General Issues

Similarity to Irish Tax

Tax is charged through the United Kingdom on a uniform basis. This is unlike the position with most laws, where England and Wales, Scotland and Northern Ireland have different legislation for their separate legal systems. Scotland has the power to vary income tax rates and bands within limits.

Most taxes are administered by Her Majesty’s Revenue and Customs (HMRC), equivalent to the Revenue Commissioners in Ireland.

The UK tax system resembles the Irish taxation system for a number of reasons. Many of the key taxing provisions are in almost identical terms in both countries The Income Tax rules were uniform prior to Irish Independence in 1922.  Since then, Irish Revenue legislation has often copied English legislation, in its structure or in rules to block anomalies and loopholes which have emerged over time. The Irish Courts have always regarded the decisions of English Courts on taxation matters as being very persuasive.

Although Corporation Tax and Capital Gain Tax have only been introduced in the last 40 years, the Irish taxation system in each case is broadly modelled on the UK system.

Value Added Tax (VAT) derives from European Union legislation. Accordingly many of the key principles and concepts under the tax are the same.

UK Inheritance Tax is quite different from the equivalent Irish tax with the same name.

There is no direct equivalent of the Community Charge in Ireland.  This replaced the old rates system in 1990.  Domestic rates were abolished in Ireland in 1978. Business rates are charged on business premises, as is the case in Ireland.

Basis of Computation

The UK tax system still uses the 6th April to 5th April tax year that applied in Ireland prior to 2001.  It uses a system of personal allowances similar to those formerly used in Ireland instead of tax credits which now apply. An allowance comes off the total income before calculating tax while a credit is an actual credit against the tax liability.  Allowances tend to favour higher taxpayers.

Income tax is paid in the UK on taxable income received or deemed to be received in a tax year.  Spouses are treated individually, subjects to exceptions.  Generally, income from assets owned by them will be split 50/50, unless a different ratio is proved to the HMRC.

UK resident individuals are taxed in the UK on their worldwide income. Broadly an individual is resident if he is present in the UK for a period of six months in any tax year or has sufficient ties. A person is automatically resident if he is present for more than 183 days.

A person is automatically not resident if he spends less than 16 days in the UK, less than 46 days and not resident for the three previous years, or less then 91 days and less than 31 of those days working in the UK.

A person is automatically resident if he is not automatically not resident (as above) but any of the following apply

• more than 182 days in the UK
• worked full time in the UK
• a home in the UK in which resided for more than 30 days with no home abroad.

The alternative sufficient ties test may apply. In the case of an arriver or leaver in a tax year, the test depends on the number of days spent and the number of connecting factors which are

• family is resident
• available accommodation
• 40 days+ working
• 90 days+ in the last two tax years
• more time in the UK than in any other country (leavers).

Broadly for leavers and arrivers residence determined by

• less than 16 days deemed not resident
• 16 to 45 days deemed resident if – 4+ connections
• 46 to 90 days deemed resident if – 3+ connections
• 91 to 120days deemed resident if – 2+ connections
• 121 to 182 days deemed resident if – 1+ connections
• 182+ days deemed resident

In order to compute UK Income Tax, it is necessary to compute the taxable income for the different types of income specified in Tax law.  There are a number of different types of sources of income. For example, there are different rules to calculate income from employment, self-employment, savings, property investment income and shares.

Some forms of income may have already had tax deducted (examples include employment income and savings income) before payment.  In this case, it is necessary to compute the gross payment (payment and tax deduction together) in the total income computation and then take credit for the tax already deduced.

Trade income is calculated by adjusting business accounts. This is because certain types of deductions allowed in financial accounts under accounting rules will not be allowed for tax purposes, so the income for tax purposes need to be re-computed.

Certain income may have been received net of tax such as salary income.  In computing overall tax a credit is allowed for the salary income e.g. PAYE deducted.

Once all the sources of income are computed in accordance with the rules that apply to each category, they are added together.   As in Ireland, certain payments known as “charges” are deducted off the top as liabilities reducing income.  Charges will be based on actual payments rather than liability incurred.

Rates and Allowances

The sum remaining is total income.  Personal and other allowances are then deducted.  All EU residents are entitled to full personal allowances in the UK.

There are higher allowances available to taxpayers over 65 and 75 respectively.  This leaves taxable income. Taxable income is then taxed in accordance with the different rates. For 2017/18 there are three rates, namely,

• 20% (to £33,500)  (£31,500- Scotland)
• 40% (£33,510 to £150,000) (£31,501)-Scotland)
• 45% (£150,000+)

Savings and dividend and certain other types of income are subject to special rates of tax and are usually collected by deduction at source. A personal savings allowance applies to those who do not pay the top rate.

Savings income as defined is subject to a zero rate up to £5,000 after deduction of personal allowances.

Allowances

The personal allowance for 2017/18 is £11,500. It is reduced by £1 for every £2 of income over £100,000.

A married allowance is available to married persons and civil partners born after 5 April 1935 of

• income is less than £11,500 and up to £5,000 of savings income
• spouse spouse/partner is £11,501 to £45,000

The marriage rate allows transfer of £1,150 to a spouse or partner.

The married couple allowance for persons living together is £3,260 to £8,445 for persons born before 6 April 1935. The higher allowance is reduced by £1 for every £2 over £28,000. The minimum amount is restricted to tax relief of 10%.

There are other less commonly encountered allowances.