NI)



Foreword

While every effort is made to ensure that the information outlined in these notes is
accurate, Accounting Technicians Ireland and the Author cannot accept the
responsibility for lack of, or perceived lack of information contained therein.


The manual is not, nor does it set out to be, a comprehensive assimilation of
Taxation material, but a sufficiently detailed synopsis of the material and knowledge
level required thereof, in relation to the current syllabus.


Students should take particular note of the weighting attaching to this mandatory
module. This weighting is clearly outlined in the syllabus. It is on the basis of this
weighting that students should prepare their own timetable for study.


Although no guarantees can be given, it is believed that a comprehensive knowledge
of the material contained in the manual, when used in conjunction with the questions,
which are an integral part of the study material, to the rear of each chapter, will be
enough to attain a pass mark in the examination.


On the completion of each chapter, students should refer to the relevant questions
dealing with that chapter. Ideally, students should not continue with subsequent
chapters until they have completed the questions attaching to the chapter currently
under review.


The solutions to the questions are provided under separate cover and although they
are the suggested solutions, tutors and students both, should recognise and
appreciate that there might very well be different approaches which would, under
examination conditions, be perfectly acceptable.


It is recommended that, in order to get the full benefit of the question and answer
concept, students should not refer to the solution until they have made a full and
genuine attempt at each question.




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                                                                   Advanced Taxation (NI)



Invariably, it is not lack of knowledge which is the problem when it comes to
examinations, rather it is a combination of other factors, the major two of which are:


   1. Time Management and
   2. Method/Approach.


It is because of this that we recommend that when they have attained a knowledge
of each chapter studied, in addition to the questions provided, students should
access      the   Accounting   Technicians    Ireland   website    for   past   papers.
www.accountingtechniciansireland.ie. Students who are prepared to utilise these
past papers and “sit them under exam conditions”, will, if not eliminate, certainly
minimise these two major inhibiting factors. This advice holds good for all other
subjects.


It is also recommended that students attend the seminars provided by Accounting
Technicians Ireland. These seminars are an invaluable benchmark in establishing
and reinforcing the knowledge acquired and also in boosting self confidence, a
supremely desirable trait when approaching a stressful event – your second year
examination.


Good Luck.




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Advanced Taxation (NI)



Copyright

This manual/workbook is issued by Accounting Technicians Ireland to students
taking its examinations. It may not be used in whole, or in part, for any course of
study and/or examination of any other body whatsoever without prior permission in
writing from Accounting Technicians Ireland. This manual, or any part thereof, may
not be made available in any library, and it may not be reproduced, in whole or in
part, stored in a retrieval system or transmitted in any form or by any means –
photocopying, electronic, electrostatic, magnetic, pdf, mechanical, recording or
otherwise, without prior permission in writing from Accounting Technicians Ireland,
47-49 Pearse Street, Dublin 2.




Referencing


For the purposes of consistency, all references to “he” or “she” will be referred to as
“he” in this manual. No other implication whatsoever is implied from this policy.




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                               Advanced Taxation (NI)




Syllabus




Module 6b: Advanced Taxation
Mandatory Module




Northern Ireland (NI)




                                                   ix
Advanced Taxation (NI)


ADVANCED TAXATION Northern Ireland (NI)
1    Subject Status      Mandatory


Terminal Exam            100%
Module Pass Mark         50%
Learning Modes           Direct Lectures, Seminars, Tutorials, Self-Directed Learning
Pre-requisite:           Successful   completion/exemption       of   Financial   Accounting,
                         Taxation and either Business Management or Law & Ethics




Key Learning Outcome
The key objective of this module is to ensure that learners build on the competencies
gained in Taxation and develop a knowledge and understanding of more advanced
taxation issues for individuals, businesses and corporate entities.




    Key Syllabus Elements and Weightings


       o   Administration and Procedures                    15%


       o   Personal Tax Management                        45%


       o   Business Tax Management                         40%




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                                                                       Advanced Taxation (NI)


Learning Outcomes linked to Syllabus Elements



 Administration and Procedures


 On completion of this aspect of the module, learners will have acquired the
 following knowledge, competencies and know-how: -


    o   An understanding of the role of legislation and practice, HM Revenue &
        Customs, the Accounting Technician and the tax payer in the
        operational structure of the tax system including ethical and tax
        compliance issues


    o   An ability to communicate effectively with individuals and HM Revenue
        & Customs regarding compliance issues and the issue of tax clearance
        certificates


    o   An   appreciation   of   HM   Revenue   &   Customs   powers   and    audit
        procedures


    o   An ability to complete appropriate Revenue forms and demonstrate
        knowledge of HM Revenue & Customs On-line System for filing returns




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 Personal Tax Management


 On completion of this aspect of the module, learners will have acquired the
 following knowledge, competencies and know-how:-


      o   An ability to understand, explain and demonstrate the impact of residence,
          ordinary residence and domicile on the tax affairs of individuals


      o   An ability to quantify the tax liability of individuals to include computations
          at an advanced level


      o   An understanding of the principles and scope of the charge to Capital Gains
          Tax for UK resident individuals including a knowledge of and understanding
          of appropriate reliefs and exemptions


      o   An ability to demonstrate an understanding of the principles and scope of
          the charge to National Insurance Contributions under Class 1, Class 2 and
          Class 4




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Business Tax Management


On completion of this aspect of the module, learners will have acquired the
following knowledge, competencies and know-how:-


   (a) An ability to communicate effectively with individuals and HM Revenue &
      Customs in a professional manner regarding the tax and ethical
      implications of business transactions


   (b) An appreciation of the implications of employment v self employment and
      an ability to make a determination using the ‘Badges of Trade’




   (c) An ability to reconcile information contained in financial statements with
      tax returns submitted and report on the consequences to include
      calculation of the tax liabilities involved


   (d) An understanding of the principles and scope of the charge to Corporation
      Tax and an ability to compute tax liabilities of UK resident companies




   (e) An understanding of UK VAT and an appreciation of the VAT issues
      involved with intra EU transactions, imports and exports




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Advanced Taxation (NI)


ADVANCED TAXATION Northern Ireland (NI)



Specific Functional Knowledge and                          Understanding   Application   Analysis
Competencies




Administration and Procedures                                    (15%)


A practical understanding of the role of
legislation and practice

Overview of tax legislation and procedures

Methods and treatment of tax collection
mechanisms,      direct        assessment,         self-
assessment, and withholding taxes
Communicating       with       HM     Revenue         &
Customs regarding issues resulting from
business        transactions               including
compliance issues
Procedures for the raising of assessments
and collection of taxes

Appeal   procedures      and    the    role   of     the
Commissioners

Imposition of penalties for the late payment
of tax and late filing of return (excluding
criminal procedures)

Payment of tax and payments on account

Communication     with     relevant        parties    in
writing in a professional manner
Issues   and    implications          of    business
transactions      for       individuals              and
corporate entities

Requirements regarding notification to HM
Revenue & Customs




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                                                                           Advanced Taxation (NI)




Specific Functional Knowledge and                      Understanding   Application     Analysis
Competencies


Requirements in respect of maintenance of
books and records

Taxation consequences arising from business
transactions
HM Revenue& Customs                  powers and
audit procedures

HM Revenue & Customs powers and audit at

a basic level
Provision of information to HM Revenue
& Customs
Information requirements of HM Revenue &
Customs and resulting obligations
Role     of     the    Accounting        Technician
including ethical responsibilities

Relevant professional ethical issues


New Construction Industry Scheme
Administration        procedures   and    how   this
affects both subcontractors and contractors
Requirements necessary for the issue of
certificates
Completion of appropriate HM Revenue&
Customs forms
Completion of main tax forms; Form SA 100
(including     supplementary       returns   SA101,
SA103,    SA105        &   SA108)     and    CT600,
CT600(short), CT600A, VAT 100, Return of
Trading Details (64/8) and the use of the HM
Revenue & Customs Online Service for the
submission of returns and the payment of tax




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Advanced Taxation (NI)




Specific      Functional      Knowledge            and     Understanding   Application   Analysis
Competencies




Personal Tax Management                         (45%)




Residence,       ordinary         residence        and
domicile

Definition    and     relevance     of     residence,
ordinary residence and domicile.
Personal      tax     computations           at     an
advanced level including the impact of
claiming loss relief

Calculation of income and losses, the amount
chargeable and the tax payable

Charges on income

Reliefs, allowances, deductions, tax credits
and exemptions


Trade losses and claiming loss relief

Rental income and losses including premiums
on leases and furnished lettings

Employment income and benefit in kind
including provision of motor vehicles, medical
insurance,    preferential    loans       and     living
accommodation
Special treatment for company directors

Social     Security    benefits     and     pensions
including low income and disability benefits,
tax credits and child tax credits




xvi
                                                                         Advanced Taxation (NI)




Specific      Functional      Knowledge        and   Understanding   Application     Analysis
Competencies


Taxation of the elderly including married
couples

Taxation of elderly individuals and married
couples
National        Insurance        contributions
Class1, Class2 and Class 4
Principles and scope of the charge to National
Insurance Contributions for both employed
and self employed persons
Scope and charge to Capital Gains Tax
including the computation of liability
resulting from capital transactions
Principles and scope of the charge to Capital
Gains Tax

The charge to tax on UK resident individuals
and companies on their worldwide gains

The computation of gains and losses, the
amount chargeable and the tax payable

Reliefs,      allowances,     deductions       and
exemptions

Residence, ordinary residence and domicile

Time of disposal and location of assets

Transfer of assets between married couples

Assets passing on a death or by way of gift

Treatment of assets held at 31 March 1982

Part disposals and sets of assets

Enhancement expenditure

Application     of   market    value   rules    to
connected person disposals




                                                                                           xvii
Advanced Taxation (NI)




Specific           Functional           Knowledge        and    Understanding   Application   Analysis
Competencies


Disposals of shares

Chattels and wasting chattels

Personal exemption

Relief        on     disposal      of    a   business      –
Entrepreneurs’ Relief

Capital losses

Indexation relief on gains made by UK
companies

Principal private residence relief


Business Tax Management                                 (40%)


Communications and ethics

Communicating with clients and HM Revenue
&     Customs         in     a    professional      manner
regarding taxation implications of business
transactions

Dealing with relevant ethical issues

Determination of employment or self
employment including ‘Badges of Trade’

An understanding of the ‘Badges of Trade’

Use      of    the     ‘Badges      of    Trade’    in    the
determination           of       employment        or    self
employment.

Contracts of employment and contract for
services




xviii
                                                                                  Advanced Taxation (NI)




Specific      Functional         Knowledge             and    Understanding   Application     Analysis
Competencies


Taxation of business profits including
the calculation of adjusted profits and
the basis periods of assessment

Income       and     losses     from     trades        and
professions      (Schedule      D     Case   I     &    II)
including     pre    trading        expenditure        (tax
adjusted profits)

Commencement          and      cessation     rules      for
Schedule D Case I and Case II

Capital allowances for plant and machinery
(including       motor      vehicles),     First       year
allowances (FYA), Writing down allowances
(WDA)      and     Annual     investment allowance
(AIA), balancing allowances and charges for
assets purchased or sold

Charges on income

National Insurance Contributions              Class 1A
and Classes 2 and 4

The New Construction Industry Scheme

Obligations of a principal contractor with
regard to payments to sub contractors

Administrative        procedures,          registration,
completion of forms and payment of relevant
taxes

Conditions necessary for the issue of a
subcontractors certificate




                                                                                                    xix
Advanced Taxation (NI)




Specific     Functional     Knowledge         and    Understanding   Application   Analysis
Competencies


VAT issues regarding supply of goods
and   services,    intra    EU      transactions,
imports and exports for UK businesses
Principles of the operation of Value Added
Tax
Place and time of supply of goods and
services

Taxable persons and registration

Election to register

Intra EU transactions, imports and exports

Exemption and VAT rates

Accounting for VAT, normal invoice basis and
cash receipts basis
Calculation of VAT liability including input
credits and output VAT
Self supply on goods for own use
Reconciliation of VAT returns to financial
statements

Reconciliation of VAT /PAYE returns and
financial statements

Extraction   and   reconciliation    of   relevant
information from financial statements

Quantification of tax liabilities arising from
discrepancies highlighted




xx
                                                                              Advanced Taxation (NI)




Specific     Functional       Knowledge             and   Understanding   Application     Analysis
Competencies


Principles and scope of the charge to
Corporation        Tax      for     UK      resident
companies      including          close    company
provisions
Principles   and   scope     of    the     charge    to
Corporation Tax for UK resident companies
Accounting periods
Dividend income received (FII)
Dividends and distributions paid
Definition   and   effect    of    close    company
provisions
Taxation treatment of directors loans and
overdrawn current account balances

An understanding of the basic residency
rules for companies

Implications of a company being resident or
non resident

Preparation         of      corporation             tax
computations         for      private        limited
companies

The computation of income and chargeable
gains, the amount chargeable and the tax
payable

Reliefs, deductions and exemptions

Schedule D income and losses (with same
exclusions as for Income Tax)
Capital allowances for plant and machinery
(including motor vehicles) including balancing
allowances and charges for assets purchased
or sold




                                                                                                xxi
Advanced Taxation (NI)




Essential Reading        Advanced Taxation (Northern Ireland)
                         (Second Year)


                         Author: Accounting Technicians Ireland


Supplementary            Tolley’s Taxwise 1 & Tolley’s Taxwise 2 by Rita Burrows, Arnold
Reading                  Homer, John Clube & Keith Gordon


                         Tolley’s VATwise by Nick Lawrence, Arnold Homer,& Rita Burrows


                         Tolley’s Tax Guide by Arnold Homer,& Rita Burrows




Web Resources            www.AccountingTechniciansIreland.ie
                         www.tax.org.uk
                         www.icai.ie
                         www.att.org.uk
                         www.hmrc.gov.uk




Other Resources          Business and Finance
                         Accountancy Ireland, ICA Ireland
                         Accounting and Business, ACCA
                         Student Newsletter, ACCA
                         Times Business Section (Saturdays)
                         Revenue Leaflets and booklets




xxii
Advanced Taxation (NI)                                    Administration & Procedures


CHAPTER 1:               Administration and Procedures

This chapter will provide students with a broad understanding of the UK tax system.
Throughout this chapter the focus will be on the following syllabus areas:


Syllabus Topic
A practical understanding of the role of legislation and practice
   o Overview of tax legislation and procedures
   o Methods and treatment of tax collection mechanisms, direct assessment,
       self assessment and withholding taxes.
Communicating with HM Revenue and Customs regarding issues resulting
from business transactions including compliance issues
   o Procedures for the raising of assessments and collection of taxes
   o Appeal procedures and the role of the Tax Tribunals
   o Imposition of penalties for the late payment of tax and late filing of return
       (excluding criminal procedures)
   o Payment of tax and payments on account
   o Communication with relevant parties and writing in a profession manner
Issues and implications of business transactions for individuals and
corporate entities
   o Requirements regarding notification to HM Revenue and Customs
   o Requirements in respect of maintenance of books and records
   o Taxation consequences arising from business transactions
HM Revenue and Customs powers and audit procedures
   o HM Revenue and Customs powers and audit at a basic level
Provision of information to HM Revenue and Customs
   o Information requirements of HM Revenue and Customs and resulting
       obligations
Role of Accounting Technicians including ethical responsibilities
   o Relevant professional ethical issues
Completion of appropriate HM Revenue and Customs Forms



                                                                                        1
Administration & Procedures                                    Advanced Taxation (NI)



      o Completion of main tax forms:
      o Form SA100 (incl. supplementary returns SA101, SA103, SA105, SA108)
      o CT600, CT600 (short) and CT600A
      o Return of Trading Details (Form 64/8)
      o VAT 100
      o The use of HM Revenue and Customs online service for the submission
         of returns and payment of tax.


1.1    UK Tax System
Central Government raises revenue through a wide range of taxes. The Treasury
formally imposes and collects the taxes and is managed by the Chancellor of the
Exchequer.       Her Majesty’s Revenue and Customs (HMRC) carries out the
administration function for the collection of tax.


HMRC staff are referred to as “Officers of the Revenue and Customs”. They are
responsible for supervising the self assessment system and agreeing tax liabilities.


Tax appeals are heard by Tax Tribunals, which is made up of two layers:


      o First-Tier Tribunal: Appeals against less complex decisions made by HMRC
         will be heard by the First –Tier Tribunals.


      o Upper Tribunal:       Appeals against more complex cases involving large
         sums or important issues of law, will be heard by the Upper Tribunal. The
         Upper Tribunal will also hear appeals against decisions made by the First-Tier
         Tribunals.


1.2    Summary of Main Taxes
A summary of the main taxes is shown below, together with the statute law
governing the tax:




2
Advanced Taxation (NI)                                  Administration & Procedures


Tax               Type & Tax Payer                Statute Law
                                                 Income and Corporation
Income Tax        Type - Direct Tax              Taxes Act 1988;
                                                 Income Tax (Earnings and
                  Tax Payer - Payable by Pensions) Act 2003;
                  individuals & partnerships on Income Tax (Trading and
                  their earnings (employment and Other Income) Act 2005;
                  self) and investment income    Income Tax Act 2007;
                                                 Capital Allowances Act 2001

Corporation       Type - Direct Tax             Corporation Tax Act 2009 &
Tax                                             2010;
                  Tax Payer - payable by Income and Corporation
                  companies on their income and Taxes Act 1988;
                  gains                         Capital Allowances Act 2001
                                                Taxation     of  Chargeable
                                                Gains Act 1992

Capital Gains Type - Direct Tax              Taxation   of           Chargeable
Tax                                          Gains Act 1992
              Tax Payer – payable by
              individuals on the disposal of
              capital assets.

Inheritance       Type - Direct Tax               Inheritance Tax Act 1984
Tax
                  Tax Payer – payable by
                  individual on an estate when
                  somebody dies.

National      Type - Direct Tax            Social Security Contributions
Insurance                                  & Benefits Act 1992
Contributions Tax Payer – payable by
              individuals who are either
              employed or self employed.
              Also payable by employers in
              relation to their employees.

Value Added Type - Indirect Tax i.e. it is Value Added Tax Act 1994
Tax         charged on the final consumer

                  Tax Payer – payable by
                  customers on the supply of
                  goods and services.

These statutes are updated every year by the Annual Finance Act. The Finance Act
incorporate the proposals set out in the Budget. These statutes set out the general



                                                                                      3
Administration & Procedures                                        Advanced Taxation (NI)


rules for the application of each tax; however there is no single source of UK tax law.
Therefore HMRC also provide the following guidance on the application of statutes:


      o Statements of Practice – set out how the law will be applied in practice.


      o Extra-statutory concessions – set out circumstances in which HMRC will not
         apply the law strictly, as it would create hardship or be unfair.


      o Leaflets – aimed to provide the general public with a non-technical
         explanation of how the tax system works.


      o Business Economic notes – notes on a particular industry which are used by
         HMRC and are published for general knowledge.


      o Internal guidance – a series of internal manuals are used by HMRC staff for
         guidance.


      o Tax bulletins and press releases – these are issued throughout the year and a
         range of issues and offer HMRC’s opinion on certain issues.


On occasions where taxpayers and tax authorities cannot agree on the interpretation
of the tax Acts, the case is brought to court. The outcome of the case forms an
important point of law and becomes a precedent which may be referred to in
subsequent cases.


1.3     Self Assessment System
The self assessment system for individuals, including businesses is dealt with in this
Chapter. The self assessment system for companies is dealt with in Chapter 11.


The self assessment system places reliance on the taxpayer to file a tax return and
to pay any tax due. The system is enforced by penalties and interest charges for
failure to submit returns within the relevant period.




4
Advanced Taxation (NI)                                       Administration & Procedures


Generally, individuals who are self employed, company directors, or individuals who
have income from various sources and from which tax has not been deducted, are
required to complete a tax return.


The tax return is prepared by the taxpayer or their agent, and then is submitted to
HMRC for checking along with any outstanding liability. If a taxpayer wishes to
appoint an agent to deal with their tax affairs on their behalf, they must submit a form
64-8 to HMRC (copy of form is included in the appendices). The form covers
authorisation for individual tax affairs (partnerships, trusts, tax credits and individuals
under PAYE) and business taxes (VAT, PAYE for employers and Corporation Tax).


Alternatively, taxpayers can chose not to perform the calculation and HMRC can
advise them of their tax liability.


Once the taxpayer is within the self assessment system, they will be required to
submit a tax return each year until HMRC decide that their tax affairs are
straightforward and that a tax return is not required.
Taxpayers whose tax affairs have become more complicated and believe they may
have an additional tax liability and have not received a tax return, are obliged to
notify HMRC within six months of the end of the tax year i.e. by 5 October 2012 for
2011/12. The maximum penalty imposed where notice of chargeability is not given
is 100% of the tax assessed which is not paid on or before 31 January following the
tax year.


An individual is not subject to the Self Assessment system if all of the following are
satisfied:

   o All income is taken into account under PAYE

   o The individual does not have any capital gains

   o The individual is not a higher rate tax payer

   o Income tax has been deducted at source




                                                                                           5
Administration & Procedures                                       Advanced Taxation (NI)


Who Needs to Complete a Tax Return?
The most common reasons for needing to fill in a tax return are listed below:


    o Self-employed - If an individual is self-employed (including being a member of
       a partnership) they must complete a tax return.

    o Company directors

    o Income above a certain level from savings, investment or property – an
       individual will have to complete a tax return, if they receive any of the following:
       •   income from savings and investments of £10,000 or more;
       •   income from untaxed savings and investments of £2,500 or more;
       •   income from property (before deducting allowable expenses) of £10,000 or
           more;
       •   income from property (after deducting allowable expenses) of £2,500 or
           more;
       •   annual trust or settlement income on which tax is still due; or
       •   income from the estate of a deceased person on which tax is still due.

    o Income from overseas – if individual has received any foreign income that is
       liable to UK tax.

    o Annual income is £100,000 or more.

    o To claim certain expenses or reliefs - If an individual is employed and wants
       to claim for expenses or professional subscriptions of £2,500 or more.

    o Individual owes tax and HMRC can't collect it through their tax code, or the
       individual prefer to pay direct.

    o The individual has a Capital Gains Tax liability – individual will have to
       complete a tax return and the Capital Gains Tax pages of a return.


1.4    Tax Returns
A taxpayer is issued with a formal notice requesting them to prepare and submit a
tax return to HMRC. The tax return is posted to relevant taxpayers and comprises a


6
Advanced Taxation (NI)                                       Administration & Procedures


six page form.       The tax return is called a Form SA 100.              It may contain
supplementary pages for particular sources of income if HMRC believe they are
relevant to the tax payer.


Tax returns can be completed and filed electronically using the HMRC Online
service; this process is known as “Filing by Internet” (FBI). The benefits of on line
filing are that the software automatically calculates any tax payable and instantly
acknowledges that HMRC have received the return. The taxpayer will also have
longer to file the return than if a paper form is filed, the deadline is extended to 31
January following the end of the tax year, rather than 31 October.


Tax payers who will benefit from a Short Tax Return are those with simple tax affairs
including, employees, pensioners and the self-employed with turnovers below
£30,000. Except in very rare circumstances company directors cannot fill out the
Short Return. The short return must be submitted in paper format, it cannot be
submitted electronically.


Partnerships must submit a separate return containing a partnership statement,
showing all sources of income and expenses in the year. Each partner must include
their share of the partnership profits in their personal tax return.


Tax returns must be completed in full and cannot be submitted with outstanding
information.


A brief overview of the main tax forms is provided below. Students may be asked to
complete these forms in the examination. Copies of the forms are included in the
appendices. A more detailed guide to completing a tax return can be downloaded
from HMRC’s website by using the following link:
http://www.hmrc.gov.uk/worksheets/sa150.pdf


Form SA 100 – a taxpayer must use this form to return information on their taxable
income and capital gains.




                                                                                           7
Administration & Procedures                                     Advanced Taxation (NI)


The information to be completed in this form in each of the relevant sections of this
form is set out below.


o Personal Details: Enter date of birth, phone number and national insurance
    number and tick box if the name and address pre-printed on tax return are not
    correct.


o Selection of applicable supplementary forms: To make a complete return of
    all taxable income and gains the taxpayer may need to complete some separate
    supplementary pages.         In this section the taxpayer is asked a number of
    questions and is asked to put an “X” in the yes or no box and this will confirm the
    number of supplementary forms required. The questions relate to whether the
    tax payer received income from the following sources:
                       Employment
                       Self employment
                       Partnership
                       UK property
                       Foreign
                       Trusts
                       Capital gain – capital disposals


    The taxpayer is also asked about their residence during the year and whether
    they are not resident, not ordinarily resident or not domiciled in the UK.


o Student loan repayments: In box 1, the taxpayer is asked to confirm whether
    they have received notification that their student loans repayments have begun.
    The amount of student loan repayments deducted by the employer should be
    entered in box 2.


o Income Details:
          o UK interest and dividend: the taxpayer is asked to insert the amount of
               UK interest received net of tax and the amount that was received and
               was not taxed i.e. amounts received gross. The taxpayer must also
               insert dividends received from UK companies, the tax credit should not

8
Advanced Taxation (NI)                                        Administration & Procedures


              be included.      Amounts of any other dividends and foreign dividends
              should be taken off.


          o UK pensions and other state benefits: the taxpayer is asked to insert
              the amount of income received from state pension, other non-state
              pensions, incapacity benefit and jobseekers allowance. The amount of
              tax taken off these amounts should also be included.


          o Other UK income not included on supplementary forms: the taxpayer is
              asked to insert other taxable income and tax deducted that is not
              included elsewhere on the SA100 or supplementary pages.


          o Tax reliefs: the taxpayer is asked to insert the details of the following:


                         Amounts of payments made to pension schemes which were not
                         deducted from the tax payers salary before tax registered
                         pension schemes.
                         Amounts of gift aid payments or gifts to charity made during the
                         tax year.
                         Whether they are entitled to the blind person’s allowance.


          o Service companies: if the taxpayer provided their services through a
              service company, they must enter the total dividends and salary
              withdrawn from the company in the tax year.



       Finishing the tax return:         The taxpayer is asked to insert the following
       information:
          o Details of any income tax refunded in the tax year
          o Confirmation of whether they want HMRC to collect any additional tax
              due through a PAYE tax code.
          o If the taxpayer has overpaid their tax, HMRC will repay it directly to the
              taxpayer’s bank account or to a nominee. The taxpayer is asked insert
              their bank details including sort code and account number.              If the


                                                                                            9
Administration & Procedures                                   Advanced Taxation (NI)


              taxpayer wishes that the refund goes to a nominee, they must insert the
              nominee’s address and sign in box 14.
          o Boxes 15 to 18 ask for details of the taxpayer’s tax adviser, if they have
              one.     The tax adviser’s name, phone number, address and client
              reference should be provided.
          o Box 19 provides space for any other information the taxpayer wishes to
              provide.


       Signing the tax return:
          o Box 20 asks the taxpayer to put an “X” in the box if the return includes
              provisional or estimated figures.
          o Box 21 asks the taxpayer whether they are attaching supplementary
              pages.
          o Box 22 asks the taxpayer to declare that the information in the return is
              complete to the best of their knowledge. The taxpayer must sign and
              date this box.
          o If the form has been signed on behalf of someone else, the capacity,
              name and address of person signing must be provided.


Form SA101 – a taxpayer must use this form to return information on the less
common types of income, deductions and tax reliefs, and for other information. The
information to be completed in this form in each of the relevant sections of this form
is set out below:


          o Other UK income (stock dividends, life insurance gains)
          o Share schemes, employment lump sums, compensation and deductions
          o Other tax reliefs
          o Age related married couple allowance
          o Income tax losses
          o Pension details
          o Tax avoidance schemes
          o Additional information
          o Personal details



10
Advanced Taxation (NI)                                        Administration & Procedures


Form SA 103s – if a self employed taxpayer’s tax affairs are relatively
straightforward, and their annual business turnover was below £70,000 – they can
submit a shorter version of the Form SA103, known as SA103s. The information to
be completed in this form in each of the relevant sections of this form is set out
below:


          o Business details
          o Business income
          o Business expenses
          o Net profit or loss
          o Capital allowances
          o Calculating taxable profit or loss
          o Total taxable profits or net business loss
          o Losses, Class 4 NIC and CIS


Form SA 103f – if a self employed taxpayer’s tax affairs are less straightforward,
and their annual business turnover was over £70,000 – they must submit a full
version of the Form SA103, known as SA103f. The information to be completed in
this form in each of the relevant sections of this form is set out below:


                         Business details
                         Other information i.e. changes to accounting dates
                         Business income
                         Business expenses
                         Net profit or loss
                         Capital allowances
                         Calculating taxable profit or loss
                         Losses
                         Construction Industry Scheme deductions and tax deducted
                         Balance sheet
                         Class 4 National Insurance Contributions
                         Any other information




                                                                                            11
Administration & Procedures                                       Advanced Taxation (NI)


Form SA 105 – a taxpayer must use this form to return details of UK property
income.      The information to be completed in this form in each of the relevant
sections of this form is set out below:


            o UK property details
            o Furnished holiday letting details
            o Furnished holiday letting losses
            o Property income
            o Property expenses
            o Calculating taxable profit and loss.


Form SA 108 – a taxpayer must use this form to return details of capital gains tax
transactions. The information to be completed in this form in each of the relevant
sections of this form is set out below:


            o Summary of enclosed computations (gains and losses)
            o Listed shares and securities
            o Unlisted shares and securities
            o Property and other assets and gains
            o Any other information


1.5     Due Date for Submission of Tax Returns
Tax returns, including supplementary forms must be submitted by:


      o 31 October following the relevant tax year, if submitted in paper format.
      o 31 January following the relevant tax year, if submitted in electronic format.


There are two exceptions to this:


      o If HMRC did not issue notice to file a tax return until after 31 July following the
         relevant tax year but before 31 October, the latest filing date for paper returns
         is three months from the date of the notice. The date for electronic filing
         remains 31 January



12
Advanced Taxation (NI)                                        Administration & Procedures


   o If the notice to file a tax return was not issued until after 31 October following
         the tax year, the latest filing date is three months from the date of the notice.


Penalties are imposed if a tax return is submitted after the filing deadline. The
Budget 2011, introduced new penalties which are detailed below:


 Length of Delay           Penalty

 One Day                   Initial £100
 Three Months             £10 each day – up to a maximum of £900
 Six Months               £300 or 5% of tax due – whichever is the higher
 Twelve Months             £300 or 5% of the tax due – whichever is the higher.
                           In serious cases you may be asked to pay up to 100% of the
                           tax due instead.


If the tax return is submitted six months late, the taxpayer will be asked to pay the
first three penalties in the table above. All of these penalties are imposed even if the
tax payer has no additional tax liability to pay.


The late submission of the tax return may also lead to the taxpayer becoming liable
to interest and surcharges on overdue tax.


A taxpayer may claim overpayment relief to recover any overpaid tax. This relief
replaces the former “error or mistake” claim with effect from 1 April 2010.             The
individual must make the overpayment relief claim within four years of the end of the
relevant tax year.


HMRC can correct obvious errors in a tax return within nine months of the date the
return is filed if they believe it to be incorrect. Obvious errors include arithmetical
errors or omissions in the return or anything else the officer believes is incorrect in
light of the information available at the time. If the taxpayer does not agree with
HMRC’s decision, they can object within 30 days and an enquiry into the return will
occur.




                                                                                            13
Administration & Procedures                                     Advanced Taxation (NI)


1.6    Due Date for Payment of Tax Liability
The tax due in relation to self assessment is payable in the form of payments on
account and a final balancing payment. The payments are due as follows:




Date                                 Payment
31 January in the tax year           1st payment on account – 50% of previous
                                     year’s liability
31 July following the tax year       2nd payment on account – 50% of previous
                                     year’s liability
31 January following the tax year    Final payment to settle any remaining liability
                                     – this is the balance of income tax and Class
                                     4 NICs together with all the Capital Gains
                                     Tax due for a year.


Payments on account (POA) are not required if the liability is below £1,000. Also,
payments on account are not required if 80% or more of the liability for the previous
year was paid through PAYE or otherwise deducted at source. POAs on Capital
Gains Tax liabilities are not required.


POAs are usually fixed on the previous year’s liability, however if the tax payer
believes their liability will be lower this year they can claim to have the POA reduced.
The POA can be reduced to a stated amount or to nil. The claim must state the
reason why the tax liability will be lower or nil. If the actual liability is higher than
what the taxpayer estimated, the taxpayer will not have paid sufficient amounts
through the POAs, in this case he/she will suffer an interest charge on the late
payment.


1.7    Interest and Penalties on Late Payment
Interest may be charged on late payment of POAs and balancing payments. The
interest rate is 3% per annum and it will be applied from the due date i.e. 31 January
to the day before the actual date of payment. If a taxpayer claimed to reduce his/her




14
Advanced Taxation (NI)                                       Administration & Procedures


POA and there is still a final balancing payment due, the interest is normally charged
on the POA as if each of those payments had been the lower of:
           o The reduced amount, plus 50% of the final income tax liability; and
           o The amount which would have been payable had no claim for reduction
              been made.


Penalties are imposed on the late payment of tax and apply to:
           o Balancing payments
           o Tax due on an amended tax return
           o Tax due on a discovery assessment by HMRC


The penalties are:


Length of Delay in Payment           Penalty

30 days                              5% of tax unpaid at that date

6 months                             Further 5%

12 months                            Further 5%


1.8    Enquiries
HMRC has the right to enquire into a tax return submitted by an individual. HMRC
generally has 12 months from the date the tax return was submitted to commence an
enquiry or “check”. However, if the return was filed late, or an amended return was
submitted, the deadline is extended until the quarter following the first anniversary of
the actual filing date. Quarter days are 31 January, 30 April, 31 July and 31 October.


The reason for the enquiry can be any of the following:


      o Suspicion that the tax payer may have undeclared income or may be
         claiming tax reliefs incorrectly;

      o Information in HMRC’s possession;

      o As part of a random selection process.




                                                                                           15
Administration & Procedures                                          Advanced Taxation (NI)


HMRC do not have to state the reason for the enquiry, however written notice must
be issued prior to the commencement of the enquiry.
During an enquiry, HMRC can demand a company or individual to produce
documents, accounts for inspection and to provide full answers to specific questions.
The information requested must relate to the specific transaction or activity in
question. The company/individual has 30 days to provide the information to HMRC.
If it is not supplied, HMRC will issue a formal legal notice requiring the
company/individual to provide it. If it is still supplied, a standard penalty of is imposed
of £300 and additional penalties of up to £60 per day are imposed until the
information is supplied.


HMRC give notice to the individual informing them that the enquiry is finished. There
are three outcomes to an enquiry:


      1. There is no further tax liability for the individual;


      2. The individual paid too much tax – HMRC will amend the Tax Return and
         repay the overpaid tax and interest to the individual; or


      3. The individual has not paid sufficient tax – HMRC will amend the Tax Return
         and ask the individual to pay the additional tax liability, and interest within 30
         days. The individual has 30 days to appeal against HMRC’s decision.


For any appeal to be valid, it must:
      o Be in writing;


      o Specify in detail each item in the assessment against which the appeal is
          made; and


      o Specify in detail the grounds for the appeal in respect of each item.


1.9     Discovery Assessments
If HMRC believe that although a return has been submitted, the tax liability has been
understated, they can make a discovery assessment to collect additional tax.

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A discovery assessment can only be made if either:


    o The loss of tax is due to fraudulent or negligent conduct.


    o HMRC could not reasonably be expected to have been aware of the loss of
        tax from the information they have received. The information received must
        be detailed to draw HMRC’s attention to potential issues.


The time limit for raising a discovery assessment to correct a careless error is up to
six years from the end of the accounting period. This is extended to twenty years in
the case of a deliberate error. The company may appeal against a discovery
assessment within 30 days of issue.


1.10 Determination
A HMRC officer can make a determination of tax due if an individual ignores the
notice to submit a tax return. The officer can determine the tax liability to the best of
their ability with the information available.     This must be done within four years
following the end of the relevant tax year. A determination cannot be appealed or
postponed. It can only be displaced if the individual submits their tax return.


1.11 Records
Taxpayers are required to keep proper records so they can make a correct return.
Taxpayers in business or who let property must keep records for five years of the
date the return was made. In other cases, the records must be kept for 12 months of
the return date. So for 2011/12 the limits are:


   o If individual in business or property rental – 31 January 2018


   o Otherwise – 31 January 2014


HMRC can specify a shorter time limit for keeping records where records are bulky
and information can be provided in another format.




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Administration & Procedures                                     Advanced Taxation (NI)


Taxpayer can keep information rather than records but must show that they have
prepared a complete and correct tax return.           The information must able to be
produced in a legible format on request. Records can be kept in electronic format.
HMRC can inspect records which are being maintained during the tax year, i.e.
before a return is submitted if they reasonably believe that the tax position should be
checked.


The maximum penalty for failure to keep and retain records is £3,000 per tax year or
accounting period.


1.12 HMRC’s Information Powers
HMRC have a set of information and inspection powers which apply to income tax,
capital gains tax, corporation tax, PAYE and VAT. Their powers are to ensure that
taxpayers are compliant with their obligations, pay the correct tax and on time and
claim all reliefs and allowances available to them.


HMRC can use their statutory powers to request information from tax payers and
third parties via a written information notice in circumstances where the taxpayer has
not co-operated fully with previous requests for information. The information that
HMRC can request includes both financial records and supplementary documents
such as diaries, notes and contracts. The information requested must be reasonably
required for the purposes of checking an individual’s tax position. The taxpayer or
third party must provide the information/documents requested by the information
notice within the time frame stated in the notice.


A notice for information issued to 3rd parties must be done with the agreement of the
taxpayer or approval of the Tribunal, unless the information relates only to the
individual’s VAT affairs.


A tax advisor or accountant cannot be asked to provide information connected with
their function. For example, they do not have to provide their working papers used to
prepare an individual’s tax return.




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Advanced Taxation (NI)                                     Administration & Procedures


The recipient of an information request has the right of appeal against an information
notice, unless the notice has been approved.


HMRC cannot request information that:
          o Relates to a pending tax appeal
          o Constitutes journalistic material
          o Is legally privileged
          o Is over 6 years old – except with approval of a HMRC officer
          o Relates to someone who died over four years earlier.


1.13 HMRC’s Inspection Powers
HMRC authorised officers have the power to enter the business premises of a
taxpayer whose liability is being checked. They can inspect the premises, business
assets, business documents that are on the premises. They cannot however access
part of the premises that is used as a dwelling.       Again, the inspection must be
reasonably required for the purposes of checking the tax payer’s tax position.


The officer will usually agree a time suitable for the inspection with the tax payer.
However, the officer can carry out the inspection at any reasonable time provided the
taxpayer has received seven days written notice and the inspection is carried out by
an authorised HMRC officer.         There is no right of appeal against an inspection
notice.


1.14 Penalties
There is a Common Penalty Regime in place for errors in tax returns, including
income tax, corporation tax, NIC and VAT.          A penalty may be imposed if the
taxpayer makes an inaccurate return if he has:


          o Been careless and has not taken reasonable care in making the return
              or does not take reasonable steps to advice HMRC of an error in a
              submitted return.


          o Made a deliberate error but does not attempt to conceal the error



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Administration & Procedures                                    Advanced Taxation (NI)


          o Made a deliberate error and has attempted to conceal the error


In order for a penalty to be imposed, the inaccurate return must result in:
          o An understatement of the tax payer’s liability
          o A false or increased loss for the tax payer
          o A false or increased repayment of tax to the taxpayer.


Penalties also apply where HMRC has issued an assessment estimating an
individual’s tax liability where:


          o A return has been issued to the taxpayer and has not been returned; or
          o The taxpayer was required to deliver a return but has not done so.


The taxpayer will be charged a penalty where:


          o The assessment understates the liability and
          o The taxpayer fails to take reasonable steps to notify HMRC of an under-
              assessment within 30 days.


The amount of the penalty is based on Potential Lost Revenue (“PLR”) as a result of
the error and can reach up to 100%.


If the failure is not deliberate, a penalty will not arise if the taxpayer can show that
they have a reasonable excuse.         There is no definition of “reasonable excuse”
however legislation states that the following are not considered to be reasonable:


          o Reliance on a third party to prepare the return i.e. an accountant
          o Insufficient funds to pay the liability


HMRC have stated that the following may be regarded as being a reasonable
excuse for failing to submit a tax return or make a payment on time. However, a
claim of reasonable excuse will not necessarily be accepted just because it seems to
fit into one of these categories



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Advanced Taxation (NI)                                    Administration & Procedures


       Computer breakdown: where the records essential for completion of a tax
       return are held on computer and it breaks down, either just before or during
       the preparation of the return. The trader must have taken reasonable steps to
       correct the fault.
       Illness: where the person normally responsible for completing the tax return is
       unable to do so because of illness. The trader will need to show that there
       was no one else capable of completing the return. If it is a prolonged illness
       the trader will need to show that you have taken reasonable steps to get
       someone else to do the return.


       Loss of key personnel: where the person responsible for completing the tax
       return leaves the job at short notice and there is no one else to complete the
       return on time for that period.


       Unexpected cash crisis: where funds are unavailable to pay the tax liability
       due following the sudden reduction or withdrawal of overdraft facilities, sudden
       non-payment by a normally reliable customer, insolvency of a large customer,
       fraud, burglary or act of God such as fire.


       Loss of records: where records are stolen or destroyed. This excuse applies
       only to the current tax period.


Appeals
Under self assessment, a taxpayer has the right to appeal HMRC decisions. Appeals
are normally made against a discovery assessment or against an amendment by
HMRC to an assessment. Appeals must be in writing and within 30 days of the
HMRC decision. The taxpayer can apply to postpone payment of all or part of the
tax assessed, pending settlement of the appeal.


Most appeals are settled by informal means through internal review, where an
HMRC review officer who has not previously been involved, is appointed to review
the case. This is less costly and a more effective way of resolving issues. The
taxpayer must either accept the review offer or notify an appeal to the Tribunal with
30 days of being offered the review. The review must be carried out within 45 days.

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Administration & Procedures                                   Advanced Taxation (NI)


After the review is concluded and the taxpayer notified, they have 30 days to appeal
to the Tribunal.


The case may be heard by either the First-Tier Tribunal or Upper Tribunal,
depending on the complexity and monetary level of the case. A decision of the First
Tier Tribunal may be appealed to the Upper Tribunal.        A decision by the Upper
Tribunal may be appealed to the Court of Appeal.


1.15 Ethics
Accounting Technicians Ireland has produced a Code of Professional Ethics for use
by its members and students. The decisions a member makes in the everyday
course of his or her professional life can have real ethical implications. The Code
does not establish rigid rules or mandatory requirements. Instead it sets out
fundamental principles and expected professional conduct that members and
students should practice. The principles underlying this Code are as follows:


     o To set out expected standards of professional behaviour.
     o To help protect the public interest.
     o To help maintain Accounting Technician Ireland's good reputation.


All accounting technicians should comply with the following five fundamental
principles:


     o Integrity – Accounting technicians should be straightforward and honest in all
        professional and business relationships. They should not be associated with
        any reports or documents they believe may be materially false or contain
        misleading statements.


     o Objectivity: Accounting technicians should be fair and should not allow bias,
        conflict of interest or undue influence of others to override professional or
        business judgements.


     o Professional Competence and Due Care: Accounting technicians have a
        continuing duty to maintain professional knowledge and skill at a level

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Advanced Taxation (NI)                                      Administration & Procedures


       required to ensure that a client or employer receives the advantage of
       competent professional service based on current developments in practice,
       legislation and techniques.


   o Confidentiality: Accounting technicians should respect the confidentiality of
       information acquired as a result of professional and business relationships
       and should not disclose any such information to third parties without proper
       specific authority or unless there is a legal or professional right or duty to
       disclose. There are certain circumstances where disclosure by accounting
       technicians is specifically required by law. Examples of these circumstances
       are:


           •   Producing documents or giving evidence in the course of legal
               proceedings.


           •   Disclosing to the appropriate public authorities infringements of the law.
               Specific examples of this are money laundering or failure to disclose
               sources of income to HMRC – for example an individual may not
               disclose rental income they receive to HMRC. The relevant pieces of
               legislation are Money Laundering Regulations 2003, The Proceeds of
               Crime Act 2002 (as amended), Serious and Organised Crime and
               Police Act 2005 and the Terrorism Act 2000 (Business in the Regulated
               Sector and Supervisory Authorities) Order 2003.         These pieces of
               legislation require accounting technicians to report to the appropriate
               authorities any suspicions they have formed in relation to money
               laundering offences and financing of terrorism offences. Accountancy
               practices are required to establish specific procedures for the
               identification and prevention of money laundering.


       When the accounting technician has determined that the confidential
       information can be disclosed, the following points should be considered:




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Administration & Procedures                                    Advanced Taxation (NI)


           •   Whether all the relevant facts are known and substantiated, when the
               situation involves unsubstantiated fact or opinion, professional
               judgement should be used in determining the types of disclosure to be
               made, if any.


           •   What type of communication is expected and to whom it will be
               communicated.


           •   Whether or not the accounting technician would incur any legal liability
               having made a communication.


     o Professional Behaviour – Accounting technicians should comply with
       relevant laws and regulations and should avoid any action that discredits the
       profession.


Money laundering occurs when an individual does not declare income or withholds
information from HMRC relating to proceeds from crime. All members of Accounting
Technicians Ireland should have appropriate preventative measures in place and
procedures on how to report suspicions of money laundering to the appropriate
authority. Each firm should appoint a Money Laundering Reporting Officer.


If an accountancy practice takes on a new client, a member should carry out the
money laundering procedures to verify the identity of the individual by reliable and
independent means. If the client is an individual, the member should obtain a driving
licence, or passport and proof of address. If the client is a company, the member
should obtain evidence of incorporation, business address, verify identity of
directors. If such verification is not available the practice should not accept the
client. Records of the verification should be retained for at least five years after the
end of the client relationship.


If during the course of the client relationship, the member becomes suspicious about
the client activities, they should report the case to the Money Laundering Officer.




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Advanced Taxation (NI)                                       Administration & Procedures


Transactions which do not appear to have an economic or legal purpose should be
investigated and any finding should be documented in writing.


If member suspect or know that proceeds are directly or indirectly related to
proceeds of crime, the suspicions should be reported to the Serious Organised
Crime Agency. If tax evasion is suspected, members should report their suspicions
to HMRC also.


Members should not “tip off” a client that a report has been made, persuading a
client not to proceed with the intended crime will not constitute tipping off.


1.16 Communication
Accounting technicians have a responsibility to communicate with clients in a
professional manner.


For exam purposes, if the student is asked to write a letter to a client, the answer
should take the format of a letter and include the following:


          o The Address of the client in the top left hand corner of the letter – if the
              address is not provided in the question, the student should develop their
              own address.
          o Dated – the student should include a relevant date.
          o The salutation should be “Dear.....”
          o An appropriate introduction should be given in the letter, for example:
              “Further to our recent meeting, I have detailed below the factors which
              should be considered when.....”
          o The body of the letter should set out clearly the information that the
              client has requested.
          o The letter should be concluded with a statement such as “If you require
              any further information, please do not hesitate to contact me.”
          o The letter should be signed off with “Yours sincerely”
If the student is asked to write a memo, the answer should take the format of a
memo and include the following:



                                                                                           25
Administration & Procedures                          Advanced Taxation (NI)


       To: ..................................
       From: ..............................
       Date: ...............................
       Re: ..................................
       The purpose of this memo is to outline.....




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Advanced Taxation (NI)                                       Administration & Procedures


Chapter Summary


   o HMRC carries out the collection of taxes.

   o There is no single source of UK tax law; however statues, statements of
       practice, extra-statutory concessions, leaflets, business economic notes,
       internal guidance and tax bulletins are all used to impose taxes.

   o There are two types of taxes: direct and indirect.

   o Direct taxes are charged on income, profits and other gains; they include
       income tax, capital gains tax, corporation tax etc.

   o Indirect taxes are taxed on spending; they include VAT and stamp duty.

   o The tax year runs from 6 April to 5 April the following year.

   o Self assessment relies on taxpayers to submit accurate and complete tax
       returns and supplementary pages.

   o HMRC check the tax liability submitted through self assessment.

   o Paper tax returns must be submitted by 31 October following the next tax
       year; electronic returns are due on 31 January following the tax year.

   o Payments on account are due on 31 January in the tax year, 31 July in the tax
       year and the balancing payment is due 31 January following the tax year.

   o Penalties are payable on late submission of tax returns. Interest and
       surcharges may be imposed on the late payment of tax.

   o HMRC can make enquiries, discovery assessment and determinations on a
       taxpayer.

   o All taxpayers have the right of appeal.

   o All accounting technicians should comply with five fundamental principles of
       Accounting Technicians in Ireland.

   o Accounting technicians have a responsibility to communicate with clients in a
       professional manner.




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Administration & Procedures                                   Advanced Taxation (NI)


                                  SAMPLE QUESTIONS


The following questions examine the key areas you are expected to know for this
particular subject, and will assist you significantly in your preparation for your
examination in May/August. In addition, pilot papers for this subject can be
downloaded from www.AccountingTechniciansIreland.ie


Question 1:
You have been asked to draft a memo to a new client outlining the Key Self
Assessment tax return filing and payment deadlines together with the associated late
return and late payments penalties that may be levied.


Question 2:
(Based on Pilot Paper)
Sammy Silkstone is a client of your firm, and as such you prepare both personal tax
returns (Form SA) for her and also prepare the Corporation tax return for the
company she owns – Silky Fabrics Ltd. One of Sammy’s friends has recently been
the subject of an enquiry into their tax affairs by HM Revenue & Customs and she is
now expressing concern that either her or Silky Fabrics Ltd’s recent returns could
also be subject to an enquiry.


Sammy Silkstone has asked you to explain the rules in respect of such enquiries to
her.


Requirement
Write a letter to Sammy Silkstone, in which you set out the tax position in respect of
an enquiry carried out by HM Revenue & Customs. This letter should cover the
following areas:

     (a) The scope of enquiries

     (b) The time limit for enquiries

     (c) HM Revenue & Customs entitlement and power to call for documents

     (d) The amendment of returns during enquiries



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Advanced Taxation (NI)                                   Administration & Procedures


   (e) The completion of enquiries

   (f) The right of appeal

   (g) Payment of tax, interest and penalties


Question 3:
(Based on Pilot Paper)
You are an assistant working for a small accountancy practice in Coleraine, County
Antrim. The partner Mr Woolley has recently seen a potential new client called
Sidney Messer and has provided you with the following information.


Sidney Messer came to see Mr Woolley because a friend of Sidney’s thinks that he
may have a tax problem. For a number of years now, Sidney Messer has been in
receipt of rental income from an investment property which he owns. He has never
disclosed the income arising from this property to HM Customs & Revenue however,
nor has he ever paid any tax on it. Sidney Messer has told the partner that he
believed that he was not obliged to pay tax on the income because HM Revenue &
Customs had never asked him to complete a tax return or sent him a demand for any
tax due.


Requirement

Draft a letter to Sidney Messer, explaining his tax position. This letter should deal
with the following areas:


1 His general obligation under the Tax legislation to report untaxed income to HM
   Revenue & Customs.                                                       5 Marks


2 Possible consequences in terms of interest & penalties on any undisclosed
   income.                                                                  5 Marks


3 How many years HM Revenue & Customs can go back into the past in assessing
   this income?                                                             4 Marks




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Administration & Procedures                                                       Advanced Taxation (NI)


4 Prepare a memo to the partner detailing the firm’s obligations to make a full
     report to the Serious Organised Crime Agency (SOCA) and the ethical position of
     the practice if Sidney Messer decides not to make a full disclosure of this
     previously undisclosed income to HM Revenue & Customs.                                     6 Marks


Question 4:
Mrs Molloy receives following income for the year ended 5 April 2012:
                                                                              £
Income:
Occupational pension ................................................       15,920
Retirement pension ...................................................      4,716
Rental income ...........................................................   3,500
Bank deposit interest standard deposit account (net)                        2,300
Dividends from UK Trading company (net) ...............                       240


Requirement:
Outline the tax obligations under self assessment of Mrs. Molloy.


Question 5
Steven Crabtree is a self-employed client building contractor. Steven has not
prepared personal tax returns for a number of years despite having a sizeable
income. He owns a number of residential properties which he has let out to tenants.
In addition, Steven has a substantial amount on deposit with the bank. He has been
referred to you by a friend of his, who has advised him to bring his tax affairs up to
date. You have just finished your first meeting with Steven and sensed reluctance on
his part to bring his tax affairs up to date, as he considers that it is likely he has a
substantial underpayment of Income and Capital Gains Tax and he feels that it is
unlikely that he will be “caught” by HM Revenue & Customs.


Requirement
(a) Write a letter to Steven explaining:
         (i) His tax obligations under Self Assessment.
         (ii) The penalties that he may be subject to.                                          14 Marks



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Advanced Taxation (NI)                                     Administration & Procedures


(b) Explain briefly any ethical requirements you might have as a tax adviser on
accepting Steven as a client and in particular if Steven is reluctant to bring his tax
affairs up to date.                                                             6 Marks


Question 6
(Based on Past Paper)

(a) An accounting technician communicating or advising either a company or an
individual on tax issues has duties and responsibilities towards both his client and
HMRC. In carrying out these duties all accounting technicians should comply with
five fundamental principles.


Required
Outline the five principles to which all technicians should adhere to in such
communications.                                                                 10 Marks


(b) In April 2012 HMRC issues a notice requiring an individual to submit a tax return
for the year ended 5 April 2012. The return is submitted electronically to HMRC on
13 December 2012.


Required
   o State the date by which any enquiry into the above return must begin.


   o How would the situation differ if a paper return had been submitted on 13
       December 2012?


   o How would the situation differ if the electronic return had not been submitted
       until 6th March 2013?                                                    6 Marks


(c) HMRC may raise a discovery assessment if it is discovered that full disclosure
was not made on a tax return and as a result tax was lost.




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Administration & Procedures                                   Advanced Taxation (NI)


Required
Outline the time limits for raising discovery assessments
     o If due to fraud or negligence
     o If due to incomplete disclosure without fraud or negligence          4 Marks
                                                                     Total 20 Marks




32

				
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