Table Of ContentUK TAXATION
A SIMPLIFIED GUIDE FOR
STUDENTS
FINANCE ACT 2020 EDITION
Published September 2020 by
Spiramus Press Ltd
102 Blandford Street
London
W1U 8AG
www.spiramus.com
© Spiramus Press, 2020
All rights reserved. No part of this publication may be reproduced in any material
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without the prior written permission of the copyright owner except in accordance
with the provisions of the Copyright, Designs and Patents Act 1988 or under the
terms of a licence issued by the Copyright Licensing Agency Ltd.
Crown copyright material is reproduced with the permission of the Controller of
HMSO.
The right of Mark Hunt and Malcolm Finney to be identified as the author of this
work has been asserted by them in accordance with the Copyright, Designs and
Patents Act, 1988.
Paperback ISBN 9781913507053
Digital ISBN 9781913507060
Printed and bound in Great Britain by Grosvenor Group Ltd, UK
PREFACE TO SIXTH EDITION
As I started to plan this new edition, I anticipated that the delayed Budget
announcement following the General Election in 2019 would show the
Government taking advantage of its new majority in the House of Commons
to change tax laws and prepare for Brexit. At that time few anticipated the
arrival of Covid-19. The Budget was dramatically different from
expectations and introduced many never before seen emergency measures.
As these measures are temporary, I have not amended the main body of the
text to include these. However, Chapter 1 now includes a summary of the
main legislative changes, in this case also summarising the emergency
coronavirus measures.
This text is not intended to be used by tax practitioners or as a tax advice
guide but is for students of taxation. It is aimed primarily at undergraduate
students but, students on professional courses, AAT, ACCA and perhaps
ATT, for example, may also find this useful.
I have tried to use an easy to read style with many worked examples and to
keep most chapters short.
The text does not attempt to be a comprehensive guide to the entire UK
taxation system but concentrates on the key areas that a student may be
required to know.
Finally, I would like to thank Richard Kenyon and Qiang Cai for their
helpful comments and suggestions.
Mark Hunt
July 2020
IMPORTANT NOTICE TO STUDENTS
This publication is based on tax law up to and including Finance Act 2020.
UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS iii
CONTENTS
page
PREFACE TO SIXTH EDITION ........................................................................... iii
CONTENTS ............................................................................................................ iv
TAX RATES AND ALLOWANCES ..................................................................... v
CHAPTER 1: Introduction ..................................................................................... 1
CHAPTER 2: Income Tax: General Principles and Tax Rates ........................... 6
CHAPTER 3: Income Tax Computations ............................................................13
CHAPTER 4: Extending the Rate Bands .............................................................21
CHAPTER 5: Income from a property business ................................................26
CHAPTER 6: Trading profits ................................................................................36
CHAPTER 7: Capital Allowances ........................................................................55
CHAPTER 8: Sole Trader Business Losses .........................................................67
CHAPTER 9: Partnerships ....................................................................................78
CHAPTER 10: Employee Taxation ......................................................................86
CHAPTER 11: Personal Tax: Overseas Aspects ...............................................109
CHAPTER 12: Pensions .......................................................................................116
CHAPTER 13: Capital Gains Tax: General Principles .....................................122
CHAPTER 14: CGT: Shares and securities .......................................................135
CHAPTER 15: CGT: Business Reliefs ................................................................143
CHAPTER 16: Corporation Tax: General Principles .......................................156
CHAPTER 17: Chargeable Gains for Companies ............................................167
CHAPTER 18: Company Losses ........................................................................174
CHAPTER 19: Groups of Companies ................................................................184
CHAPTER 20: National Insurance Contributions (NICs) ..............................197
CHAPTER 21: Tax Administration for Individuals ........................................202
CHAPTER 22: Tax Administration for Corporation Tax and Employers ....211
CHAPTER 23: Value Added Tax .......................................................................218
CHAPTER 24: Inheritance Tax: an introduction ..............................................236
APPENDIX 1: How to Study Taxation: Some suggestions ............................247
APPENDIX 2: Questions for Students ..............................................................251
APPENDIX 3: True or False Questions .............................................................277
Index ......................................................................................................................306
iv UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS
TAX RATES AND ALLOWANCES
TAX RATES AND ALLOWANCES
Income tax
Normal Dividend Income bands (£)
rate rate
2020/21 2019/20
Basic rate 20% 7.5% 1 – 37,500 1 – 37,500
Higher rate 40% 32.5% 37,501 – 150,000 37,501 – 150,000
Additional rate 45% 38.1% Over 150,000 Over 150,000
Savings income nil rate band:
- Basic rate taxpayers £1,000 £1,000
- Higher rate taxpayers £500 £500
Dividend nil rate band: £2,000 £5,000
A starting rate of 0% applies to savings income where it falls within the first
£5,000 of taxable income (2020/21 and 2019/20).
Personal allowances
2020/21 2019/20
Personal allowance £12,500 £12,500
Income limit £100,000 £100,000
Marriage Allowance £1,250 £1,250
Car benefit
CO2 Emissions 2020/21 2020/21
Cars registered Older cars
from 6 April 2020
Zero emissions 0% 0%
1g/km to 50g/km:
Electric range:
130 miles or more 0% 2%
70 -129 miles 3% 5%
40 -69 miles 6% 8%
30-39 miles 10% 12%
Less than 30 miles 12% 14%
51g/km to 54g/km 13% 15%
55g/km to 59g/km 14% 16%
60g/km to 64 g/km 15% 17%
65g/km to 69 g/km 16% 18%
70g/km to 74 g/km 17% 19%
Each additional 5g/km +1% +1%
Diesel supplement (not RDE2) +4% +4%
Maximum charge 37% 37%
Car fuel benefit amount £24,500 £24,500
UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS v
TAX RATES AND ALLOWANCES
Authorised mileage rates: cars where employees use their own cars for
business purposes (2020/21 (and 2019/20)
Rate per mile
Annual business mileage up to 10,000 miles 45p
Each additional mile over 10,000 miles 25p
Official rate of interest
2020/21 2.25% (At the time of publication)
2019/20 2.5%
Pension contribution limits
2020/21 2019/20
Annual allowance 40,000 40,000
Minimum annual allowance 4,000 10,000
Income limit 240,000 150,000
Pensions lifetime allowance
2020/21 1,073,100
2019/20 1,055,000
2018/19 1,030,000
2017/18 1,000,000
2016/17 1,000,000
2015/16 1,250,000
2014/15 1,250,000
2013/14 1,500,000
2012/13 1,500,000
2011/12 1,800,000
2010/11 1,800,000
2009/10 1,750,000
2008/09 1,650,000
2007/08 1,600,000
National insurance contributions 2020/21
Class 1 Employees £1 to £6,240 per year -
£6,240 - £9,500 per year 0%
£9,500 - £50,000 per year 12%
Over £50,000 per year 2%
Class 1 Employers £1 to £8,788 per year -
Over £8,788 per year 13.8%
Class 1A Employers only 13.8%
Class 2 Weekly rate £3.05
Small profits threshold £6,475
Class 4 £1 to £9,500 -
£9,500 to £50,000 9%
Over £50,000 2%
vi UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS
TAX RATES AND ALLOWANCES
Capital gains tax
2020/21 2019/20
Annual £12,300 £12,000
exemption
Normal rates Residential Normal Residential
property rates property
rates rates
Standard rate 10% 18% 10% 18%
Higher rate 20% 28% 20% 28%
Business asset
disposal relief
- Lifetime limit £1,000,000 £10,000,000
Reduced to £1,000,000 from
11 March 2020
- Rate 10% 10%
Corporation tax
Corporation tax rates are fixed for financial years:
Financial year 2020 19%
Financial year 2019 19%
Financial year 2018 19%
Profit threshold £1,500,000
Capital allowances
Plant and machinery
Main pool WDA 18%
Special rate pool WDA From April 2019 6% (Previously 8%)
Motor Cars
New cars with CO2 emissions up to 50 grams per km 100%
CO2 emissions between 51 and 110 grams per km 18%
CO2 emissions over 110 grams per km From April 2019 6%
Previously 8%
Annual investment allowance
Rate of allowance 100%
Expenditure limit From 1 January 2021 £200,000
Previously £1,000,000
Structures and buildings allowance
From April 2020 3%
Previously from 29 October 2018 2%
UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS vii
TAX RATES AND ALLOWANCES
Value added tax
Standard rate 20%
Reduced rate 5%
2020/21 2019/20
Registration limit £85,000 £85,000
Deregistration limit £83,000 £83,000
Inheritance tax
Death rate Lifetime rate
£0 - £325,000 (Nil rate band) 0% 0%
Over £325,000 40% 20%
In addition, a further nil rate band of up to £175,000 may be available on
death in relation to a residence.
viii UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS
CHAPTER 1
Introduction
This textbook can be used either on its own or in conjunction with other
texts. It is, however, completely self-contained, including at the front of the
book all the various allowances, tax rates etc. that a student may need.
I hope that you find this book to be written in a user-friendly manner. It
includes numerous examples throughout the text designed to illustrate
particular points and then provides further examples for you to try in
Appendix 2. Appendix 3 includes over 100 True or False questions for you to
dip into at any time to test your understanding.
I have tried to avoid complex jargon and wherever possible straightforward
English is used and I have suggested an approach to studying tax in
Appendix 1.
This book also assumes absolutely no prior knowledge about UK taxation
whatsoever.
This book covers the five main UK taxes; income tax (paid by individuals),
capital gains tax (paid by individuals), corporation tax (paid by companies),
value added tax (levied on consumers by businesses) and inheritance tax
(normally payable on the death of an individual). National Insurance
Contributions are also included.
Although primarily aimed at students studying at undergraduate level,
these are the taxes which typically form the core of the syllabus for most of
the UK’s professional examinations in taxation such as those of the ACCA,
AAT and possibly ATT, although no specific professional syllabus has been
followed.
In general, each of the chapters should be read through in the order that they
are arranged as later chapters often assume knowledge from earlier
chapters. Having said this, the Value Added Tax and Inheritance Tax
chapters could be studied at any point, as they are both very different from
the other taxes studied.
Finally, this book is for students. It is not for tax advisers – this text does not
attempt to be a comprehensive tax guide to use for tax planning.
(see also Appendix 1 – How to study taxation).
Tax is not a difficult subject to study
Many students believe that tax is difficult. Tax can be a “Marmite” subject
for students – some love it, others hate it! I believe that the problem,
however, is that many tax textbooks tend to be written in complex language
UK TAXATION: A SIMPLIFIED GUIDE FOR STUDENTS 1
