Income Tax

Income Tax: Made Simple discusses the fundamental concepts of taxation. It is addressed to the growing number of people, who need to have a better understanding of the effects of taxation on the financial side of life. This comprehensive text includes discussions of the UK's tax system and its administration; general principles of income tax; tax reform proposals; the taxation of husband and wife; capital allowances; taxation of employees; and taxation of dividends and other income. The final chapter on 'Tax Planning' sets out how the individual can reduce his or her tax bill at various stages during one's life-time. The book will be helpful to students of business law and accountancy preparing for examinations of all the major professional bodies, e.g., Institutes of Chartered Accountants, for England and Wales and Scotland, Institute of Bankers, Institute of Scottish Bankers, Association of Certified Accountants, Chartered Institute of Secretaries and Administrators, Institute of Cost and Management Accountants, and the Law Society. It is also suitable for students on Degree Courses at Universities and Polytechnics and BTEC students in accountancy, business studies, and law.

Preface

1 Introduction

1.1 Why Pay Taxes?

1.2 Basic Definitions

1.3 Taxation and Incentives

1.4 The Poverty Trap

1.5 The Effect of Inflation

1.6 The Relative Importance of Individual Taxes

1.7 Taxation in Different Countries

1.8 The Revision Test

2 The Present System and Its Administration

2.1 The History and the Present System

2.2 The Officials

2.3 Organization

2.4 Regional and Local Offices

2.5 The Procedure of Assessment

2.6 The Black Economy

2.7 Annual Tax Return

2.8 Additional Assessments

2.9 Error or Mistake Claims

2.10 Tax Remission due to Official Error

2.11 Penalties

2.12 Interest on Unpaid Tax and Repayment Supplement

2.13 Taxation at Source

2.14 Appeals Procedure

2.15 Procedure at the Appeal Hearing

2.16 Costs Involved when Disagreeing with the Inspector

2.17 Adequacy of the Inland Revenue Powers

2.18 Revision Test

3 General Principles of Income Tax

3.1 The Income Tax Year

3.2 The Nature of Tax Law

3.3 Basic Questions

3.4 What is Income for Tax Purposes?

3.5 Who is Liable to Pay Tax?

3.6 Income Specifically Exempt from Tax

3.7 Receipts Not Regarded as Income

3.8 Persons Specifically Exempt from Tax

3.9 The Concept of Total Income

3.10 Tax-Free Personal Allowances

3.11 Higher Rate Bands

3.12 Revision Test

4 The Treatment of Husband and Wife

4.1 Historical Development

4.2 The Effect of a Claim under Section 38 of ICTA

4.3 Effect of Wife's Earnings Election

4.4 Equal Opportunities Commission's Response to Green Paper

4.5 Proposals during the 1983 Election

4.6 The Effect of Unemployment on the Present Situation

4.7 The Use of the Seven Year Covenant to Save Tax

4.8 The Breakdown of Marriage

4.9 Revision Test

5 Income from Land and Property

5.1 Schedule A

5.2 Basis of Assessment

5.3 Allowable Deductions

5.4 Conditions Governing Allowances

5.5 Losses

5.6 Lost Rent Relief

5.7 Premiums on Leases

5.8 Other Payments treated as Premiums

5.9 Top-Slicing Relief in Respect of Premiums

5.10 Schedule B

5.11 Revision Test

6 Income of the Self-Employed

6.1 What Constitutes Trading?

6.2 What Constitutes a Profession?

6.3 What Constitutes a Vocation?

6.4 What Constitutes a Trading Receipt?

6.5 Receipts to be Excluded

6.6 Allowable Business Expenses

6.7 Expenses Specifically Prohibited

6.8 Expenses Specifically Allowed by Statute

6.9 Stock Relief

6.10 Basis Periods

6.11 Change of Accounting Date

6.12 Special Basis Periods for Farmers

6.13 The Correct Schedule of Charge

6.14 National Insurance Contributions

6.15 Revision Test

7 Capital Allowances

7.1 What Assets Qualify

7.2 Plant and Machinery

7.3 Industrial Buildings and Structures

7.4 Mines and Oilwells

7.5 Agricultural Buildings

7.6 UK Patents

7.7 Scientific Research

7.8 Dredging

7.9 Know-how

7.10 Hotels

7.11 Crematoria and Cemeteries

7.12 Small Workshops

7.13 Enterprise Zones

7.14 Revision Test

8 Business and other Losses

8.1 Loss in Trade Set against Other Income

8.2 Loss In Early Years of a Business

8.3 Loss in Aggregation

8.4 Trading Losses Carried Forward

8.5 Terminal Losses

8.6 Loss of Trader Who Becomes Company Director

8.7 Relief for Losses on Unquoted Shares in Trading Companies

8.8 Annual Payments

8.9 Revision Test

9 Setting up in Business and Forming a Partnership

9.1 Tax Treatment of Employee: Starting a Business

9.2 Basis Period for a New Business

9.3 Basis Period When Closing a Business

9.4 Changing the Accounting Date

9.5 Forming a Partnership

9.6 What Constitutes a Partnership?

9.7 Assessment of Partnerships - Share of Partners

9.8 Change in Partnership

9.9 Partner Residing Abroad

9.10 Partnerships Involving Companies

9.11 Revision Test

10 Taxation of Employees

10.1 Schedule E

10.2 Foreign Emoluments

10.3 Earnings from Overseas Employment

10.4 Pensions

10.5 Foreign Pensions and Annuities

10.6 Employments with International Organizations

10.7 The Difference between Schedule D and Schedule E

10.8 Meaning of the Term 'Emoluments of Office or Employment'

10.9 Basis of Assessment

10.10 Directors of Higher-Paid Employees

10.11 Exclusion of Certain Directors

10.12 Dispensation for Payment of Allowable Expenses

10.13 Fringe Benefits

10.14 Scale Charges for Directors' and Higher-Paid Employees

10.15 Scholarship Income

10.16 Share Option and Share Incentive Schemes

10.17 Profit Sharing Schemes

10.18 Expenses

10.19 Terminal Payments

10.20 Pay as You Earn

10.21 Purchasing Pension Rights

10.22 Revision Test

11 Treatment of Taxed and Untaxed Interest Dividends and other Income

11.1 Interest-Paid Government Securities and Debentures

11.2 Assessments Under Case III of Schedule D

11.3 Basis of Assessment

11.4 Transferring Untaxed Interest to Taxed Interest

11.5 What Constitutes a New Source under Case III

11.6 Taxed Interest, Annuities, Alimony, etc., Paid in Arrears

11.7 Dividends

11.8 Capital Distributions Made in Cash and Scrip Dividend Options

11.9 Miscellaneous Income

11.10 Furnished Holiday Letting

11.11 Basis Period for Case VI

11.12 Case VI Losses

11.13 Claw-Back of Life Assurance Relief

11.14 Chargeable Event on Non-qualifying Policies and Bonds

11.15 Revision Test

12 Treatment of Foreign Income and Non-residents

12.1 Income Assessed Directly on the Recipient

12.2 Basis of Assessment

12.3 Double Tax Relief

12.4 Double Tax Relief on Dividends Paid through an Agent

12.5 Unilateral Relief

12.6 Alimony

12.7 Residence

12.8 Ordinarily Resident

12.9 Domicile

12.10 Husband and Wife

12.11 Taxation of Non-residents

12.12 Revision Test

13 The Treatment of Settlements and Trusts

13.1 Tax Liability of the Deceased

13.2 Deceased Estates

13.3 Treatment of Trustees

13.4 Trusts where the Settlor is Still Living

13.5 Settlement by a Parent in Favor of Own Child

13.6 Accumulation Settlements for Children

13.7 Discretionary Trusts

13.8 Foreign Trusts

13.9 Revision Test

14 Tax Planning

14.1 Common Sense and a Sense of Proportion

14.2 The Problem of Starting Employment

14.3 Tax-Efficient Savings

14.4 The Age Allowance Gap

14.5 Getting Married

14.6 Covenants

14.7 Gifts and Settlements

14.8 The Break-up of Marriage

14.9 Setting up in Business

14.10 Forming a Partnership

14.11 Forming a Company

14.12 Working Overseas

14.13 Questions of Residence, Ordinarily Resident and Domicile

14.14 Tax-Efficient Investment

14.15 Considerations on Retirement

14.16 Capital Conversion Schemes

14.17 The Investment of Lump Sum (Redundancy) Payments

14.18 Revision Test

Abbreviations

Table of Cases

Index