UK Tax Environment And Role Of Tax Practitioner

Description of UK taxation and its environment

The description of UK taxation environment is shown in this assignment. The research analyst gains the knowledge from different sources about the UK tax law. The two types of taxation are described in the report that is direct tax and indirect tax. The history of UK tax and how it is evolved with the time is shown in this report. The roles of tax officials and experts are briefly explained in the report.

Description of UK taxation and its environment

The tax is compulsory contribution made by the peoples of a country to the government. The government charges tax from the citizens in the form of money. The tax is taken by the government to use the money for the development of the country. The non-payment of tax leads towards to the offence towards the government. The punishment is given by the government as per it is described in the taxation law. The assessment of taxation in UK has gone through at least three unique levels. The structure of UK taxation environment is as follows:

The tax of any country is mainly divided into two parts. These two parts are known as direct tax and the indirect tax. The tax paid on the income is known as income tax and it forms a major part of the direct tax. The tax paid on the wealth is known as wealth tax. It is also the part of the wealth tax. In every country, they have their own taxation system which is used to collect the tax from the people of the country. The tax can be charged at a fixed rate or a slab rate. Slab rate is applied on the income tax.  In United Kingdom, the tax officials collect the tax in various forms like income tax, feel duty, corporation tax, and VAT.

• Income earned during his time of employment
• Self-employed earnings of an individual
• Income received after retirement like pension income and other benefits
• House Property income or income from rent
• Income earned under the business

Various deductions are available on the income earned as it may be allowed while investing in government notified investments which provides deductions and helps in reducing the amount of tax.

Indirect tax is not paid by the person who earns money from it. It is charged from the customer by selling the goods and services to the consumers. In this case, the seller receives the amount of tax from the customer and deposits the tax amount to the government on the behalf of the customer.

The first reporting of income tax in the United Kingdom is made by William Pitt in 1798 when he described his financial plan to everyone. The income tax was introduced in 1978 and it is applied in the next year in the country. The main reason for the introduction of taxation system in the country is to generate funds to fight war against the Napoleons. The taxation system formed by the William Pitt remains in existence from 1799 to 1802. The tax is demolished from the country as the country leaves in the peace after that. The taxation system made by the Pitt includes 5 Schedules and some other guidelines. The income not mentioned in these schedules is not treated as taxable income and no tax was levied on that income.

History of UK taxation

In year 1842, the taxation system in the United Kingdom re-enacted by Sir Robert Peel. The taxation system made by the Sir Robert Peel is made after analysing the shortcomings of the previous taxation system of William Pitt and it overcomes those shortcomings. The taxation system of Robert Peel also helps in filling the resource requirements for the general elections. After that the income earned in the UK is chargeable to tax. The taxation system of the country changes from time to time as per the needs of the external financial environment. In past years, the taxation system of the country took a formal shape and structure.

The tax system of the United Kingdom is now divided in four parts which are as follows:

• Income Tax: The amount of income which is paid to the government in the form of tax is known as income tax. It is the main source of income for the United Kingdom government. 30% revenue of the country is generated from the income tax.
• Value Added Tax: This tax comes under indirect tax as it is charged on the value of goods and services sold to the customers. The rate of VAT on the goods and services in United Kingdom is different for the products and it varies from 0% to 20%. When the VAT is first introduced in the United Kingdom in 1973, the rate of tax charged on the goods and services is 10%. The changes in the rules and regulation leads to the change in the rate.
• Corporation Tax: The tax charged from the individual’s income is known as income tax and when it is charged from the company it becomes corporation tax and is charged by the companies which are resident of the United Kingdom. The revenue generated from the corporation tax stands on 4^thposition of the total revenue generated.

In past, the sources of finances for the organizations were limited and because of that the professional due of taxation is very low. With the passing of time, there is a growth in the organization’s perspective and they needed someone to manage everything. When the business grows someone is required to keep the records in order. The records of an organization describe that how much income is earned in the business and how much tax needs to be paid by the organization. With the growth in the business it becomes more complex to handle and the officials working in the organization finds difficult to manage the guidelines related to the taxation. To complete the taxation responsibility towards the government, someone with greater knowledge in that direction is needed. Tax practitioner helps in checking the annual bookkeeping and financial statements that the problems relating to the taxation is solved. Certain permissions are required to become a tax practitioner and it changes from nations to nations. There is a need of professionals for the correct bookkeeping and it is provided by the tax practitioner.

A business organization also has other needs apart from taxation. Appointing an expert who has good amount of knowledge gives an extra benefit to the business. Now a days expert has started to giving outsourcing services, operational review and advisory services in taxation. They also provide other services related to taxation and directs in correct way. Tax practitioner plays different roles while assessing the calculations of taxation amount for their clients. Some of the roles of tax practitioner are as follows:

Roles of tax practitioners

• The first role of the tax practitioner is to fill the taxation return sincerely by using his skills and it is filled in a valid format.
• Helps in disclosing the necessary compliance issues comes into financial statement of the business so the changes can be made accordingly.
• For the correct and proper presentation of financial statement, they also give advisory services.
• Directs the organization in correct way to comply with the rules and regulations of taxation law.
• They also provide legal tax related commitments to the citizens.
• They give assurance about the returns filed by them and they also assure that the records are kept in appropriate formats according to the description of the client.

Responsibilities of tax practitioner

• The records maintain by the tax practitioner needs to be remain in appropriate format with all the taxation expertise. The data should not contain any deceiving statement which will hurt someone.
• There is no misrepresentation is made by the tax practitioner in customer business in order to fulfil his own motive. If there is any misstatement in the records and it is not stated by the advisor then it is considered as misrepresentation of records.
• The tax practitioner has great amount of knowledge and they can easily identify the data at budgetary explanations and the records of the customer base.

Notwithstanding the way that these are the greatly surely understood points of view people have, in reality altogether different. Truth be told any individual or an association who has indicate pay in plenitude of the edge special case or section rates characterized according to tax collection law over the purpose of constrainment is mandatorily need to record her/his tax assessment evaluation frame. The amount of tax that needs to be paid by the individual or an business entity depends upon the income generated in the current financial year. The tax on the income will be charged after deducting the amount of personal allowance.

Role and responsibilities of the tax practitioner

This picture shows the tax rate on the taxable income. If the income earned in the financial year is up to £11,000 then the amount of tax will be zero as the tax rate in this situation is Zero. The amount of £11,000 is treated as benchmark as the tax will be paid above this amount. Various deductions are allowed to the persons as per their condition and age. There are many allowances are available for the married people, peoples those are blind, and the person with the disability. Every individual of the country needs to comply with his taxation obligations and it is compulsory for every individual. The agents can be appointed when there is not possible for the individual himself to fill the return and submit to the government. The individuals will be treated as responsible party when there is a separate legal entity.

Every individual is obligatory to satisfy their separate tax assessment related commitments Not satisfying a similar will bring about different consistence and punishments (both fiscal and non-financial). In spite of the fact that on the off chance that where individual isn’t in limit or professionally skilled to satisfy all the tax assessment related rules, it can designate specialists for its benefit who has finish duty to take after the same in the interest of their customers. Also, the instances of isolated lawful substances where singular follows up for the benefit of organizations, they will be held at risk for every one of the outcomes if there exists no follow up of rules.

Different necessity moves could be made at HMRC office to recuperate the obligation sum that is unpaid and owed by an individual or business association. Usage action can be taken by HMRC to get the trade out the occasion when an individual don’t pay particular tax assessment charge. It can have control or parade of the benefits and assets of individual possessions of a person in case of non-instalment of assessments. They have authority to direct and to make an individual bankrupt or close down their separate business. Notwithstanding the intrigue sum on the late instalment of expense obligation assesse would be subject to pay the tax assessment obligation on the exceptional sum. However there is choice accessible to the assesse to pay the duties while worried with the administrative expert through portion course and upgrade the time term for the instalment commitment.

Roles of tax practitioners

After reading the case study of Paul and the information obtained for the financial year 2016-17 the following considerations has been made

• The income of self-employed business needs to be calculated to determine the amount of tax.
• The income is calculated of an individual name Paul, aged 43 years.

General Details	Notes	£
Net Profit as on 5 April 2017		32,200
Allowed Incomes for tax		0
Disallowed Incomes for tax		0
Disallowed expenses charged to P&L
Motor vehicle expenses	1	4,111
Expenses incurred on property	2	3,240
Repair and maintenance charges	3	1,320
Miscellaneous & other charges	4	2,590
Allowed expenses not charged to P&L	5	(1831.2)
Taxable profit for the year		41629.80

Working Notes

1. Motor vehicle expenses

Running expenses of vehicle = £ 4710

Car used for private purpose (disallowed expense) = £ 4,710 * 0.70 = £ 3297 (a)

Total cost of running car utilised by restaurant’s chef = £2,670

Disallowable expenses (private use) = £ 2670 * 0.20 = £ 534 (b)

Parking fines = £ 280 (c)

Total disallowed motor car expense = (a) + (b) + (c) = £ 3297 + 534 + 280 = £ 4,111

Rules related to motor vehicle expenses

• Expenses on car used for other than business purpose will be treated as disallowed expense.
• Penalty and fines are always be disallowed for tax purpose.

1. Property expenses

Rent expenses incurred on the building = £ 16,200

Disallowed part of the rent expenses = one fifth of the total rent paid in the year will be treated as disallowed expenses = £ 16,200/5 = £ 3240

Rules related to Property expenses

• If the office property or building is used for the private purpose or for residential use then residential use of the building will treated as disallowed expense.

1. Repairs and Renewals

Total cost of repairs and renovation = £ 6,240

Disallowable expenses (repairs in residential portion) = £ 1320

Rules related to repairs and renewals

• The repairs made for the part not used in the business will be treated as disallowed expense for the purpose of tax.

1. Other expenses

Total cost of other expenses = £ 10,960

Disallowable expenses (legal cost) = £ 2590

Rules related to other expenses

• Legal cost paid to the government for the purchase of property will not be allowable expense.

1. Capital allowance and balancing charge

No.	Asset	Person used the car	Cost in £	Fall in CO2 emission slab	Rate	Allowance to be claimed in £	Official use in % terms	Net expense allowed
1.	Motor car 1	Paul	14,000	75 g / Km – 130 g / Km	18 % WDV (main rate)	2520	30 %	756
2	Motor car 2	Chef	16,800	Above 130g/ km	8 % WDV(special rate)	1344	80 %	1075.20
Total expense	1831.20

Relevant Rules

• Main rate and special rate pool doesn’t apply on the assets which is used for both private and official purpose.
• The cost of special rate and main rate pool is entered on different pools.

Business started as on – 06/04/2015

Base period applicable – 06/04/2015 – 05/04/2016

Assesse	Last date of registration for self assessment	Last date of return	Last date of tax payment	Advancement payment
Paper format	Online format
Individual, self employed or sole trader	05/10/2016	31/10/16	31/01/2017	31/01/2017	31stJuly

Note

• Penalty amount will be £ 100 if tax return is submitted up to 3 months late.

Tax slab applicable

No.	Bandwidth	Income range	Rate
1.	Allowance on personal income	Up to £ 11,000	0%
2.	Base rate	£ 11,001 – £ 43,000	20%

Net income chargeable to tax of Paul	£ 41629.80
Tax calculation
Up to £ 11,000	Nil
£ 11,001 – £ 41629.80 @ 20 %	£ 6125.96
Net tax payable	£ 6125.96

Calculation of total income of Beth

Statement of total Income
Particulars	Amount	Amount
Salary: Non-Savings	42000
Dividends	6000
Statutory redundancy payment	3500
Compensation	50000	101500
Less
Compensation allowance	30000
Personal allowance: Non-Savings	10600	40600
Taxable Income		60900
Income tax:
Non-Savings (42000-10600)*20%	6280
Dividends (Nil up to 5000 and 32.5% for above 5000)	325
Compensation (Higher rate 23500 @ 40%)	9400	16005
Total tax payable		16005

Notification will be send to Paul by HMRC if there is a need of compliance check

This is the first time when the Paul is submitting his assessment tax return for his self-employed business. The role of HMRC is to remain cautious for checking the business compliance. The controls are applied by HMRC to check the various compliances with the business. They also check the integrity and authenticity of the individual who submit his tax return. It is applied in both the situation whether there is an income from salary or whether the income from the business. The compliance checks which are made by the regulatory authorities are as follows:

• The payment of tax is appropriately made or not
• The assessment of the income is correctly made or not
• Whether tax return filed by the company or not
• If the business has other persons then the records of those PAYE

Documents and records needs to be kept when the return is filed

• If the return is submitted by self-assessment then supporting documents are required.
• The records whether be kept in electronic form or in paper form.
• Complete records about the income and expenses earned from the self-employed business.
• All the expenses incurred during the taxation period and relevant for the taxation purpose are needed to be kept.
• If there is any value added tax, then details of this tax also needs to be kept and the registration certificate and number of sales tax.
• Where the employees are employed for the work then the records of Payee.
• Personal income earned apart from the normal course of business.

Notes to be remembered

• The documentary evidence which needs to be kept in the records is the bills of electricity, statement of bank, invoice issued to the customer, etc.
• The record should be maintained for no less than 5 years after the date of submission of return.
• The records maintained in the business are relevant but personal income and expense record is also maintained by the individual.
• The records of financial statement and the appropriate accounting standards used for the preparation of financial statements are needed to be kept.

General Details	Amount in £
Amount received from the sale of factory	1,192,050
(-) costs of selling asset	0
= Net consideration	1,192,050
(-) buying value of the asset (1)	(450,000)
= gain made from the sale of machine	742,050
(-) Indexation allowance (2)	210953
= Total capital gain chargeable to tax	531097

Notes:

1. Allowed cost of the purchased asset

Net consideration received from the sale – unindexed profit made from the sale of asset

= £ 1,192,050 – 742,050 = £ 450,000

1. Indexation allowance

[(Retail price index for month of disposal – Retail price index for month of purchase of asset) / Retail price index for month of purchase of asset] * Cost of asset

= {(258.80 – 176.20) / 176.20} * 450,000

= £ 210953

When the capital asset is sold, or exchanged and the ownership right of the assets is sold to the other person and the gain received on the sale of the capital asset is known as capital gain. The rate fixed by HMRC on the capital gain is 28% if the individual is from the category of high tax payer. The basic rate in the case of capital gain is 18%. Exemptions and allowances can be made on the income earned from the sale of asset. In the given case, the taxable income calculated is £ 531097 and the rate of tax is 18%. The amount of tax which needs to be paid is as follows:

Responsibilities of tax practitioner

Total capital gain = 531097

Rate applicable = 18%

Tax needs to be paid in the current year = 531097 x 18% = £ 95597.46

Note

In the given case, it is assumed that no benefit of personal allowance is provided to the individual.

Due date for the payment of tax on capital gain

If the capital gain on the capital assets is made by the individual then it is reported in the self-assessment report of the individual. The information about the gain earned on the sale of capital asset can also be reported to the tax officials via online portal. The report furnished by the individual contains all the information related to the capital gain and the calculation of capital gain is made according to the prescribed rules and regulations of tax. If the return is not filed electronically then last date of return filing is 31^st October and if it is filed electronically then the last date is 31^st January. The registration for the self-assessment of capital gain is needs to be made before 5^th October. The due date for the payment of tax of capital gain and income tax is shown below:

Income tax deductions reduce the amount of income and help the individual to pay less tax. No income tax needs to be paid where there is a personal allowance of £11,000 as it is available for the deduction. Other deductions available and which can be claimed for reducing the amount of tax are the marriage allowance, allowance for the blind people. The other deduction which can be taken be the individual is the interest from the saving account or the dividend received from the company. These are the allowable deductions and it is deducted from the taxable income. The amount remaining after subtracting the deductions will be liable for the tax.

The chargeable asset in this case is the shares of Dub Ltd.

• Marlon sold the chargeable asset that is a house for £ 497,000.
• The asset purchase in October 2010 and it is purchased at £ 146,000
• Legal fees paid when the asset is purchased is £ 2,900
• Legal fees paid when the asset is sold is £ 3,700
• Asset is hold from October 2000 to Feb 2016 and the indexation allowance in this case is 0.515
• After analysing the tax information furnished by the Marlon it is clear that he comes in the high rate taxpayer category.

If the gift is given to the spouse, charity or to a civil partner then it is exempted from the tax and no tax should be levied on the amount of gift. Tax should be levied on gift if the civil partner is unmarried. In the given case, the gift is provided by Detroy to his son Grant and there is no provision about the gift given to the children. Hence it will be chargeable to tax. The amount of gift will be treated as sales consideration for the Grant and he will be liable to pay tax on that amount. The sale consideration in this case is £ 240,000.

Tax obligations of taxpayers

The amount of capital gain for the Grant is

Sales consideration – Purchase value or market value of gift

= £ 240,000 – 240,000

= 0

Part B

Name of asset	Date of disposal or sale of asset	Sales consideration (a)	Purchase price (d)	Date of purchase of asset	Indexation multiple (b)	Indexed consideration (c) = (a) * (b)	Other cost (e)	Taxable amount (c) – {(d) + (e) }
House property (part b)	12/02/2016	£ 497,000	£ 146,000	22/10/2000	0.515	£ 255,955	£ 6600	£ 103355

AC 4.3

Calculation of tax payable on the capital gain

In the present scenario, the assesse has fulfilled the requirement of high tax payer rate and the tax paid by him on the capital gain is from the rate of 28%.

Taxable gain = £ 103355

Applicable rate = 28%

Amount of tax = £ 18603

Conclusion

The assignment gives information about the UK taxation environment along with the roles and responsibilities of tax practitioner. The obligations of tax practitioner towards the citizens and for the government are shown in the assignment. The calculation of income tax for the self-employed individual and for the salaried individual is described in the report. The report also furnished information about the capital gain earned on the capital asset and the treatment of capital gain tax as per the rules and regulations of taxation.

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