Personal tax

Purpose of taxation

To raise revenue for government expenditure.

• Redistribution of wealth from the rich to the poor

• Stabilise the economy

• Influence behaviour (stop smoking)

Principles of taxation

1. Neutrality

2. Efficiency

3. Certainty and simplicity

4. Effectiveness

5. Fairness

6. Flexibility

Progressive tax structure

Rate of tax increases as the tax base increases

UK income tax in progressive

Regressive tax structure

Rate of tax is inversely proportional to income. The lower the income the higher the tax in relation to income.

Highest impact on low-income individuals

Proportional tax structure

Rate of tax is unrelated to income and stays the same whatever the tax base

Tax planning

Legal and perfectly accepted way of reducing tax liability.

Taking the advantage of tax reliefs and exemptions in the way the government intended

Tax avoidance

Technically it is legal but AAT say members must not create encourage or promote tax planning arrangements that set out to achieve results that are contrary to the clear intention of the government/exploit shortcomings within the legislation.

(disclosure of tax avoidance schemes) DOTAS

Tax evasion

Illegal and not acceptable

What are the ties for an individual

There are 4 UK ties for arrivers and 5 for leavers

1. Close family (spouse, civil partner/minor child) resident in the UK

2. having UK accommodation and spends at least 1 night in in the tax year

3. Doing substantive work in the UK (work for 3 hours or more on 40 or more days in the tax year)

4. being in the UK for more than 90 days during either or both of the two previous tax years

For leavers the one further tie

5. Spending more time in the UK than in any other country during the tax year

A day is any day in which the person is present in the UK at midnight

Three types of domicile

1. Origin - an individual is born with their father’s domicile (or mothers is parents were unmarried)

2. Dependence - as a child an individuals domicile changed with that of the person on whom they are legally dependent

3. Choice - as an adult >16 an individual can change their permanent home by severing al ties with the old country and settling permanently in a new country

What adjustments are made to the list price for a car benefit

1. Ignore any discounts

2. Capital contribution of up to £5,000

3. Contribution towards running costs is deducted

4. For a car more than 15 years old, if the market value of the car at the end of the tax year is more than £15k and more than the list price then the market value is used instead

5. Accessories/modifications added before given to employee are added

6. Accessories added later are included if their cost exceeds £100 each

What is the maximum percentage charged for a car fuel benefit

37%

If a company pays for only business fuel with there be a benefit

No only for private fuel

Does an employee contribution towards fuel reduce the taxable amount

No this does not

Non job related accommodation if the employers owns/rents

Owns - employee is taxed on the annual value (as this is the deemed rent that would’ve been earned had the property been let out to someone else)

Rents - taxable benefit is the greater of the rent paid by the employer and the annual value

Non job related accommodation additional benefit

If the employer owns the property

(Cost - £75k) x official rate of interest 2.25%

Non job related accommodation specific rules

• if employer purchased the accommodation more than 6 years before employee moves in then the market value (at date employee moves in) is used instead of cost

• Any employee contribution to annual rent is deducted

• Benefit is time apportioned

Improvements made to non job related accommodation

If made in the tax year - will not be included in this tax year but the next

Benefit is a private use asset is purchased by employee

Higher of:

• the market value of the asset when it is transferred to the employee (less any employee contributions)

• The market value at first use less any benefits assessed to date less employee contribution