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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
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
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
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
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
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
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)
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)
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.
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
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%)
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
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
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
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
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
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)
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)
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
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
Q&A
menfuong@gmail.com

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Phuong - Taxation - Chapter 8 - The tax practitioner and the UK tax environment - ver1

  • 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