Besides paying penalties, interest, criminal prosecution and reputational damage, I have listed a few reasons for paying taxes in full and on time:
The usual ones are:
1. Taxes fund public services like roads, NHS, schools, transport systems etc.
2. Keeps us safe by funding police, justice system and armed forces.
3. Safety net – helps people in case of job loss, sickness and old age.
4. Directs behaviour – like high taxes on cigarettes, alcohol and fuel duty.
5. Helps target resources towards disadvantaged areas by tax incentives.
6. Wealth distribution – transferring wealth from the wealthy to the needy. Prime example is inheritance tax, this ensures wealth is not perpetuated through generations and creates a more equal society.
Basically price of living in a civilized society. Reason a person is successful is the support system a civilized society provides them.
Now some novel ones, equally relevant:
7. Basis of fiat money – one of the main reasons of value of fiat money is that government accepts it for paying taxes. Fiat money enables the government to control the economy. To read more on the topic of fiat money go to Section 3 `The Return to the Gold Standard` of Essays in Persuasion by John Maynard Keynes, one of the most influential economists of 20th century.
8. Paying a fair share of taxes gives the taxpayer the moral authority to question lawmakers.
9. Basis of democracy. In historic times in England when kings wished to raise funds for their wars; they needed to call in Parliament to raise taxes. Parliament (especially the Commons) developed over the centuries giving universal franchise. This today gives us the right to chose who governs us and how.
But it is a social contract. People pay their taxes and governments govern them prudentially.
Often when governments become corrupt people are disinclined to pay taxes.
Thus, taxes keep peace and harmony and help create a better society.
Below is a list of unexpected individuals who were accountants.
Chitragupta – According to Hindu mythology he keeps a record of all deeds – good and bad and their balance decides whether we go to heaven or hell.
Sir Isaac Newton – In later life, he was master of Royal Mint for 30 years. He oversaw the Great Coinage of 1696 when counterfeit currency was rife. It is said he was an honest man when corruption in public life was widespread. He lost a fortune in South Sea Company Bubble. He is also credited, perhaps mistakenly, for moving England from bimetallic system to Gold Standard. Seeing England prosper other countries adopted Gold Standard. There is a fascinating BBC radio play about his time in Royal Mint.
Daniel Defoe writer, most famous for Robinson Crusoe. A trader, journalist and spy. And sometime resident of New Gate prison. I made some changes in my own business reading his book `The Complete English Tradesman. Another absorbing BBC Radio Play.
John D. Rockefeller richest man in recent American history started out as bookkeeper. Unfortunately, his nemesis Ida Tarbell was not.
Medici bank – were early adopters of double entry.
How to compute tax on gains of foreign insurance policy.
Foreign policies i.e. issued by a non-EU insurer say from India will be, usually1, a non-qualifying policy. 43.21 Thus, gains will be taxable.
Gains are treated as interest income not as capital gains thus we do not get Annual CGT allowancesec 465(5) but personal saving allowance available.
How is gain computed?
Helpsheet HS320 contains a summary of the calculation examples.
Please note gain is computed in foreign currency and converted back to GBP using FX rate on date of chargeable event – method IPTM3700.
Foreign policies do not get notional basic credit but for the purpose of calculating top slicing relief, basic rate of tax is treated as paid. This ensures top slicing relief is calculated in the same way for UK or foreign policies [IPTM3830]. You can also see IPTM3850 for examples.
Summary of Basic rate tax credit:
Policy Type
Basic rate credit
Top slicing reliefcalculation
UK policy
Yes
Yes
Foreign policy
No
Yes
Deficiency (loss) relief: No relief is provided for any economic loss within a policy. Relief provided only for excess gains on partial surrenders in earlier years of assessment. Please note, a loss on one policy cannot be set against a gain on another. Deficiency relief available only if tax payer has income chargeable at higher rate. see IPTM3860, IPTM3880 and IPTM3870.
End – tax year in which the particular event occurs.
Partial – part surrender, including loan, it is the date on which the policy was taken out, that determines the tax year in which any gain is taxed. The gain is taxed in the tax year in which the end of the insurance year falls.
Who pays the tax?
Beneficial owner, example parent takes a policy in name of the child, bare trust. Child will be the beneficial owner as they have an immediate, unqualified right to benefit from the policy.
Notes:
1. Foreign life insurance policies issued before 18 November 1983 and capital redemption policies issued before 23 February 1984 are treated same as UK policies. IPTM3330
2. Institute of Chartered Accountants of India has produced a helpful guide for NRI taxation, for exceptions where Life policies taxable in India, please see para 170.2-1 of book – Direct taxes by VK Singhania.
3. Gains under a policy of life assurance are always taxable on arising basis, irrespective of remittance basis or new FIG regime. [RDRM31110]
Legislation for taxation of foreign policies is given in ITTOI 2005 Part 4 Savings and investment income Chapter 9 Gains from contracts for life insurance etc.
I have created below a simple table explaining the applicable frameworks:
Company type
Accounting framework
Micro company
FRS 105
Small Companies
Section 1A Small Entities of FRS 102
All others
FRS 102
Listed Companies
IFRS
To qualify as a micro-entity or a small company for accounting periods beginning on or after 6 April 2025, a company must meet at least two of the following three criteria’s:
Micro Company
Small Company
Turnover
Not more than £1 million.
Not more than £15 million
Balance sheet total
Not more than £500,000.
Not more than £7.5 million.
Average number of employees
Not more than 10 employees.
Not more than 50 employees.
A company qualifies as micro, small or medium-sized if it meets the size limits in its first financial year and retains that status until it exceeds them in two consecutive years.
Where an entity prepares its financial statements in accordance with an accounting framework, a statement of compliance needs to be included in the notes.
Bonus:
A parent company may qualify as a micro-entity for its individual accounts only if it meets the micro-entity criteria itself and the group it heads qualifies as small. A parent company that prepares group accounts is not eligible to qualify as a micro-entity.
A company that is not a parent but whose accounts are included in consolidated group accounts is not entitled to apply the micro-entities regime in it is individual accounts. Thus, UK subsidiary of an overseas parent will need to use FRS 102 (1A if small).
A savings-related share scheme where you can buy shares with your savings for a fixed price. You can save up to £500 a month, for either three or five years. Monthly amount comes from your pay after tax.
At the end, you can either choose to (within 6 months after maturity)
Take the cash (along with bonus) or
Buy shares of the company at a price set at the start, known as the ‘option price’ and keep them or sell them.
Income Tax
If you take out cash – Interest and any bonus at the end of the scheme is tax-free.
You do not pay Income Tax or NI when you receive the shares.
Pay tax on Dividend – if you hold on to the shares and your company chooses to pay a dividend to shareholders that year.
Capital gains
If you sell shares – Subject to CGT with annual allowance of £3000.
CG = Sale Price – Option price
No CGT
If transferred to ISA within 90days of taking them out. Your ISA provider must agree to the transfer.
Put into Pensions – Immediately or within 90 days
Gift shares to your spouse or civil partner. Gift is free from CGT and they take the base cost of the transferring spouse
Spread sales over multiple tax years.
If left the company before scheme ends
You can’t buy the shares, but you’ll get all your savings back in cash.
Exception – Saving for more than 3 years, can buy shares within six months of leaving.
w.e.f. 6th April 2025; Shift from domicile to residence for income tax, capital gains tax and inheritance tax.1
New 4-year FIG regime
In the past non-domiciled individual could pay taxes on FIGs on remittance.
From 6th April 2025 old rules will be removed and new arrivals can claim 100% relief on FIG in their first four years of tax residence, provided they have not been resident in the past 10 years immediately prior to their arrival. 8
This includes UK nationals and UK domiciled individuals who may not have previously had access to, or used, the remittance basis.27
Split year counted as full year of UK residence. 30
If an individual is still within their first four years of UK tax residence under the SRT on 6 April 2025, they can access the 4-year FIG regime until they have exceeded the four-year period. 31
If an individual leaves the UK temporarily during the four-year period, they can claim the 4-year FIG regime for any of the qualifying tax years remaining on their return to the UK. 32
Not all income is eligible for FIG relief sec 845 ITTOIA 2005, example foreign life assurance policy gains remain taxable in UK.Kessler 15.5 same as under Remittance basisCompare RFIG45100 vs RDRM31140.
Former Remittance basis (RB) users
Who are not eligible for new regime will pay taxes on arising basis like any other taxpayer. They will continue to pay tax on pre-6th April 2025 FIGs. 9
Remittance basis users who leave the UK and return after a period of ten tax years can only claim the 4-year FIG regime for any new FIG that arises within their 4-year FIG regime period. They cannot claim for any FIG they remit during the 4-year FIG regime period that relates to a year in which they were taxed on the remittance basis. They may, however, be able to use the TRF if their year of return is during the period the TRF is available. 33
Mixed funds – it is advisable for former RB users planning on remitting funds to open fresh bank accounts for particular transactions to ensure clarity (source of funds) and unnecessary additional tax (avoid additional funds coming in the tax net).
Capital Gains Tax RB users can re-base their foreign assets to 5th April 2017.
New Temporary Repatriation facility (TRF)
This will allow individuals previously taxed on Remittance basis (RB) to designated pre-6th April 2025 FIG and pay reduce rate of tax for three years. 13
Tax Year
Rate
2025-26
12%
2026-27
12%
2027-28
15%
Designation means individuals will have freedom to choose when to remit the funds. This does not need to be in the TRF window and could be in a later year. 15
Partial designations can be made.118
TRF not available to non-residents, thus taxpayer (TP) has to be tax resident in the tax year in which he wishes to claim TRF. ICAEW Tax track podcast – Goodbye non-doms, hello FIG
Add TRF charge to funds remitted to pay tax in the UK.
No FTCR against TRF RDRM73340.
Nominated income ordering rules switched off and turned back on again from 6th April 2028. 127 and 128
Overseas workday relief (OWR)
Removes the need to keep funds outside UK and increase the term from 3 to 4 years.
As in RB Regime, with 4-year FIG regime foreign employment income will not be covered by this regime. TP can claim relief under OWR. 38
Annual limit: lower of 30% of the qualifying employment income or £300,000 per tax year.77
OWR relief is given by employer via payroll on an estimated basis, corrected via SA on actual days basis. ICAEW Tax track podcast – Goodbye non-doms, hello FIG
Claim
New 4-year regime is not automatic taxpayer (TP) will need to make a claim for it in their tax return within 2 years i.e. for 2025-26 by 31st Jan 2028. 24
TP will need to quantify the amount of income and gains for which relief is being claimed under the regime. If amounts of FIG are not quantified and included in the return, then individuals will remain chargeable and subject to tax at their usual rates. 25
Individuals will not need to make a claim for every year of the 4-year period. 26
Claim is made on a source by source basis and can be either of income or gains or both. OWR claim is separate. 41
If claim made, no relief for losses – income or capital arising in the year of claim. 42
Claim can be source by source basis.43
TP lose their personal allowance and AEA for CGT.44 Pension relief also restricted. RFIG43000
