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Now in its 19th annual edition, Melville’s Taxation continues to be the definitive, market-leading text on UK taxation. This text serves as a comprehensive guide for students taking a first level course in the subject. Featuring clean, uncluttered prose and a wealth of immensely practical examples, this edition brings the book completely up to date with the provisions of the Finance Act 2013.
Comprehensively updated to reflect the Finance Act 2013, including:
• General Anti-Abuse Rule (GAAR) in detail
• Reform of age-related allowances
• PAYE RTI (Real Time Information)
• Employee shareholder status
• Changes to company car tax
• Cash basis for small businesses
• Temporary ten-fold increase in AIA
• Limit on income tax reliefs
• Employment allowance
• New rules on R&D tax credits
• Patent Box
• Statutory Residence Test (SRT)
This book will be of value to both undergraduate and professional students of business and accounting, and will be particularly useful for students preparing for the following examinations:
ICAEW Professional Stage, Principles of Taxation; Taxation; ACCA Fundamentals Level, Taxation; ACCA Technician Scheme, Foundations in Taxation; CIPFA Diploma Stage, Public Finance and Taxation; AAT Level 4 Diploma, Personal Tax and Business Tax; ATT Certificates, Personal Taxation; Business Taxation and Accounting Principles; AIA Foundation Level, Auditing and Taxation; IFA Diploma, Principles of Taxation.
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
The HMRC Charter 12
Tax evasion 13
Tax avoidance 13
2 Introduction to income tax 15
Taxable persons 15
Classification of income 16
Exempt income 17
Structure of an income tax computation 18
Married couples and civil partners 19
Rates of income tax for 2011-12 19
Income taxed at source 20
Savings income 22
Dividends from UK companies 26
3 Personal allowances 31
Personal allowances for 2011-12 31
The personal allowance 32
Blind person's allowance 34
Tax reducers 34
Married couple's allowance 35
4 Payments and gifts eligible
for tax relief 42
Payments and gifts deductible from
total income 42
Eligible interest payments 48
Annual payments and patent royalties 48
Gifts of shares or property to charity 49
Payments which are tax reducers 49
Maintenance payments 50
Loans used to purchase a life annuity 50
Gift Aid 51
5 Income from property 55
Definition of property income 55
Basis of assessment and allowable expenditure 56
Capital expenditure 57
Losses 58
Lease premiums 59
"Rent-a-room" relief 62
Furnished holiday lettings 62
6 Income from savings and investments 67
Interest received 67
Dividends received 69
Tax-efficient investments 70
Individual Savings Accounts 70
Enterprise Investment Scheme 72
Venture Capital Trusts 73
Community investment tax credits 74
Child Trust Funds 74
Income from trusts and settlements 75
Miscellaneous income 78
7 Income from employment (1) 81
Employment and self-employment 81
Basis of assessment 84
Employment income 84
Non-taxable employment income 85
Allowable expenses 87
Payments made on termination of
employment 90
The PAYE system 92
Construction industry scheme 96
Employee incentive schemes 97
8 Income from employment (2) 102
Benefits in kind 102
Benefits assessable on all employees 103
Special rules for P11D employees 105
9 Income from self-employment:
Computation of income 115
The badges of trade 115
The calculation of trading profits 117
Deductibility of expenditure 118
Disallowed expenditure 118
Allowable expenditure 121
Trading income not in the accounts 124
Non-trading income in the accounts 124
Expenditure not in the accounts 124
Post-cessation receipts 125
10 Income from self-employment:
Basis periods 130
The current year basis 130
Commencement of trade 131
Cessation of trade 134
Change of accounting date 136
Transitional overlap relief 140
Averaging of trading profits 141
11 Income from self-employment:
Capital allowances 148
Eligible expenditure 148
Chargeable periods 148
Plant and machinery 149
Capital allowances on plant and
machinery 151
Writing down allowance 152
Annual investment allowance 156
First year allowance 157
Balancing allowances and charges 161
Non-pooled assets 161
Allowances on cessation of trade 166
Industrial buildings and agricultural
buildings 167
Miscellaneous capital allowances 169
12 Income from self-employment:
Trading losses 174
Relief for trading losses 174
Carry-forward trade loss relief 175
Trade loss relief against total income 177
Early trade losses relief 180
Non-active traders 182
Terminal trade loss relief 182
Post-cessation trade relief 184
Transfer of a business to a company 185
Losses on shares in unlisted trading companies 185
13 Income from self-employment:
Partnerships 188
Principles of partnership taxation 188
Notional profits and losses 191
Change in partnership composition 192
Non-trading income 194
Trading losses 195
14 Pension contributions 200
Registered pension schemes 200
Tax relief for contributions
by scheme members 202
Tax relief for contributions
by employers 205
Annual allowance charge 207
Lifetime allowance charge 210
15 Payment of income tax, interest
and penalties 215
Payment of income tax 215
Late payment penalties 217
Interest on income tax 219
Penalties 220
16 National Insurance contributions 224
Class 1 224
Class 1A 230
Class 1B 230
Class 2 231
Class 3 231
Class 4 232
Annual maximum contributions 233
Review questions (Set A) 237
Part 2 CAPITAL GAINS TAX
17 Introduction to capital gains tax 247
Chargeable persons 247
Chargeable assets 248
Chargeable disposals 249
Basis of assessment 250
Rates of CGT 251
Relief for capital losses 253
Relief for trading losses 255
Administration of CGT 257
18 Computation of gains and losses 261
Layout of a CGT computation 261
Disposal value 262
Allowable expenditure 262
Part disposals 264
Assets with negligible value 266
Assets held on 31 March 1982 267
19 Chattels and wasting assets 271
The chattels exemption 271
Chattels disposed of at a loss 273
Part disposals of chattels 273
Wasting chattels 276
Wasting assets 277
Leases 279
20 Shares and securities 288
The share matching rules 288
The Section 104 holding 290
Bonus issues 293
Rights issues 294
Capital distributions 296
Takeovers 298
Gilts and qualifying corporate
bonds 300
21 Principal private residences 305
Principal private residence 305
Partial exemption 306
Deemed residence 307
Letting relief 309
Business use 311
22 CGT reliefs 314
Damaged assets 314
Destroyed assets 317
Replacement of business assets 318
Gift of business assets 321
Transfer of a business to a limited company 323
Entrepreneurs' relief 324
Reinvestment into EIS shares 327
Loans to traders 328
Review questions (Set B) 331
Part 3 CORPORATION TAX
23 Introduction to corporation tax 339
Scope of corporation tax 339
Accounting periods 340
Chargeable profits 341
Trading income 342
Income from property 349
Income from non-trading loans 349
Miscellaneous income 349
Franked investment income 351
Qualifying charitable donations 351
Loan relationships 352
Long periods of account 356
24 Corporate chargeable gains 361
Chargeable disposals and chargeable
assets 361
Basis of assessment 362
Computation of gains and losses 362
Indexation allowance 363
Assets held on 31 March 1982 366
The rebasing election 369
Assets acquired before 6 April 1965 369
Disposals of shares or securities 370
25 Computation and payment of
the corporation tax liability 383
Corporation tax financial years 383
Rates of corporation tax 384
Marginal relief 387
Due date of payment 390
Accounting for income tax deducted
at source 392
Advance corporation tax 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 charitable donations 402
Trade loss relief against total profits 404
Repayments of corporation tax 407
Anti-avoidance legislation 409
Choice of loss relief 409
Non-trading losses 410
27 Close companies and companies
with investment business 414
Close companies 414
Definition of a close company 414
Exceptions 417
Consequences of close company status 418
Close investment-holding companies 421
Companies with investment business 421
Unincorporated business vs close
company 422
Incorporation 427
28 Groups of companies and reconstructions 430
Associated companies 430
Transfer pricing 432
51% groups 433
75% groups 434
Group relief 435
Transfer of chargeable assets within
a group 438
Capital losses 440
Consortia 441
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 463
Reverse charge procedure within
the UK 464
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
Chargeable transfers of value 492
Exempt transfers 494
Potentially exempt transfers 496
IHT payable on chargeable lifetime transfers 498
IHT payable on death 500
Valuation 505
Business property relief 507
Agricultural property relief 508
Administration of IHT 509
32 Overseas aspects of taxation 512
Residence, ordinary residence and
domicile 512
Income tax - general rules 515
Double taxation relief 516
Income from employment 517
Trading income 519
Income from property and investments 520
Capital gains tax - general rules 521
Inheritance tax - general rules 522
Corporation tax - general rules 522
Controlled foreign companies 525
Double taxation relief for companies 526
Review questions (Set D) 533
Part 5 ANSWERS
Answers to exercises 541
Answers to review questions 593
Index 605
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