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Bond of Taxable Income Rate of Tax

Basic Rate 1-37400 20


Higher Rate Over 37400 40
Additional Rate 150000 50

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 %

3. The basic rate of tax on dividend income is 20%.

4. The basic rate of tax on dividends and savings income is 20%.

5. The basic rate of tax on dividends is 10% and savings income is 20%.

6. The higher rate of tax on dividends is 32.5%.

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.

8. The basic rate of tax on dividends is 10%.

9. The additional rate of tax on dividends is 42.5%.

Type of Return Form


An individual has to file his tax return in Form SA 100 & R40.

Filing Due Date and Extension for Filing


In the UK, the year starting 6th of April and ending 5th of April next year is used as the Fiscal year/Tax
Year. The due date for filing the return with HMRC is January 31st of the next calendar year. But
an important thing to be noted is that there is no Extension time granted for the filing of return. A tax
return in any case has to be filed within 31st of January of the next calendar year.

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 to be filed with Form SA100


The taxpayer is required to file SA100 along with the required schedules. Per Tax generates
various statements, which are required to be filed along with the return. The lists of schedules
are as under:

Supplementary Forms
Income Heads

Employment Income SA101


Share Schemes SA102
Self Employment SA103
Partnership SA104
Land & Property (Rental income) SA105
Foreign Income SA106
Trust SA107
Capital Gains SA108
Non-Residence SA109

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

• Employment earnings of employees and directors

• Pension Income

• Social Security Benefits


Receipts in the nature of a reward for services rendered in the past, present or future are treated as
Employment Income. It covers wages, salaries, commissions, bonuses, tips and certain benefits in kind
such as Living Accommodation, Vehicles etc.
The cash equivalent of a benefit is normally the extra cost to the employer of providing the benefit less
any contribution from the employee.
The following Non-Taxable Benefits are not considered as Employment Income:

1. Meals in a staff canteen provided by the employer

2. Employer's contribution to an approved personal pension scheme not more than £150 per year.(from 6th
April 2005)

3. Directors' liability insurance

4. Free parking facilities

5. Sporting and recreational facilities

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.

Use of other assets 20% of costs


Vouchers other than Lunch on and Childcare Full Value
vouchers

Use of Employer's Credit cards Cost of personal goods and services


Private medical treatment or insurance(PMI) The total cash equivalent of any private
medical or other health treatment or insurance
you get by reason of your employment. Your
employer should have given you details;
generally it is the cost to the person who
provided it to you (minus any amount you
paid to that person).
Beneficial Loans Interest at Official Rate less any interest
charged.(No charge if Total loan is 5000
Pounds or less)
Loans written Off Amount written Off
Crèche Facilities Not assessable
Free or subsidized canteen meals Not assessable if available to all employees

The Partnership Statement

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

1. Make Entries in the Partnership Return.

2. Link the Partnership return with the Partners return.

3. Check the link in the Partnership return by checking the statement.

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:

• Interest from bank and building society accounts

• Dividends on shares

• Interest on stocks

• Rental income (unless the own business amounts to a trade).

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 domiciled in the UK, or

• 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

1. Interest distributions from UK authorized unit trusts or UK open-ended investment


companies

2. Interest from National Savings & Investments First Option Bonds and Fixed Rate
Savings Bonds.

3. Income from other National Savings & Investments products

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:

• Dividend paid (the amount received)

• Amount of associated ‘tax credit’ (see next section)

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:

1. Dividends and other qualifying distributions from UK companies.

Dividend voucher shows the amount of the dividend and the tax credit. Add these together to
get 'dividend/distribution plus credit'.

Pension, Annuity and Social Security Benefits


Pensions are a form of saving for retirement, with some tax advantages. When the person
retires, or reaches a certain age, a pension scheme pays a regular income for life. There are
currently three types of pension: State, personal, and company (or ‘occupational’).
State Pension
The basic State Pension is a government-administered pension, based on the number of
qualifying years gained through National Insurance contributions (NICs) paid and are treated
as having paid or have been credited with throughout your working life. The amount of Basic
State Pension will depend upon the amount of National Insurance Contribution paid.
It’s payable from age – 65 yrs for men, 60 yrs for women.
State Pensions – include

1. The basic(or old age) pension, State Earnings Related Pension Scheme (SERPS)

2. Graduated pension (graduated retirement benefit)

3. The age addition if the person is over 80

4. Any incapacity addition or addition for a dependent adult

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:

• A person who has been employed in the service of the Crown

• That person's widow, widower, child, relative or dependant.

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

Chargeable Gains and Losses / Capital Gains or Loss


Introduction
Capital Gain or Loss made by the taxpayer is reported in List of Sections – Chargeable
gains and losses. The taxpayer receives Handwritten Information or Brokers Statement at the
end of the year reflecting total sale proceeds, expenses, etc. The taxpayer can get more than
one statement during the year.
Preparers Points: Fundamentals

1. Enter sale of assets in “Chargeable gain and losses” screen.

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

Gains on UK Life Insurance Policies, Life Annuities or Capital Redemption Policies


If an Individual receives:

• 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 sent by the trustees of a trust

• 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,

• Held a Personal Portfolio Bond with a UK insurer

• 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

• The amount of the gain

• Whether lower rate tax is treated as paid on the gain etc.

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.

• One can save cash in an ISA as the interest will be tax-free.

• 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:

• A UK resident – with two exceptions: Crown employees, such as diplomats or


members of the armed forces, who are working overseas but paid by the government;
and their husbands, wives or civil partners.

• Over 16 years of age for the cash component.

• Over 18 years of age for stocks and shares.

An ISA must be in individual’s name alone; it can't have a joint ISA.


Deficiency Relief
Deficiency relief is a tax relief available to individuals who own an investment bond where
full encashment results in a loss or deficiency. The relief is restricted to the amount of gains
which arose on earlier part surrenders or part assignments. Deficiency relief is due when a
policy of life insurance comes to an end during the year.
Enter such relief due if provided by the taxpayer in the “Corresponding deficiency
relief/Amount of relief claimed” column.
Refund of Surplus Funds from Additional Voluntary Contributions
The certificate from a pension scheme provider will show the amount of surplus funds from
additional voluntary contributions plus tax refunded on leaving pensionable employment or
on retirement.
To make entries for the above head, select the “FSAVC surplus repaid” (Free Standing
Additional Voluntary Contributions) title from the list of sections. Details of the same will
appear on line 12.10 – 12.13 of SA100.
Note:

1. Any Contribution refunded due to non-completion of 2 years qualifying service in the


pension scheme should not be included.

2. Any refund is restricted to the basic rate of tax.

UK Tax and National Insurance

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.

Both rates and percentages are subject to change by the UK government.

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:

1st £435.75 per month (£5229 / 12) No tax liablility


Next £185.83 per month taxed at 10%
Thereafter at 22% up to £2883.33 per month
Anything above £2883.33 is taxed at 40%

Tax relief is given to contributions to the USS pension scheme.


Employees contribute 6.35%
Employer contributes 14.00%

National Insurance (NI)


National Insurance is assessed on all earnings.
The current rates are as follows:
In USS Pension Scheme
No NI liability on 1st £435.00 per month
9.4% up to £2904 per month
Thereafter at 1%

Not in USS Pension Scheme


No NI liability on 1st £435.00 per month
11% up to £2904 per month
Thereafter at 1%

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.