Introduction to Business Taxation, Finance Act 2004, First Edition

Introduction to  Business Taxation Finance Act......Page 2
Chris Jones, BA CTA (Fellow) ATT......Page 4
CONTENTS......Page 6
PREFACE......Page 10
A1.1Taxes in the UK......Page 12
A1.3The Schedules......Page 13
Example 1......Page 14
Answer 1......Page 15
SUMMARY - INTRODUCTION TO THE UK TAX SYSTEM......Page 16
B1.2The definition of trading......Page 18
B1.3The Badges of Trade......Page 19
B1.4Land transactions......Page 21
B1.5Frequency of transactions......Page 22
B1.7Taxable and Non-Taxable Receipts......Page 23
SUMMARY - TRADING INCOME AND THE BADGES OF TRADE......Page 24
B2.2 Depreciation......Page 26
Tax Computation;......Page 27
B2.5Capital expenditure......Page 28
B2.6Wholly and exclusively......Page 29
B2.7Specific disallowables......Page 32
SUMMARY - ADJUSTMENT OF PROFIT......Page 35
B3.2Initial repairs......Page 36
B3.4Staff costs......Page 37
B3.5Training costs......Page 38
B3.6One-off costs......Page 39
Example 1......Page 40
Answer 1......Page 41
SUMMARY - CAPITAL v REVENUE......Page 42
B4.1Introduction......Page 44
B4.2Definition of “Plant and Machinery”......Page 45
B4.4Structures and Land – s.22 CAA 2001......Page 46
Illustration 1......Page 47
B4.6Case Law......Page 48
Example 1......Page 50
Answer 1......Page 51
SUMMARY - CAPITAL ALLOWANCES – DEFINITION......Page 52
B5.1 Basic computational layout......Page 54
B5.4The general pool......Page 55
B5.6Long life assets......Page 56
Illustration 2......Page 57
Illustration 3......Page 58
Example 1......Page 60
Example 2......Page 61
BMW car......Page 62
Answer 2......Page 63
SUMMARY - CAPITAL ALLOWANCES - COMPUTATION......Page 64
B6.2Qualifying building......Page 66
B6.4Qualifying Trade......Page 67
B6.6Processing......Page 68
B6.7Storage......Page 69
B6.9Relevant Interest......Page 70
Example 1......Page 71
Example 2......Page 72
Non-industrial use is different from the building......Page 74
B6.14 Disposal of an industrial building......Page 75
B6.15Adjusted net cost (ANC)......Page 76
Example 4......Page 77
Example 5......Page 78
B6.17Buildings in Enterprise Zones......Page 79
Answer 2......Page 80
Answer 5......Page 81
SUMMARY - INDUSTRIAL BUILDINGS ALLOWANCES......Page 82
B7.3Trade and Non-trade IFAs......Page 84
Illustration 1......Page 85
Illustration 2......Page 86
Illustration 3......Page 87
B7.7 Groups......Page 88
SUMMARY – INTANGIBLE FIXED ASSETS......Page 89
Illustration 1......Page 90
B8.3Qualifying R&D......Page 91
Illustration 2......Page 92
Illustration 4......Page 93
Example 2......Page 94
Answer 2......Page 95
SUMMARY – RESEARCH AND DEVELOPMENT EXPENDITURE......Page 96
B9.1General principle......Page 98
B9.3Importance of GAAP......Page 99
B9.4Herbert Smith v Honour (1999)......Page 100
Provisions......Page 101
B9.8Capital and revenue......Page 102
B9.9Income recognition......Page 103
SUMMARY – TAX LAW AND ACCOUNTING PRACTICE......Page 105
C1.1Rates of tax......Page 106
C1.2Notional profit......Page 107
PCTCTX......Page 108
Notional Profit......Page 109
C1.4Change in rates between FY2001 and FY2002......Page 110
C1.5Change in the Fraction between FY2001 and FY2002......Page 111
Illustration 4......Page 112
Answer 2......Page 113
Notional Profit......Page 114
Example 1......Page 116
Illustration 1......Page 117
Example 3......Page 119
C2.5Sub-subsidiaries......Page 120
Example 4......Page 121
Answer 2......Page 122
Answer 4......Page 123
SUMMARY – ASSOCIATED COMPANIES......Page 124
Illustration 1......Page 126
C3.2Short APs and associates......Page 127
Example 4......Page 128
Answer 2......Page 129
Answer 3......Page 130
SUMMARY – SHORT ACCOUNTING PERIODS......Page 132
C4.2Splitting the profits......Page 134
Illustration 1......Page 135
C4.3Splitting other income and charges......Page 136
Example 2......Page 137
Example 3......Page 138
Answer 2......Page 139
Answer 3......Page 140
SUMMARY – LONG PERIODS OF ACCOUNT......Page 142
C5.1Introduction......Page 144
Illustration 2......Page 145
Example 1......Page 146
C5.4Processing of the Returns......Page 147
C5.5Enquiries......Page 148
C5.7Group relief......Page 149
Answer 2......Page 152
SUMMARY – CORPORATION TAX SELF ASSESSMENT \(CTSA......Page 153
C6.2   Payment of Tax by Instalments......Page 154
Example 1......Page 155
C6.3Amount due by instalments......Page 156
Example 3......Page 157
C6.5 Group tax surrenders......Page 158
SUMMARY – PAYMENT OF CORPORATION TAX......Page 161
Illustration 1......Page 162
Cumulative......Page 163
C7.2 Effect of carry backs......Page 165
C8.2Late Filing of Returns......Page 168
C8.5Fraudulent or Negligent Returns......Page 170
C8.8Failure to pay by instalments......Page 171
SUMMARY – CTSA PENALTY REGIME......Page 172
C9.2Expenses......Page 174
C9.3Loan interest......Page 175
C9.4Schedule A losses......Page 176
Answer 2......Page 177
SUMMARY – INCOME FROM PROPERTY......Page 178
Example 1......Page 180
C10.3  Trading v Non-Trading......Page 181
C10.4Tax Treatment......Page 182
C10.5DIII Loss Relief......Page 183
Example 5......Page 184
Answer 5......Page 185
SUMMARY – LOAN RELATIONSHIPS......Page 186
C11.2Relief for Trading Losses......Page 188
Illustration 1......Page 189
Illustration 2......Page 190
Finally here let’s show the computations of PCTCT......Page 192
C11.7Carry Back Complications......Page 193
Answer 1......Page 194
SUMMARY – RELIEF FOR TRADING LOSSES......Page 197
C12.2Schedule A Losses......Page 198
s.393A(7)......Page 199
C12.7The carry back of a DIII deficit......Page 200
(compulsory offset for Sch A and management expenses)......Page 201
SUMMARY – RELIEF FOR OTHER LOSSES......Page 202
C13.2Computation of gains......Page 204
Illustration 2......Page 205
Illustration 3......Page 206
C13.6Assets Purchased before 31 March 1982......Page 207
Illustration 7......Page 208
C13.8 Disposal of substantial shareholding......Page 209
Answer 1......Page 211
SUMMARY – CORPORATE CAPITAL GAINS......Page 212
C14.1Introduction......Page 214
Illustration 2......Page 215
Illustration 3......Page 216
C14.4Qualifying assets......Page 217
C14.6Interaction with indexation allowance......Page 218
Example 2......Page 219
Answer 2......Page 220
SUMMARY – ROLLOVER RELIEF......Page 221
C16.3The substantial shareholding requirement......Page 238
C16.6  Conditions for the investee company......Page 240
C16.11 Degrouping charge......Page 241
SUMMARY – SUBSTANTIAL SHAREHOLDINGS EXEMPTION......Page 242
C17.1Introduction......Page 244
C17.2The 75% Definition......Page 245
C17.3Available Amounts......Page 247
Nil......Page 248
C17.5Marginal Rates of Tax......Page 249
Illustration 5......Page 250
Illustration 6......Page 252
Example 2......Page 253
Example 3......Page 254
Answer 2......Page 255
Answer 3......Page 256
SUMMARY – THE PRINCIPLES OF GROUP RELIEF......Page 257
C18.1Definition......Page 258
C18.2Intra Group Transfers of Assets......Page 261
C18.3Notional Transfers......Page 262
C18.4 Making a notional transfer claim......Page 263
Illustration 4......Page 264
Illustration 5......Page 265
Answer 2......Page 266
SUMMARY – GROUP CAPITAL GAINS......Page 268
C19.3 Associates......Page 270
Example 1......Page 271
Example 2......Page 272
27.4 Exceptions......Page 273
SUMMARY – CLOSE COMPANY DEFINITION......Page 275
C20a.2Loans to participators......Page 276
C20a.4Repayment of s.419 tax......Page 277
Illustration 1......Page 278
Answer 2......Page 280
SUMMARY – CLOSE COMPANY IMPLICATIONS \(1\)......Page 281
Illustration 1......Page 282
C20b.3Benefits to Participators......Page 283
C20b.4 Close Investment Holding Companies......Page 284
C20b.6 Summary......Page 285
SUMMARY – CLOSE COMPANY IMPLICATIONS \(2\)......Page 286
C21.1 Definition......Page 288
C21.3Management expenses prior to 1 April 2004......Page 290
C21.5Loan interest......Page 291
C21.7Loss on sale of shares......Page 292
SUMMARY – INVESTMENT COMPANIES......Page 293
Sch 15......Page 294
C22.2Conditions for CVS relief......Page 295
C22.3  Capital gains relief for CVS shares......Page 297
C22.4Losses on sales of CVS shares......Page 298
Example 1......Page 300
Answer 1......Page 301
SUMMARY – CORPORATE VENTURING SCHEME......Page 302
D1.2The “MICE” test......Page 304
D1.3Other criteria......Page 305
D1.4Implications......Page 306
D1.5Case Law......Page 308
SUMMARY - EMPLOYED OR SELF EMPLOYED?......Page 310
D2.1Employment Income......Page 312
D2.2Definition of “earnings”......Page 313
“Emoluments” of the employment......Page 314
D2.4Amount of employment income charged to tax......Page 315
D2.5The “receipts” basis......Page 316
Taxable benefits......Page 317
D2.7Measuring the benefit......Page 318
D2.8Pepper v Hart......Page 319
Illustration 2......Page 320
D2.10Pension income and social security income......Page 321
Chris only......Page 322
“Lower paid”......Page 323
SUMMARY - EMPLOYMENT INCOME & BENEFITS......Page 324
D3.1Introduction......Page 326
D3.3Cash Equivalent......Page 327
D3.4Determining the percentage......Page 328
Illustration 1......Page 329
Post 1.1.98......Page 330
Illustration 2......Page 331
D3.12Fuel benefits......Page 332
Illustration 3......Page 333
Example 2......Page 334
Answer 2......Page 335
SUMMARY - COMPANY CAR & FUEL BENEFITS......Page 336
D4.2“Job related” accommodation......Page 338
D4.4Employer owned accommodation......Page 339
D4.5The “6 year” rule......Page 340
D4.6Household expenses......Page 341
Example 2......Page 342
Answer 2......Page 343
SUMMARY - LIVING ACCOMMODATION......Page 344
D5.2Average Method......Page 346
Illustration 1......Page 347
D5.4Use of employer’s assets......Page 348
Illustration 2......Page 349
D5.7Use of computers......Page 350
Example 2......Page 351
Answer 2......Page 352
SUMMARY - LOANS TO EMPLOYEES & USE OF ASSETS......Page 353
D6.2Mobile phones......Page 354
D6.4Mileage allowances......Page 355
D6.5  Passenger payments......Page 356
D6.6Tax exempt benefits......Page 357
Example 2......Page 360
Answer 2......Page 361
SUMMARY - MISCELLANEOUS BENEFITS......Page 362
X......Page 364
D7.3Travel expenses......Page 365
D7.5Charitable donations......Page 367
D7.7 Dispensations......Page 368
Illustration 1......Page 369
Example 1......Page 370
Note 2......Page 371
SUMMARY - EXPENSES OF EMPLOYMENT......Page 372
Dividends......Page 374
Non Savings......Page 375
D8.3Calculating the tax liability......Page 376
Illustration 2......Page 377
SUMMARY - CALCULATING THE INCOME TAX LIABILITY......Page 380
D9.1Introduction......Page 382
D9.2 PAYE income......Page 383
D9.3How the PAYE system works......Page 384
81L......Page 385
Illustration 2......Page 386
D9.6K Codes......Page 387
Example 2......Page 388
PAYE income?......Page 389
D10.1Introduction......Page 392
D10.2Interest......Page 393
D10.5Incorrect Returns......Page 394
D10.7Electronic filing......Page 395
Example 2......Page 397
Answer 2......Page 398
SUMMARY - PAYE END OF YEAR RETURNS......Page 399
D11.1Introduction......Page 400
D11.3Earnings......Page 401
D11.4Class 1 Primary contributions......Page 402
Illustration 1......Page 403
Illustration 2......Page 404
D11.6 Class 1 Secondary contributions......Page 405
Example 2......Page 406
Answer 2......Page 407
SUMMARY - CLASS 1 NATIONAL INSURANCE CONTRIBUTIONS......Page 408
D12.2Class 1A......Page 410
Illustration 1......Page 411
D12.3Class 1B contributions......Page 412
Illustration 2......Page 413
Example 2......Page 416
Answer 2......Page 417
SUMMARY - CLASS 1A AND 1B NATIONAL INSURANCE CONTRIBUTIONS......Page 418
The statutory rules concerning termination payments are contained at Sections 401 onwards ITEPA 2003.  To understand the taxation of termination payments we must first remind ourselves of a couple of basic principles.......Page 420
D13.2Does Section 401 apply?......Page 421
D13.4Partially taxable payments......Page 422
Illustration 1......Page 423
Illustration 2......Page 424
D13.6Statutory redundancy pay......Page 425
D13.8PILONS......Page 426
D13.10 Miscellaneous points......Page 428
Answer 1......Page 431
SUMMARY - TERMINATION PAYMENTS......Page 432
D14a.1Occupational schemes - Introduction......Page 434
D14a.3  Maximum retirement benefits......Page 435
D14a.5 Tax relief on contributions......Page 436
D14a.7 The employer’s position......Page 437
D14b.1 Background......Page 440
SUMMARY - THE NEW PENSION REGIME......Page 441
E5.pdf......Page 0
D14c.2Carry back of relief......Page 442
D14c.3Qualifying company......Page 443
Illustration 1......Page 444
Example 2......Page 446
Answer 2......Page 447
SUMMARY - THE ENTERPRISE INVESTMENT SCHEME......Page 448
E1.1Introduction......Page 450
SUMMARY – OVERVIEW OF THE VAT SYSTEM......Page 454
E2.1Introduction......Page 456
The correct notification date is 30 August 2004.  This is 30 days from the month in which the limits were exceeded.......Page 462
E3.1Introduction......Page 464
E4.1Introduction......Page 468
SUMMARY – LIABILITY OF THE SUPPLY......Page 471
E5.1Introduction......Page 472
SUMMARY – SCHEDULE 8 VATA 1994 – ZERO RATING......Page 479
E6.2Group 1 - Land......Page 480
SUMMARY – SCHEDULE 9 VATA 1994 - EXEMPTIONS......Page 483
Consideration  = Price of the item + the VAT......Page 484
E8.2Deemed supplies......Page 496
E8.6Private use of business assets......Page 498
E9.1Introduction......Page 508
E10a.1Introduction......Page 516
SUMMARY – INPUT TAX: WHEN TO RECOVER......Page 518
E10b.1Introduction......Page 520
Input tax......Page 521
Input tax......Page 522
Example 2......Page 524
E10b.6 The standard method override adjustment......Page 528
Illustration 5......Page 529
When the override applies......Page 531
How is the extent of use calculated?......Page 532
Total TaxableExempt......Page 533
Total TaxableExempt......Page 534
Answer 3......Page 535
SUMMARY – PARTIAL EXEMPTION......Page 537
E11.1Introduction......Page 538
E11.5Tax Invoices......Page 540
E11.6 Less Detailed Tax Invoices......Page 542
E12.1Introduction......Page 550
Example 1......Page 553
E12.7Annual Accounting......Page 554
E12.8Annual Accounting Conditions......Page 555
E12.9Cash Accounting......Page 557
SUMMARY – ACCOUNTING FOR VAT......Page 561
E13.1Introduction......Page 562
SUMMARY – BAD DEBT RELIEF......Page 564
E14.1Introduction......Page 566
E14.3Examination of records......Page 567
E14.4Assessments......Page 570
Illustration 1......Page 580
Illustration 2......Page 581
Answer 2......Page 584
SUMMARY – MISDECLARATION PENALTY......Page 585
E15b.1Introduction......Page 586
Example 2......Page 588
Answer 2......Page 589
SUMMARY – LATE REGISTRATION PENALTY......Page 590
E15c.1Introduction......Page 592
Example 1......Page 593
SUMMARY – DEFAULT SURCHARGE......Page 598
Illustration 1......Page 600
Example 1......Page 601
Illustration 3......Page 602
E15d.4Other points......Page 603
SUMMARY – REPEATED MISDECLARATION PENALTY......Page 605
E16.1Introduction......Page 606
Illustration 1......Page 608
E16.5Refund of overpaid VAT......Page 609
E16.6Interest on overpaid VAT......Page 610
Example 3......Page 611
Answer 1......Page 612
Answer 3......Page 613
SUMMARY – REFUNDS, REPAYMENT SUPPLEMENT & INTERES......Page 614