Taxation Finance Act 2009

Transcription

1 Taxation Finance Act 2009 Fifteenth edition Alan Melville FCA, BSc, Cert. Ed. Financial Times Prentice Halt is an imprint of Harlow, England London New York Boston San Francisco Toronto Sydney Singapore Hong Kong Tokyo Seoul Taipei New Delhi Cape Town Madrid Mexico City Amsterdam Munich Paris Milan

2 Contents Preface Acknowledgements Summary of tax data Part 1 INCOME TAX AND NATIONAL INSURANCE 1 Introduction to the UK tax system UK taxes Sources of tax law The tax year Structure of HM Revenue and Customs Administration of the tax system Self Assessment Appeals Tax evasion Tax avoidance Introduction to income tax Taxable persons Classification of income Exempt income Structure of an income tax computation Married couples and civil partners Rates of income tax for Income taxed at source Savings income Dividends from UK companies Rates of income tax for Personal allowances Personal allowances for The personal allowance Blind person's allowance Tax reducers Married couple's allowance Personal allowances for Payments and gifts eligible for tax relief Payments and gifts deductible from total income ' K IX x xi Eligible interest payments 48 Annual payments and patent royalties 48 Gifts of shares or property to charity 49 Payments which are tax reducers 49 Maintenance payments 50 Loans used to purchase a life annuity 50 Gift Aid 51 5 Income from property 55 Definition of property income 55 Basis of assessment and allowable expenditure 56 Capital expenditure 57 Losses 58 Lease premiums 59 "Rent-a-room" relief 62 Furnished holiday lettings 63 6 Income from savings and investments 67 Interest received 67 Dividends received 69 Tax-efficient investments 70 Individual Savings Accounts 70 Enterprise Investment Scheme 72 Venture Capital Trusts 73 Community investment tax credit 74 Child Trust Funds 75 Income from trusts and settlements 76 Miscellaneous income 79 7 Income from employment 82 Employment and self-employment 82 Basis of assessment 85 Employment income 85 Non-taxable employment income 86 Allowable expenses 88 Benefits in kind 91 Benefits assessable on all employees 92 Special rules for PI ID employees 94 Payments made on termination of employment 102

3 The PA YE system Construction industry scheme Employee incentive schemes 8 Income from self-employment: Computation of income The badges of trade The calculation of trading profits Deductibility of expenditure Disallowed expenditure Allowable expenditure Trading'income not in the accounts Non-trading income in the accounts Expenditure not in the accounts Post-cessation receipts 9 Income from self-employment: Basis periods The current year basis Commencement of trade Cessation of trade Change of accounting date Transitional overlap relief Averaging of trading profits 10 Income from self-employment: Capital allowances Eligible expenditure Chargeable periods Plant and machinery Capital allowances on plant and machinery Writing down allowance Annual investment allowance First year allowance Balancing allowances and charges Non-pooled assets Allowances on cessation of trade Industrial buildings allowances Agricultural buildings allowances Miscellaneous capital allowances 11 Income from self-employment: Trading losses Relief for trading losses Carry-forward trade loss relief Trade loss relief against total income Temporary extension of carry-back relief V ^^ i JJ 1 ^A IJO 1 fz(\ iou 1 flc\ IOU 1 f^a L< ICO 1 /Uin Early trade losses relief Terminal trade loss relief Post-cessation trade relief Transfer of a business to a company Losses on shares in unlisted trading companies 12 Income from self-employment: Partnerships Principles of partnership taxation - 'Notional profits and losses Change in partnership composition Non-trading income Trading losses Pension contributions Registered pension schemes Tax relief for contributions by members Tax relief for contributions by employers Annual allowance charge Lifetime allowance charge Tax relief on pension contributions as from 6 April 2011 Payment of income tax, surcharges, interest and penalties Payment of income tax Surcharges Interest on income tax Penalties National Insurance contributions Class 1 Class 1A Class IB Class 2 Class 3 Class 4 Annual maximum contributions Review questions (Set A) Part 2 CAPITAL GAINS TAX 16 Introduction to capital gains tax Chargeable persons Chargeable assets Chargeable disposals VI

4 Basis of assessment Rate of CGT Relief for capital losses Relief for trading losses Administration of CGT Computation of gains and losses Layout of a CGT computation Disposal value Allowable expenditure! Part disposals "Assets with negligible value Assets held on 31 March 82 Chattels and wasting assets The chattels exemption Chattels disposed of at a loss Part disposals of chattels Wasting chattels Wasting assets Leases Shares and securities The share matching rules The Section 104 holding Bonus issues Rights issues Capital distributions Takeovers Gilts and qualifying corporate bonds Principal private residences Principal private residence Partial exemption Deemed residence Letting relief Business use CGT reliefs Damaged assets Destroyed assets Replacement of business assets Gift of business assets Transfer of a business to a limited company Entrepreneurs' relief Reinvestment into EIS shares Loans to traders Review questions (Set B) 331 Part 3 CORPORATION TAX 11 Introduction to corporation tax 339 Scope of corporation tax 339 Accounting periods 340 Chargeable profits 341 Trading income 342 Income from property 349 Income from non-trading loans 349 Miscellaneous income 349 Franked investment income 351 Charges on income 351 Loan relationships 351 Long periods of account Corporate chargeable gains 361 Chargeable disposals and chargeable assets 361 Basis of assessment 362 Computation of gains and losses 362 Indexation allowance 363 Assets held on 31 March The rebasing election 369 Assets acquired before 6 April Disposals of shares or securities Computation and payment of the corporation tax liability 381 Corporation tax financial years 381 Rates of corporation tax 382 Marginal relief 385 Corporate Venturing Scheme 388 Due date of payment 388 Self Assessment 390 Interest on underpaid and overpaid corporation tax 392 Penalties Income tax and advance corporation tax 397 Income received net of income tax 397 Payments made net of income tax 398 The quarterly accounting system 399 Tax suffered in excess of tax deducted 401 ACT before 6 April Abolition of ACT 406 Shadow ACT Corporation tax losses 412 Relief for trading losses 412 VII

5 Section 393(1) relief 4 Unrelieved charges on income 414 Section 393A(l) relief 416 Repayments of corporation tax 420 Anti-avoidance legislation 421 Choice of loss relief 422 Non-trading losses Close companies and companies with investment business 426 Close companies 426 Definition of a close company 426 Exceptions 429 Consequences of close company status 430 Close investment-holding companies 433 Companies with investment business 433 Unincorporated business vs close company 434 Incorporation Groups of companies and reconstructions 442 Associated companies 442 Transfer pricing % groups % groups 446 Group relief 447 Transfer of chargeable assets within a group 450 Capital losses 452 Consortia 454 Company reconstructions 456 Review questions (Set C) 459 Part 4 MISCELLANEOUS 29 Value added tax (1) 469 The principle of VAT 469 Taxable persons 470 Taxable supplies 470 Exempt supplies 472 Reduced rate supplies 473 Zero rate supplies 473 The value of a supply 474 Imports and exports 477 Reverse charge procedure in the UK 478 Registration 479 Deregistration Value added tax (2) 486 Accounting for VAT 486 The tax point 487 Tax invoices 487 Accounting records 488 Special schemes 489 Bad debts 492 Non-deductible input tax 493 " "'Partial exemption 495 Retail schemes 496 Administration of VAT 499 Penalties, surcharges and interest Inheritance tax 506 Chargeable transfers of value 506 Exempt transfers 508 Potentially exempt transfers 510 IHT payable on chargeable lifetime transfers 512 IHT payable on death 514 Valuation 5 Business property relief 521 Agricultural property relief 522 Admini stration of IHT Overseas aspects of taxation 526 Residence, ordinary residence and domicile 526 Income tax - general rules 529 Double taxation relief 530 Income from employment 531 Trading income 533 Income from property and investments 534 Capital gains tax - general rules 535 Inheritance tax - general rules 536 Corporation tax - general rules 536 Controlled foreign companies 539 Double taxation relief for companies 540 Review questions (Set D) 548 Part 5 ANSWERS Answers to exercises 557. Answers to review questions 609 Index 621 VIM