Taxation: Finance Act 2020, 26th Edition PDF by Alan Melville

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Taxation: Finance Act 2020, Twenty-sixth Edition

By Alan Melville

Taxation: Finance Act 2020, 26th Edition

Contents

Preface ix

Acknowledgements x

Summary of tax data xi

Part 1 Income Tax and National Insurance

1 Introduction to the UK tax system 3

UK taxes 3

Sources of tax law 4

The tax year 6

Structure of HM Revenue and Customs 6

Administration of the tax system 7

Self Assessment 7

Appeals 11

Tax evasion and avoidance 12

Making Tax Digital 14

The HMRC Charter 14

2 Introduction to income tax 16

Taxable persons 16

Classification of income 17

Exempt income 18

Structure of an income tax computation 19

Married couples and civil partners 20

Rates of income tax for 2020-21 20

Income taxed at source 23

Savings income 24

Dividend income 31

Allocation of the personal allowance 34

3 Personal allowances 38

Personal allowances for 2020-21 38

The personal allowance 39

Blind person’s allowance 42

Tax reducers 42

Married couple’s allowance 42

4 Payments and gifts eligible for tax relief 49

Payments and gifts deductible from

total income 49

Eligible interest payments 54

Annual payments 55

Gifts of shares or property to charity 55

Payments which are tax reducers 56

Maintenance payments 56

Loans used to purchase a life annuity 57

Gifts of pre-eminent property to

the nation 57

Gift Aid 58

5 Income from property 62

Definition of property income 62

Basis of assessment and allowable

expenditure 63

Capital expenditure 64

Losses 66

Lease premiums 67

“Rent-a-room” relief 69

Furnished holiday lettings (FHL) 69

6 Income from savings and investments 74

Interest received 74

Dividends received 76

Tax-efficient investments 76

Individual Savings Accounts 77

Enterprise Investment Scheme 79

Venture Capital Trusts 80

Child Trust Funds 81

Income from trusts and settlements 82

Miscellaneous income 85

7 Income from employment (1) 88

Employment and self-employment 88

Basis of assessment 91

Employment income 91

Non-taxable employment income 92

Deductible expenses 94

Termination payments 97

The PAYE system 99

Construction industry scheme 103

Employee incentive schemes 104

8 Income from employment (2) 109

Benefits in kind 109

Living accommodation 111

Cars provided for private use 114

Beneficial loans 118

Salary sacrifice 120

9 Income from self-employment:

Computation of income 122

The badges of trade 122

The calculation of trading profits 124

Deductibility of expenditure 125

Disallowed expenditure 125

Allowable expenditure 128

Adjustments relating to income 130

Trading income allowance 131

Cash basis and simplified expenses 132

10 Income from self-employment:

Basis periods 138

The current year basis 138

Commencement of trade 139

Cessation of trade 142

Change of accounting date 144

Averaging of trading profits for

farmers and creative artists 149

11 Income from self-employment:

Capital allowances 155

Eligible expenditure 155

Chargeable periods 155

Plant and machinery 156

Capital allowances on plant and

machinery 158

Writing down allowance 159

Annual investment allowance 162

First year allowance 165

Balancing allowances and charges 167

Non-pooled assets 167

Allowances on cessation of trade 171

Structures and buildings allowances

(SBAs) 172

Miscellaneous capital allowances 173

12 Income from self-employment:

Trading losses 178

Relief for trading losses 178

Carry-forward trade loss relief 179

Trade loss relief against total income 181

Early trade losses relief 184

Terminal trade loss relief 186

Post-cessation trade relief 188

Transfer of a business to a company 188

Losses on shares in unlisted trading

companies 188

Limit on income tax reliefs 189

13 Income from self-employment:

Partnerships 192

Principles of partnership taxation 192

Notional profits and losses 195

Change in partnership composition 196

Non-trading income 198

Trading losses 199

14 Pension contributions 204

Registered pension schemes 204

Tax relief for contributions

by scheme members 206

Tax relief for contributions

by employers 209

Annual allowance charge 211

Lifetime allowance charge 214

15 Payment of income tax, interest

and penalties 219

Payment of income tax 219

Late payment penalties 222

Interest on overdue income tax 223

Interest on overpaid income tax 224

Penalties 224

16 National Insurance contributions 229

Class 1 229

Class 1A 235

Class 1B 235

Class 2 236

Class 3 236

Class 4 237

Annual maximum contributions 238

Review questions (Set A) 242

Part 2 Capital Gains Tax

17 Introduction to capital gains tax 253

Chargeable persons 253

Chargeable assets 254

Chargeable disposals 255

Basis of assessment 256

Rates of CGT 257

Relief for capital losses 259

Relief for trading losses 261

Administration of CGT 263

18 Computation of gains and losses 267

Layout of a CGT computation 267

Disposal value 268

Allowable expenditure 268

Part disposals 270

Assets with negligible value 272

Assets held on 31 March 1982 273

19 Chattels and wasting assets 277

The chattels exemption 277

Chattels disposed of at a loss 279

Part disposals of chattels 279

Wasting chattels 282

Wasting assets 283

Leases 285

20 Shares and securities 294

The share matching rules 294

The Section 104 holding 296

Bonus issues 298

Rights issues 300

Capital distributions 302

Takeovers 304

Gilts and qualifying corporate bonds 306

21 Principal private residence 310

Principal private residence 310

Partial exemption 311

Deemed residence 312

Letting relief 314

Business use 316

22 CGT reliefs 319

Damaged assets 319

Destroyed assets 322

Replacement of business assets 323

Gift of business assets 326

Transfer of a business to a limited

company 328

Business asset disposal relief 329

Reinvestment into EIS shares 332

Loans to traders 333

Review questions (Set B) 336

Part 3 Corporation Tax

23 Introduction to corporation tax 343

Scope of corporation tax 343

Accounting periods 344

Taxable total profits 345

Trading income 346

Income from property 351

Income from non-trading loan

relationships 351

Dividends received 353

Relief for charitable donations 353

Loan relationships 354

Long periods of account 358

Research and development tax relief 360

Intangible fixed assets 361

24 Corporate chargeable gains 365

Chargeable disposals and chargeable

assets 365

Basis of assessment 366

Computation of gains and losses 366

Indexation allowance 367

Assets held on 31 March 1982 370

The rebasing election 373

Assets acquired before 6 April 1965 373

Disposals of shares or securities 374

25 Computation and payment of

the corporation tax liability 387

Corporation tax financial years 387

Rates of corporation tax 388

Due date of payment 389

Accounting for income tax deducted

at source 392

Shadow ACT 392

Self Assessment 393

Interest on underpaid and overpaid

corporation tax 394

Penalties 396

26 Corporation tax losses 400

Relief for trading losses 400

Carry forward of trade loss relief 401

Unrelieved qualifying charitable

donations 403

Trade loss relief against total profits 404

Repayments of corporation tax 408

Anti-avoidance legislation 409

Choice of loss relief 410

Non-trading losses 410

Restriction on deduction of

carried-forward losses 411

27 Close companies and investment

companies 414

Close companies 414

Definition of a close company 414

Exceptions 417

Consequences of close company

status 418

Companies with investment business 421

Choice of business medium 422

Incorporation 427

28 Groups of companies and

reconstructions 430

Related 51% group companies 430

Group payment arrangements 433

Transfer pricing 433

75% groups 434

Group relief 435

Transfer of chargeable assets within

a group 438

Capital losses 440

Consortia 441

Corporate interest restriction 443

Company reconstructions 443

Review questions (Set C) 446

Part 4 Miscellaneous

29 Value added tax (1) 455

The principle of VAT 455

Taxable persons 456

Taxable supplies 456

Exempt supplies 458

Reduced rate supplies 459

Zero rate supplies 459

The value of a supply 460

Imports and exports 462

Registration 465

Deregistration 470

30 Value added tax (2) 473

Accounting for VAT 473

The tax point 474

Tax invoices 474

Accounting records 475

Special schemes 476

Retail schemes 479

Bad debts 480

Non-deductible input tax 481

Partial exemption 483

Administration of VAT 485

Penalties, surcharges and interest 487

31 Inheritance tax 492

Transfers of value 492

Exempt transfers 494

Potentially exempt transfers (PETs) 496

IHT payable on chargeable lifetime

transfers 498

IHT payable on death 500

Valuation 506

Business property relief 508

Agricultural property relief 509

Administration of IHT 509

32 Overseas aspects of taxation 513

Residence and domicile 513

Income tax – general rules 516

Double taxation relief (DTR) 517

Income from employment 518

Trading income 520

Income from property and investments 521

Capital gains tax – general rules 521

Inheritance tax – general rules 522

Corporation tax – general rules 523

Controlled foreign companies 525

Transfer pricing 526

Double taxation relief for companies 526

Diverted profits tax 529

Digital services tax 530

Review questions (Set D) 533

Part 5 Answers

Answers to exercises 541

Answers to review questions 593

Index 605

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