Income Tax 2021/22 Income Tax 2021/22 John Hiddleston, Azets Contributing Author (Scotland): Joanne Walker PhD ACA CTA Series General Editor: Mark McLaughlin CTA (Fellow) ATT (Fellow) TEP Bloomsbury Professional Bloomsbury Publishing Plc 50 Bedford Square, London, WC1B 3DP, UK 1385 Broadway, New York, NY 10018, USA 29 Earlsfort Terrace, Dublin 2, Ireland BLOOMSBURY and the Diana logo are trademarks of Bloomsbury Publishing Plc © Bloomsbury Professional Ltd 2021 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or any information storage or retrieval system, without prior permission in writing from the publishers. While every care has been taken to ensure the accuracy of this work, no responsibility for loss or damage occasioned to any person acting or refraining from action as a result of any statement in it can be accepted by the authors, editors or publishers. All UK Government legislation and other public sector information used in the work is Crown Copyright ©. All House of Lords and House of Commons information used in the work is Parliamentary Copyright ©. This information is reused under the terms of the Open Government Licence v3.0 (http://www.nationalarchives.gov.uk/doc/ open-government-licence/version/3) except where otherwise stated. All Eur-lex material used in the work is © European Union, http://eur-lex.europa.eu/, 1998-2021. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. ISBN: 978-1-52651-843-9 Typeset by Evolution Design & Digital Ltd (Kent) To find out more about our authors and books visit www.bloomsburyprofessional.com. Here you will find extracts, author information, details of forthcoming events and the option to sign up for our newsletters Preface Income Tax 2021/22 is the sixteenth edition of this publication and is part of the Tax Annual series published by Bloomsbury Professional. The book is designed to provide a clear, concise reference to all aspects of income tax law and practice, with cross-references to legislation, case law, and other source material. This edition has been comprehensively reviewed and is up to date to June 2021. Changes implemented by the Finance Act 2021, which received Royal Assent on 10 June 2021, and proposals for future changes, are fully reflected throughout, as are other new developments which have taken place since the last published edition. The book includes chapters covering both Scottish income tax and Welsh income tax. The Scottish income tax chapter has been updated by Joanne Walker, a Technical Officer for the Chartered Institute of Taxation and its Low Incomes Tax Reform Group. The Welsh income tax chapter has been updated by Leighton Reed, a tax partner with Azets who is based at that firm’s Cardiff office, and my grateful thanks go both to Leighton and to Joanne for their help and expertise on each of these subjects. Although Income Tax 2021/22 is part of Bloomsbury Professional’s Tax Annuals series (see back cover for further details), it is also a useful stand-alone guide to the UK’s income tax system. Hopefully readers will find it easy to navigate and more digestible than other reference material. The objective of the book is to provide an easy-to-use, straightforward solution to many common income tax issues, with an emphasis on practical rather than theoretical points. Bullet points, checklists, summaries, worked examples and tables have been used throughout to aid comprehension. We have included ‘Signposts’ at the start of each chapter, which aim to provide a useful summary of the contents of the following chapter. Each chapter also contains a series of ‘Focus’ points. These are additional points that have been picked out to draw the reader’s attention to new developments and proposed changes, planning or practice points, or to provide details of further reference material. I hope that you find this book useful. We always welcome any comments or suggestions for future editions. John Hiddleston [email protected] June 2021 v Contents Preface v Table of examples xi Table of statutes xv Table of statutory instruments and other guidance xxix Table of cases xxxv List of abbreviations xliii Chapter 1 The UK tax system 1 Signposts 1 Introduction 2 Income or capital 12 Reliefs, allowances and deductions 13 How income tax is calculated 35 Chapter 2 Income tax compliance 55 Signposts 55 Income tax self-assessment 56 Tax returns 61 Tax payments 68 Interest and penalties 73 HMRC enquiries 88 Tax tribunal 97 HMRC review 99 Alternative dispute resolution service 102 HMRC’s litigation and settlement strategy 103 Publishing details of deliberate tax defaulters 104 PAYE compliance 105 Disclosure of tax avoidance schemes 112 EU DAC6/OECD MDR 116 Serial Tax Avoidance Regime 116 Offshore tax evaders 117 Chapter 3 Scottish income tax 120 Signposts 120 Background to Scottish income tax 121 Scottish income tax 123 The need for awareness of Scottish income tax 133 Setting the Scottish rates and thresholds 134 vii Contents Interaction of UK and SIT rates and thresholds 135 Definition of a Scottish taxpayer 137 Income subject to Scottish income tax 148 Transferable tax allowance for couples 149 Partnership income 150 Non-UK income 150 Gifts to charities 150 Finance cost relief for residential landlords 152 General reliefs from income tax 152 Pension scheme contributions 153 Income from trusts 155 Social security lump sums 158 Impact on capital gains tax 158 Payroll issues for employers 159 Construction industry scheme 161 Administration of Scottish income tax 161 Behavioural repercussions of increasing divergence 164 Chapter 4 Welsh income tax 167 Devolution in Wales: a process not an event 167 Devolution and evolution 167 The mechanics of the Welsh rates of income tax 169 Administration of Welsh income tax 170 Further changes and further devolution? 180 Chapter 5 Savings and investments 182 Signposts 182 Taxable and exempt income 183 Tax on investments 189 Foreign savings and investments 207 Life assurance gains 209 Tax-efficient investments 210 Chapter 6 Pensions and benefits 233 Signposts 233 UK pensions 233 Taxation of pensions 238 Foreign pensions 251 Non-taxable state benefits 256 Taxable state benefits 258 Class 3 national insurance contributions 267 Chapter 7 Employment 271 Signposts 271 Employment 272 PAYE 283 Taxable and tax-free benefits 308 viii Contents Share schemes 362 Personal services provided through intermediaries 369 Chapter 8 Self-employment 385 Signposts 385 Starting a business 386 Covid-19: Self-employment Income Support Scheme (SEISS) 394 Basis of assessment 400 Computing profits 403 Capital allowances 421 Losses 436 National insurance contributions for the self-employed 444 Sole trader or partnership? 447 Farming and market gardening 459 Subcontractors 465 Chapter 9 Property income 476 Signposts 476 Property business profits and losses 477 Rent-a-room relief 492 Furnished holiday lettings 497 Rent from property outside the UK 502 Non-resident Landlords Scheme 505 Annual tax on enveloped dwellings 514 Chapter 10 Trusts and estates 576 Signposts 576 Trusts and settlements 517 Types of trust 527 Resident and non-resident settlements 535 Administration of trusts 537 Taxation of estates 540 Pre-owned assets 548 Chapter 11 Non-residents 561 Signposts 561 Residence status 562 Personal reliefs for non-residents 572 Employment matters 573 PAYE matters 583 Trading 589 Domicile 592 Remittances 601 Double taxation relief 609 Index 617 ix