This document provides an overview of taxation in the UK. It discusses the main sources of UK tax legislation including Acts of Parliament, statutory instruments, and case law. It also describes the role and organization of HM Revenue & Customs, which administers the UK tax system. Finally, it defines different types of taxes such as income tax, corporation tax, capital gains tax, and inheritance tax, and how income is classified for taxation purposes.
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1. Unit 12: Taxation
Chapter 8
The tax practitioner
and the UK tax environment
Nguyen Hoang My Phuong
menfuong@gmail.com
Chau Hung College / BTEC - Edexcel
http://chauhung.edu.vn
2. Unit 12: Taxation
The tax Inheritance
practitioner tax
The tax practitioner &
Income and UK tax
the UK tax
capital legislation
environment
Classification HM Revenue
of income & Customs
3. The main sources of UK tax legislation
The key reference sources for UK tax legislation
The organisation of HM Revenue & Custom & its
terms of reference including the appeals system
Objectives
The appeals process
The classification of income & the aggregation of
income which is then subject to income tax
The difference between income & capital
profits/losses
4. Sources of tax law - 1
There is no single source of UK tax law
The basic rules are laid down in Acts of
Parliament but it is left to the courts to interpret
these Acts & to provide much of the detail of the
tax system
In addition, HMRC issues a variety of statements,
notices & leaflet which explain how the law is
implemented in practice. These statements have
no legal backing but they explain the tax
authorities’ interpretation of the law & will be
adhered to unless successfully challenged in the
courts
5. Sources of tax law - 2
Statute (i.e. Acts of Parliament). Statutes are
amend each year by the annual Finance Act
which is based upon the Budget proposals.
Statutory Instruments is a document which is
laid before Parliament & then automatically
becomes law within a stated period unless any
objections are raised to it
Statute is interpreted & amplified by case law
Statements made by the tax authorities
produced by HMRC
6. Her Majesty’s Revenue & Customs
(HMRC)
Responsible for the administration of the UK tax
system
Issues:
a) Statement of practice
b) Extra-statutory concessions
c) Explanatory leaflets
d) Business economic notes
e) Tax Bulletin
f) Internal Guidance
www.hmrc.gov.uk
7. Main taxes
Tax Suffered by Source / Statute
Capital Allowances Act 2001 (CAA
2001); Income Tax (Earnings and
Individuals Pensions) Act 2003 (ITEPA 2003);
Income tax
Partnerships Income Tax (Trading and Other Income)
Act 2005 (ITTOIA 2005); Income Tax Act
2007 (ITA 2007)
Income and Corporation Tax Act 1988
Corporation (ICTA 1988), Corporation Tax Act 2009
Companies
Tax (CTA 2009) and subsequent Finance
Acts, CAA 2001 as above
Individuals
Partnerships
Taxation of Chargeable Gains Act 1992
Capital gains Companies (which
(TCGA 1992) and subsequent Finance
tax pay tax on capital
Acts
gains in the form of
corporation tax)
8. Tax year
Individuals Companies
tax year / fiscal year / year of assessment: the corporation tax financial year:
from 6 April to the following 5 April from 1 April to the following 31 March
the tax year 2009/10 the financial year FY2009
from 6 April 2009 to 5 April 2010 from 1 April 2009 to 31 March 2010
The whole program includes the provisions of Finance Act 2009
(based on the March 2009 Budget)
9. The organisation of HMRC
Treasury Responsible for the public finance in UK
Managed by Imposes and collects taxation
Chancellor of the Exchequer
HMRC Administrative function of collection of tax
Commissioners for HMRC • Implement the law relating to direct &
indirect taxation
• Provide advice to the Chancellor of the
Exchequer on taxation matters
• Administer the many divisions &
offices into which HMRC is organised
Officers of Revenue & Carry out the routine work of HMRC,
Customs such as supervising the self-assessment
system and agreeing tax liabilities;
following up amounts of unpaid taxes,
etc.
10. Appeals
First Tier Tribunal deals with most cases
Tax Tribunal complex cases which either
involve an important issue of
tax or a large financial sum
Upper Tribunal
appeals against decisions of
First Tier Tribunal
11. The classification of income – 1
Classified according to the nature of the income
Some income is received in full, with no tax
deducted in advance (paid gross)
example: gilt interest (interest paid on government
securities)
Other income is received after deduction of tax
(called “income taxed at source”)
example: dividends on UK shares (10%)
12. The classification of income – 2
Income from employment & pensions
Profits of trades, professions & vocations
Main types of
Income from property letting
income
Savings & investment income, including interest &
dividends
Miscellaneous income
13. Income & capital gains/losses
Income tax Capital gains tax
charged on income profit which
charged on one-off capital profits
might be expected to recur
example: weekly wages / profits example: profit from selling a
from running a business painting owned for 20 years
14. Inheritance tax - 1
wealth left by an individual on death
Inheritance tax gifts made by individuals in the seven years prior to
(IHT) their death
some other large lifetime transfers of wealth
Note:
IHT does not charge on the income/profit made by an individual but
rather the amount of wealth given away by that person
IHT applies for the amount transferred out of their estate, whether on
death or in the period beforehand
15. Inheritance tax - 2
Rate of tax:
Amount Rate Name of rate
Tax free / nil
£325,000 0%
band • On a cumulative basis over a 7-
year period
• On death
>£325,000 40% Full rate
• Sometimes apply to large lifetime
20% transfers of wealth and calculated
at the time of the gift
16. Inheritance tax - 3
<= £250 per donee / tax year (*)
Annual exemption of £3,000 per year (only forward for one
year if unused) (*)
Transfers between husband and wife (as long as the recipient
is domiciled in UK at the time of transfer)
Exemptions
Gifts to UK charities
Gifts to UK political parties
Gifts for national purposes (e.g. to museums, art galleries &
National Trust)
(*) apply only to lifetime transfer, not to property passing on death
17. Inheritance tax - 4
Valuation assets: the market value at the time of the transfer
Administration of IHT
HMRC Inheritance Tax
Submit to HRMC an account showing the value of the estate on
death and the amount of any chargeable lifetime transfers in the
preceding 7 years
Submit to HMRC by the personal representatives of the deceased
(usually the executors)
Done within 12 months following the month of death
Paid by the personal representatives
Tax on the death estate
Suffered by the residuary legatee
Tax on lifetime transfers
Suffered by the recipient
(within 7 yrs before the death)
18. The role of the tax practitioner
Taxpayer: responsible for submitting the return
and for paying taxes
Accountant: acting as the taxpayer’s agent
Tax practitioner: dealing with the HMRC on behalf
of the client (see more in Chapter 12 – Tax
documentation and payment of tax)
19. Unit 12: Taxation
The tax Inheritance
practitioner tax
The tax practitioner &
Income and UK tax
the UK tax
capital legislation
environment
Classification HM Revenue
of income & Customs
20. The main sources of UK tax legislation
The key reference sources for UK tax legislation
The organisation of HM Revenue & Custom & its
terms of reference including the appeals system
Objectives
The appeals process
The classification of income & the aggregation of
income which is then subject to income tax
The difference between income & capital
profits/losses