The tax legislation is now being rewritten through the Tax Rewrite Project. ITEPA 2003 covers legislation in relation to the taxation of employees, while ITTOIA 05 covers the taxation of sole traders. Different activities are taxed under different ‘schedules’ in the tax legislation, those have been reallocated as parts of ITTOIA and ITEPA.
The previous Schedule 1 (case 1 and 2) for sole traders are now present in Part II of ITTOIA. Case 3 of this schedule regarding interest is present in Parts IV and V of the ITTOIA. Cases 4 and 5 on foreign source income are not present as the concept of these has changed. Case 6 regarding other sources of income is in Part V Chapter 8 of ITTOA.
Schedule E regarding employees is in ITEPA 2003, and Schedule F regarding company distributions is now in Part IV Chapter 3 to 8 of ITTOIA.
ITTOIA applies only to income tax of sole traders and does not apply for corporation tax, which is still covered by ICTA 1988. However, companies compute their taxable profits under the same rules as individuals.
For the year 05/06 there are 3 main rates for income tax, the starting rate is 10% for income profit that is less than £2,091. The rate for income profit between £2,091 and £32,400 is 22%, while the rate for profit greater than £32,400 is 40%.
Tax used to be collected by the Inland Revenue, but its function has now been undertaken by the Commissioners for Revenue and Customs (HMRC).
Tax is calculated per year, the tax year starts from April 6th and finishes on April 5th. (Fiscal Year) Companies on other hand compute their tax on the Financial Year which begins on the 1st of March and ends on the 31st of April.
What are ESCs? Those are decisions by the revenue not to implement the full rigour of the law, but instead make a concession in favour of the taxpayer and tax him under less severe provisions that te law requires.
Appeals
Appeals from the Revenue go initially to two types of commissioners. The General Commissioners and the Special Commissioners. The GC are lay people with no specialised skill that deal with less controversial appeals which are mostly issues of fact. The SC are experts in law and deal with questions of law and lengthy appeals. The taxpayer can choose which to use, but if no election to the SC was made then the GC will hear it. The General and Special Commissioners have co-ordinate jurisdiction and there is no appeal from one body to the other. The appeal from commissioners decision on a question of fact is final. The appeal is therefore on a point of law only. The initial appeal from the commissioners will be to the High Court, the appeal from there would be prohibited by the new Access to Justice Act (two levels of appeal only) unless the Court of Appeal allows it itself and this license will only be grated if the issue is an important point of principle, or because of some other compelling reason.
