Professional Documents
Culture Documents
1. Taxable income is defined as gross income for income tax purposes less any allowances and reliefs
available at the taxpayer's marginal rate.
2. Applies to the income of discretionary and accumulation trusts. Prior to 1993-94 trusts paid tax at
the basic rate, with an additional rate of 10 %
5. The basic rate of tax on dividends is 10% and savings income is 20%.
7. From 2008-09 the starting rate is abolished for all non-savings income (e.g. employment, self-
employed trading profits, pensions and property income), which is the first slice of income to be
charged to income tax. For 2010-11 there is a 10% starting rate for savings with a limit of £2,440.
Where taxable non-savings income does not fully occupy the starting rate limit the remainder of the
starting rate limit is available for savings income.
Payment of Tax
Tax is collected from most of the individuals without any direct contact with the Revenue. Tax on the
individuals’ earnings is collected through the Pay as You Earn (PAYE) scheme. Tax on Pensions is
also collected in the same way.
Tax on bank and building society interest is deducted by the bank/building society at the lower rate of
20%.There will not be anything more to pay unless the taxpayer is liable to higher rate of tax.
A minority of the employees and pensioners, and all self-employed people, have to fill in tax returns
and pay their income tax directly to the Revenue.
Those with Capital Gains above the annual exempt limit are also required to fill in tax returns and pay
the tax directly.
Tax that is due is to be paid by the tax payer directly to the Revenue in two half-yearly payments, i.e.
on 31st January in the current tax year and the next July and any balance tax due is to be paid by end
of 31st January of the next calendar year(Due date of filing return).
Example: The tax due for the tax year 2005-06 is to be paid as follows:
31st January,
1st Instalment
2006
2ndInstalment 31st July, 2006
Supplementary Forms
Income Heads
Employment Income
Introduction
Wages / Salary income earned by the taxpayer is reported in Form P60. The taxpayer receives Form
P60 from his employer at the end of the year reflecting his total wages, income taxes withheld and
National Insurance Contribution etc. Form P60 is equivalent to Form16 received by an employee in
India. The taxpayer can get more than one Form P60 statement during the year. In case an employee
has left the job during the year, he will receive Form P45. The Form P45 provides details of
employment with previous employer.
An employed person is paying tax on his wages through a system called Pay as You Earn (PAYE). The
system deducts Income Tax and National Insurance contributions from the wages before the employer
pays salary to the employee.
i.e. Gross Salary = Salary received + Income tax deducted + NIC deducted
Employment income includes
• Pension Income
2. Employer's contribution to an approved personal pension scheme not more than £150 per year.(from 6th
April 2005)
6. Commissions, Discounts and cash backs available to employees on the same basis as that of outside
public.
7. Mobile Phones
8. Use of computer equipment with an annual benefit value (20% of cost + running expenses) of not more
than £500. Over and above £500 is chargeable.
P11D employees are taxed not only on cash pay but also on cash equivalent of benefits in kind.
P11D Employee
All directors and employees earning £8500 (inclusive of benefits) or more in a year are termed as P11D
employees. Full time directors not earning less than £8500 are not P11D employees unless they earn
more than 5% of ordinary share cap.
Benefit Amount Chargeable to Tax for P11D
employees
Use of Car Charge based on 35% of list price, reduced
according to the car's CO2 emissions
Car fuel for private monitoring 14,400 Pound X % used to calculate benefit
of use of car.
Parking facilities Not assessable
Use of van Fixed charge of 500 Pounds(Pounds 350 if 4
years old or more at end of tax year)
Living accommodation Letting value plus 5% of excess value of
property over 75000 Pounds.
Provision for services and use of furniture in Cost of services plus 20% p.a. of cost of
living accommodation furniture.
Introduction
The Partnership Tax Return includes a summary of the share of profits, losses or income
allocated to you during any period for which you were a member of the partnership. This
summary is called the 'Partnership Statement' and you should use the information in that
statement to complete your Partnership Pages. If the partnership makes up its accounts to
more than one accounting date in 2005-06, then it may have been required to complete a
separate Partnership Statement for each period.
There are two types of Statement:
�A 'full', unabridged, version covering all the possible types of partnership income you
might receive, like National Insurance Contributions, Income from UK & foreign
savings, Other untaxed UK & foreign income, Income from offshore funds,
Income from UK land & property, Allowable loss on furnished holiday lettings,
Overlap relief – untaxed investment income etc.
�A 'short', abridged, version for partnerships that only have trading income, and interest
or alternative finance receipts received after tax was deducted from banks or building
societies.
Note: For the entries of the Profit and Loss account (Income & Expenditure, Balance sheet,
Capital Allowances) for the Partnership Firm, we need to enter it in the Partnership Return
itself.
Income & Expenditure, Balance sheet & Capital Allowances entries are already
discussed in Self-Employment. Please refer to the same for further reference.
Points to remember while doing Partnership Return
4. Split the total profit/loss in the proper ratio as advised by Front Office.
INTEREST INCOME
Introduction
Broadly, investment income means any income which is not a pension and is not earned by
the person as an employee, or from carrying on profession or from running own business.
Among the more common types are:
• Dividends on shares
• Interest on stocks
If the person is resident in UK, he normally pays UK tax on all his investment income,
wherever it arises. However, if the person is:
• Resident but not ordinarily resident in the UK, and either a Commonwealth citizen (this
includes a British citizen) or a citizen of the Republic of Ireland
, then the remittance basis will apply to overseas investment income (other than investment
income arising in the Republic of Ireland).
Where the remittance basis applies, the person is liable to UK tax on the amount of his
overseas investment income that is remitted to the UK. Income is remitted if it is paid in UK
or transmitted or brought to UK in any way. In working out the tax liability, all income
remitted to the UK to be included.
If not resident in the UK, he will be chargeable only to UK tax on investment income arising
in the UK. Except in the case of UK rental income, if he is not carrying on a trade, profession
or vocation through a UK branch or agency, the liability on investment income from 1996-97
will be limited to the tax, if any, deducted at source.
UK Government Securities
UK tax is not chargeable on interest arising on UK Government 'FOTRA' securities, if the
person is not ordinarily resident in the UK. 'FOTRA' stands for 'Free of Tax to Residents
Abroad'. UK tax is, however, charged if the interest forms part of the profits of a trade or
business carried on in the UK. It is also charged in cases where laws to prevent tax avoidance
provide that the income is to be treated as belonging to another person.
Interest and Alternative Finance Receipts from UK Banks and Building Societies
2. Interest from National Savings & Investments First Option Bonds and Fixed Rate
Savings Bonds.
4. Children's Savings - The gifts donated to children under the age of 18 and if such gifts
produce more than £100 gross income then the whole income should be included as
savings income of the parent.
DIVIDEND INCOME
Introduction
Ordinary (taxable) dividends are the most common type of distribution from a corporation.
They are paid out of the earnings and profits of a corporation and are taxable in the hands of
the taxpayer.
How Dividends are paid
When the person gets dividend he also gets a voucher that shows:
If the dividend is paid electronically, then the voucher may be received in Paper or Electronic
form.
Dividend Tax Credit
Companies pay dividends out of profits on which they have already paid (or are due to pay)
tax. The tax credit takes account of this and is available to the shareholder to offset against
any Income Tax that may be due on their dividend income.
Dividend Income = Dividend Received + Tax Credits
The tax credit is 10% of the Dividend Income i.e. only 90% of the dividend income will be
received by the recipient.
The various dividends can be listed as below:
Dividend voucher shows the amount of the dividend and the tax credit. Add these together to
get 'dividend/distribution plus credit'.
1. The basic(or old age) pension, State Earnings Related Pension Scheme (SERPS)
The Christmas bonus is not taxable and nor is the Winter Fuel payment.
The source document for Pensions is Form P60 and the total of all the State Pensions is
reflected in Box 11.1(SA 100)
Company Pensions
Company pensions are set up by employers to provide pensions for their employees on
retirement.
Personal Pensions
Personal pensions may be suitable if the person is employed and not in a company pension
scheme, self-employed, or if he is not working but can afford to put aside money for
retirement.
With a personal pension, a regular payment to be made, usually every month, or a lump sum
to the pension provider who will invest it on his behalf. The fund is usually run by financial
organizations such as building societies, banks, insurance companies, and unit trusts.
Personal pensions are available from banks, building societies and life insurance companies,
who invest your savings on your behalf.
Widow's Pension or Bereavement Allowance
From 9 April 2001, Widow's Pension was replaced by Bereavement Allowance. But widows
in receipt, before that date, of a Widow's Pension, continue to receive that pension.
Other Pensions and Retirement Annuities
Pensions (other than State pensions) and retirement annuities:
Pensions and Annuities which are received by the tax payer and is not grouped as a State
pension is entered here. This is a taxable pension on which the payer already might have
deducted the tax. The tax deducted will be based on the PAYE coding notice sent by the
Revenue to the payer of the pension.
Deduction from Pensions
There is a 10% deduction from some UK pensions for service to an overseas government. To
qualify for this deduction, these UK pensions have to be paid by or through any public
department to:
Only the basic pension qualifies for the 10% deduction & not the supplementary pension.
If the individual is a resident in the UK, he will normally pay UK tax on all his earned
income, wherever it arises. Earned income includes pensions also.
If the individual is not a resident in the UK, he will be generally taxed on any UK pensions
or on earnings from employment & the duties of which are carried on in UK. Where the
duties are carried on partly in the UK and partly abroad, an allocation, based on days worked
in the UK and days worked abroad, will normally be made to ascertain the earnings for duties
carried on in this country which are liable for UK tax. There will not be any tax on earnings
from an employment which is carried on wholly abroad.
In the case of overseas pensions, the tables given set out the position. HMRC will normally
tax all the income received from overseas sources if he is resident in the UK. He may,
however, be entitled to a 10% deduction from the amount chargeable in the case of overseas
pensions.
Social Security Benefits
Widowed Mother's Allowance or Widowed Parent's Allowance
From 9 April 2001, Widowed Mother's Allowance was replaced by Widowed Parent's
Allowance. But widows in receipt, before that date, of a Widowed Mother's Allowance,
continue to receive that allowance and not Widowed Parent's Allowance.
Note: Include the flat rate basic allowance and any earnings-related increase but exclude any
child dependency increase.
Industrial Death Benefit Pension (but not Child Allowance)
Do not include Industrial Death Benefit Child Allowance which is not taxable.
Jobseeker's Allowance
If a person was claiming Jobseeker's Allowance on 5 April 2006, the Department for Work
and Pensions will give a Form P60U by 31 May 2006.
In that, the Total Job Seeker's allowance paid and the taxable portion will be mentioned. If the
person stopped claiming the allowance before 6 April 2006, a form P45U will be provided
which mentions the above details.
Carer's Allowance
Exclude any addition for a dependent child, because this is not taxable.
Statutory Sick, Maternity, Paternity and Adoption Pay are paid by HM Revenue & Customs.
Usually these will have been paid by the employer and included in the figures on your P60 or
P45.If it is so, then it is to be put in Employment Income Part.
However, if the employer has not paid these benefits, then HMRC may have paid it. The same
appears in Box 11.7 of Form SA100.
Maternity Allowance is a different benefit from Statutory Maternity Pay. It is not taxable and
should not be included it in the Tax Return.
Taxable Incapacity Benefit
The incapacity benefit is not taxable when it is paid in the first 28 weeks of incapacity, or it is
payable for a period of incapacity which began before 13 April 1995.
If the person is claiming Incapacity Benefit on 5 April 2006 and is taxable, the payer will give
a form P60 (IB) which tells the Taxable amount.
If the person has stopped claiming the Incapacity Benefit before 6 April 2006, a form P45
(IB) (Part 1A) will be provided which mentions the above details.
Entries for the above heads, if provided by the taxpayer, have to be made in “National
Insurance/social security benefits’ screen.
Common inputs for the UK Pensions received screen
Box Description
Pension Type Mentioned the type of Pension
Payer Enter the name of the Pension Payer
Date of Commencement Enter the date on which the plan was started
Date of Cessation Enter the date on which plan was closed.
Frequency
Gross Rate
Total Amount Enter the total amount received
2. Check whether it falls under “Exempt Assets”. If that is the case, then you need not
enter the sale proceeds.
3. If the sale relates to “Personal Equity Plan” then do not consider, since it is not taxable.
4. Ignore if the sale relates to “B“share that is usually related to dividend payment.
5. If the total proceeds are less than £ 34,000 there is certainly going to be gain less than £
8,500. So, there is no need to consider the gains further as they will not be reportable
or taxable.
6. Do not include Chargeable event which is related to Life assurance. Hence the gain on
life assurance should be entered in the assurance section.
7. If cost of acquisition and date of securities is not provided in the return, ask by way of
review note.
8. If you make a sale of Land and Property or unquoted assets, you need to give
additional information regarding the assets using the “Additional information“button
• A certificate from his insurance company or Friendly Society reporting a gain that he
made on a chargeable eventabin connection with a life insurance policy, capital
redemption policy or life annuity
• A certificate from his pension scheme provider reporting a refund to of surplus funds,
and
If an Individual has:
• Made withdrawals, or received cash or other benefits on a UK life insurance policy, life
annuity or capital redemption policyc
• Sold the whole or part of a UK life insurance policy, life annuity or capital redemption
policy
• Took out a loan in connection with a UK life insurance policy, life annuity or capital
redemption policy,
• Any of the things listed above were done by a trustee, anybody holding a policy or a
lender to whom your policy was previously assigned as security for a debt
then the Life Assurance/Deferred Annuities screen should be selected from the list of
sections. The entries reflect in Box12 of Form SA100.
Gains on Life Insurance Policies in Individual Savings Accounts (ISAs) that have been
made void
Usually there is no tax to pay on gains made on policies of life insurance held within the
insurance component of an ISA. However, the ISA may be made void if, for instance, it is
found that the application to subscribe was invalid. This may give rise to a gain.
Where an ISA including a life policy is made void, then it will be notified that how much tax
has been deducted from any gain.
UK insurers are required by law to issue a certificate if they know a gain has been made on a
life insurance policy, life annuity or capital redemption policy. Therefore, the individual will
receive a certificate reporting the gain, either directly from the insurer or indirectly via
trustees or a lender.
Note: “Gains” are the chargeable event gains which are taxable as income. They are included
in income for all purposes, including entitlement to age-related personal allowances and tax
credits.
a A chargeable event may occur when cash or benefits are received from a life insurance
policy, life annuity or capital redemption policy
.
Insurers sometimes refer to them as 'chargeable gains' but they are not capital gains. So relief
allowable in calculating capital (such as taper relief), capital losses and the annual exempt
amount cannot be set against them.
The Individual will receive a certificate from the Insurer showing the following details:
• The type of event giving rise to the gain and the date when it occurred
If the certificate only shows one date then this is the date of the event. If this falls in the year
ended 5 April 2006 then the gain must be entered in this year's Tax Return for 2005-06.
If the certificate shows two dates relating to the event then enter the gain on current year Tax
Return only if the later of these dates falls in the year ended 5 April 2006.
Individual Savings Account (ISA)
Individual Savings Accounts (ISAs) are tax-free savings and investment accounts. An
individual can use an ISA to save cash, or invest in stocks and shares.
• He also can invest in shares or funds in an ISA and any capital growth and dividend
income will be tax-free
The maximum amount one can save and/or invest in a tax year is £7,000.
To pay into an ISA the person must be:
Every person who is employed in the UK by a UK employer is liable to pay UK Tax and
National Insurance.
The Inland Revenue runs the Tax and national insurance schemes. The Inland Revenue are a
government department.
If you are new to working in the UK you will have to apply to your local Jobcentre Plus for a
national insurance number. A national insurance number ensures that all tax and national
insurance contributions are correctly allocated by the Inland Revenue.
You should contact the payroll office to obtain forms P46 and P86 on commencement. This
form will allow us to register your employment at the University with the Inland Revenue.
Form P46 is also available for download from our website.
Income Tax
Income tax is assessed on all earnings.
The current tax code for a standard employee is 522L. This means that an employee is entitled
to earn £5229 in the tax year before tax is due. The tax year runs from April to March. The
annual allowance is applied on a monthly basis. This means the monthly tax liability for an
employee is calculated as follows:
Business Expenses do not normally attract tax and NI deductions. There is, however, a
specific University policy for expenses. You should familiarise yourself with this when you
commence employment.