UK Income Tax System is: Taxable Persons is us and employed individual.

Definition: is individual
who is resident in the UK they are charge for all the income, does no matter where income come
from. However, should be resident in UK for more than 185 days a year in UK.

Taxable Income is all income have it does not matter from where is come if person is taxable person
than are the subject to income tax but is some exceptions to be a taxable person here in UK. So,
some of the income could be exempt for income tax all together but depends on what it is. Other
exemption If work abroad and the home is not here in UK permanently, but the money come in UK
you can claim just that part. Exempt income is savings and investment income. If there is individual
saving account that is exempt from income tax. In case the person gets the national savings
certificate again there are exempt. When you got saving your contract where the employer takes
money of the salary before receiving and put in the saving account through the company for you.
Another exempt is income investment trust and child proppants. Employed income can also be
exempt you got minor benefits provided by the employer that things like canteens if they give them
some allowance for lunch. Also is not subject on income tax operation allowances payable to the UK
army enforces serving in the specific area, property income so gross property or rental room
scheme, any wines (play national lottery), maintenance payments, income for scholarships,
graduate, pension disability. Social security payments, family credit and child benefits, income
support and mobility allowances.

Tax Year Income tax this different from the companies. When we looked at business tax, we look at
financial year. So, for us in income tax we look at 6 April 20222 through 5 April 2023.
Tax Rates there is 2 English tax rates and Scottish rates. If we are doing the calculation for our
income we use the Scottish bands, when you come on to the savings and dividends, we have to look
at the English bands. Now Scottish bands start rate 19% and the basic band is 20% and we have got
intermediate 21%. Higher rate is 41%.

Personal Allowances At the moment the personal allowance is £12,570, This means the first £12,570
of your income from employment is not subject to income tax.

Other Allowances is married allowances, blind allowances. If you do not utilise that full personal
allowances that£12,570 are married or civil partnership you can transfer 10% of your personal
allowances to your husband or partner and is £ 1,260.

Blind Persons Allowance (BPA) If you are registered blind or partial blind then you receive this year
£2,600. If you do not actual work or not utilised those allowances goes to your spouse or civil
partner.

Making Tax Digital (MTD)

This came in back in 2018, it is lengthy process making the tax digital. That means the government
decided way back in 2017 where gone change how people submitted information to HMRC and was
introduced in 2018 for VAT a loan. If you have submitted any records to HMRC, so self-assessment,
companies, submitted information to them but to do this you have to get a compatible accounting
software with HMRC, so could be Sage, Xero. You upload the documents from accounting system
into making tax digital account. Every quarter we got to upload your information from your
accounting system. For income tax this meant to rolling out in 2022 there a lot of issues so they do
not roll out until April 2023. If you are self-employed person has less than £10 thousand of income
through your self-assessment, do not need making tax digital account. When comes making tax
digital on your account, you can make any voluntary payments at any time throughout the year.
Self-Assessment

This is for someone who is self-employed, and your income is not tax through any other sources
apart from self-assessment. Sometimes we got to do self-assessment even you are the employed, if
you are other income that you have and is not tax through employment than you have to do self-
assessment. Normally tax return is issued every year on April, that HMRC are aware you required
self-assessment. If they are not aware you required one, you can go online and download the self-
assessment form or phone HMRC and request a paper one. Submissions on paper is phase in out,
from the 31 October you must submitted paper a copy by the 31 October. If you miss that date, you
have than the next date which is 31 January which is online submission. HMRC can calculate self-
assessment for you, they calculate how much tax must pay.

Payments dates
Payment on Account (POA)
When you submitted the self-assessment tax return that is usually done by 31 January. The tax is
based the prior year. When you submitted your tax return on 31 January you also must make a
payment, the second payment on account it is 31 July. These two payments are usually 50% each of
the prior year tax. These called payments on account your payment in advance for current tax year
you just submitted your tax return form. Then the final payment will be 31 January of the next year.
You do not have to do the payments on account if you have the liabilities less than £1,000.

Corrections
These is same as business tax. Correction to your self-assessment HMRC have 9 months from the
final date to make any correction. They go through the self-assessment and check out. If know about
your self is individual, you get 12 months for final date to let HMRC know is there a correction and
you gone to resubmitted. If you are individual who has submitted your self-assessment and you
realised that you have overpaid tax than you can make a claim up to 4 years from you realised your
claim has to be overpaid.

Penalties
Failure to notify HMRC if you must submit self-assessment is 30% to a 100% of your tax. So, they
decide what gone penalties will be dependent on severity.
Late submission of tax return
It is £100 penalty straight away if you are even 1 minute late. On 31 January if you do not submit
online, you get £100 penalty fine. In case you still have not submitted up to 3 months is ten pound
per day up to maximum £900. If is up to 6 months still not submitted depends on when you submit.
6 months is either £300 of 5 % of your tax liability, if you have 12 months and you do not still submit
you got an additional £300 or 5% of your tax liability and you have interest on top of that. When you
submit the tax return, and it is not correct they found the penalty can be 30 % up to 100% of your
tax liabilities depends on how much you have adjusted. Depends on that severity.
Fraud or negligence on claimed reduced payments on account, this one depends. In case you have a
reason to have reduced payments on account than depends on HMRC. The maximum penalty is
equal the difference between your payment on your account you should have had, and one is made.
Failure keeps records even self-employed is £3000 per tax year, they can keep digitally or on paper
records.

Surcharges & Interest

 Surcharges is where you have under paid your income tax, you received a fine, a penalty, a
surcharge, and you received an interest. When you have 30 days unpaid your tax is 5% of your tax
liabilities. After 5 months still have not paid the income tax an additional 5 % added on your tax
liabilities. After 11 months you do not have paid your income tax self -assessment a further 5%.
Interest is 6% you have underpaid tax. 6 % is calculated the Bank of England base rate is 2,5% that
means they generate the money. On top of that HMRC rate is 3,5%. However, if you have overpaid
your income tax on your self -assessment than it is a greater of 2.5% per annum or 1% less than Bank
of England base rate.

Appeals
If HMRC say you must pay more than you think you do and you want to appeal the decision you got
to do in written within 30 days of disputed claim. You can postpone any payments you make, or you
have to make when you go through appeal system. You can stop making the payments, you can
postpone until the claim is settled, until the appeal has been heard. When you do not make a
payment, the interest will be accrued. Most appeals about it the corporation tax, VAT you have a
chat the officer of HMRC on phone, or in person. If you can get a settled on a single discussion that
means again move on the internal review. Your claim goes to someone else in HMRC who anything
has not to do with your case. They get your documents and go through it independently. It is gone to
be completed within 45 days of your discussion with HMRC officer. In case you are still unsatisfied
with outcome an appeal you can also take further; you can take upper to Tribunal or Court on
Appeal.

Employed versus Self-Employed

Contract OF Services is when a taxpayer is recorded an employee, so you are a service of an
employer. The employer has the responsibilities to deduct tax under the PAYE system and then is
their responsibilities to paid to HMRC on your behalf.
Contract FOR Services is where you are regarded as a self-employed and is your responsibilities to
do the tax return and to pay income tax, national insurance to HMRC. As a self-employed individual
you can work for many clients or customers. They will pay you for that work you have completed,
and you have to do your responsibilities for HMRC with the tax return and the payments.
Factors of Importance are control, degree of Financial Risk, equipment, holiday or sickness,
exclusivity, hiring help, work correction and hours of work.

Control
To make distinction between employed and self-employed you think how much control you as an
individual have where you work, when and how you work. If you are self-employed that means you
got to choose who you work for that week, when you work and how you complete your work.

Financial Risk
Under legislation an employer must pay you for work your completed, it is not a financial risk even
the company goes into liquidation or administration you still receive what you do. Financial risk
means there is not capital involved, no of own money is involved running the business. If we are
employed, you do our work and at the end of month receive the salary. There is no financial risk the
reason is because the company make a profit or loss does not matter to us. When the company goes
in liquidation the financial risk is people lose their job. The financial risk for self-employed individual
is where they do not receive any money and they have money tied up within in business. If the
business fails, the self-employed person loses all their capital involved in the business. Someone who
is employed you do your work, you told what you are doing, and you get a financial reward at the
end of the month. In case you are self-employed you must find customers; they pay you in case they
do not pay that is financial risk because you not bringing any money in your business. As a self-
employed individual your personal assets come in consideration if the business fails, and you have
creditors.

Equipment
For people who are employee most of the equipment comes from employer, but not all the time is
conclusive. For example, for little items like pens etc it is not the obligation to the employer to buy it.
In change of this a person who is self-employed should buy own equipment to complete the work.

Holidays/Sickness
As an employed individual you receive holidays, so you are entitled 4 weeks holidays a year, receive
sickness or statutory sick pay if do not get pay for your sickness. A person who is self-employed do
not get holidays pay or sickness.

Exclusivity
People who are employee they got only one employer and that employer has exclusivity over their
time. For self-employed can have a lot of clients, customers as they like, but they do not have
exclusivity over persons who work like self-employed.

Hiring help
As an employee do not have right to hire help only the person who work like a self-employed.

Work Correction
When you made an error on your own work in case you are employed and you should fix it because
it is under employed contract, and you still get paid for that. The case when you are self-employed
and you damage something you should fix it by your own expense, because that client does not pay
for your mistake.

Hours of Work
Employed people who work full time usually cannot choose when they work, but for some employer
allowed people work flexible hours from home because the cost them less. The other factor
flexibility is that the hours could work but it is normally 9 to 5 on the clock. Self-employed persons
can choose hours when they work.

PAYE System
The PAYE system is pay as you earn.

Responsibility
Under the PAYE system the responsibility is with your employer. It is up to the employer to deduct
tax and national insurance and any pension contribution, student loans, any savings have it with the
company before receiving the salary. Their responsibility to deduct last for the whole year 6 April
through the 5 April to HMRC. Employer must make sure they deduct and paid to HMRC on time if
they do not will gey the fine. Under the PAYE scheme, the whole point of it is that the deductions are
take off your salary and paid to HMRC, if tax code changes, then the company must be sure done
this correctly. Employers also make sure the PAYE system is applied to a lot of income. Wages are
usually when you receive weekly basis, salary for the whole year, supplement of salary for people
working in sales, student loans, pension that means fees, traveling expenses you get or in case you
are working in oil industry and when you receive benefit due to your employment from your
employer, these should be deducted to be paid.
PAYE- Operates
Under the PAYE system, here depend on when the company due the salary or wages, it could be
some company work 2 weeks one months or two weeks of the next month, depends how many
peoples are working. So, the payroll within the company they receive all the information if you got
any tax changes to your codes then receive from HMRC, in case people been sick they doing some
deductions needs, could increase pension, before the tax. These could be done on manually system
you use table A and table B, is the percentage of you tax and national insurance by using both table
to work out the deductions got to do or computerised system. Under the computerised system is
Sage Payroll take in consideration tax, for this year the tax codes basis is S1257L, but depending
what type of business, people are in and what type of job position people have it in company. The
tax codes can change, when you have it a company car if you have benefits in kind, or if you have a
loan or accommodation through the company due to these. Another situation it is when tax codes
can change if the person does not pay enough tax from the prior year the tax codes change to
current year, so reduce the tax.

Tax Deductions
Most of the people who are working basis tax code it is S1257L, S means Scotland because here it is
different rules, 1257 is personal allowance drop off the zero and L is basic taxpayer does not come
another deduction, The tax will be deducted by the employer, before receiving the salary. The
company has responsibility to pay HMRC by the 19 th of the following month.

Tax Codes

In case person working for a company or self-employed still get their personal allowance. Within a
company depending how much money you make. If you earn over £125 thousand you do not get tax
and the personal allowance start to drop. The tax codes could be different for example if you have it
benefit in kind for a company car, from the employers. For example, who has the tax codes S1375M
that means receive the 10% marriage allowance, could be also S1250NT this where you are non-
taxpayer.

Basis of Assessment
Asses means to deduct all our tax and national insurance. When peoples receive any income during
the tax year must be subject to PAYE system, even you have not received yet that income. Income
can be come from your employment like rental income in case you rent your house out in your spare
time that still classified an employment income, it does go down in employment income in your tax
return, interest income from banks, building societies these will be added together in all your
income and then you take away our deductions.

PAYE Forms
P 45 is when you left the employment, in case you join new company and you do not have P45 if
have a P46 from them which is emergency tax, P60 is what tax and national insurance pay for the
whole year and you will receive in August from your employers and that is good if go for a
mortgage, you need six months banks account plus P60 for pass 2-3 years. P2 is when you had a tax
change and is issued by HMRC, comes individual. P11 is where you have declaration from your
company and these you have it expenses, benefit in kind and you must put in down. P11 D is where
you’re as employee complete this and return to HMRC by the employer. P60 it is your yearly
statement show’s pay your tax code, national insurance, employer name and address, year relates
to. P45 a lot of employers are doing this electronically, which means you get one part you require
the other parts get put off to HMRC and you give that part you receive to the new employer. If you
are within old school company there is 4 parts of P45., so part 1 goes to HMRC where show you left
the employer, part 2 , 3 and 4 given to you as an employee and part 2 and part 3 goes to the new
employer, they keep one part and one part goes off to HMRC to show that you are now employed by
the new employer, part 4 is retained by you as an employee to show how much exact tax and
national insurance you have paid up to date. Now companies doing these electronically which is
called Real Time Information (RTI).