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R03 Personal Taxation > 01 Income tax > Flashcards

01 Income tax Flashcards

1
Q

For income tax purposes, what are the types of income?

A
  1. Employment income
  2. Trading income
  3. Investment income
  4. Income from property
  5. Other income
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2
Q

For income tax purposes, how are pensions & State benefits classified?

A

Employment income

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3
Q

What is included in investment income?

A

Savings & dividend income

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4
Q

What legislation covers taxation on employment income?

A

Income Tax (Earnings & Pensions) Act 2003

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5
Q

What legislation covers taxation on non-employment income?

A

Income Tax (Trading & Other Income) Act 2005

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6
Q

What legislation covers income tax allowances & reliefs?

A

Income Tax Act 2007

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7
Q

Up to and including 2022/23, what was the basis of assessment?

A

Current-year basis

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8
Q

From 2024/25 onwards, what will the basis of assessment be?

A

Tax-year basis

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9
Q

What are the requirements for trading income tax deductions?

A

Expenditure must be
1) Incurred wholly & exclusively for business purposes
2) Of a revenue (not capital) nature

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10
Q

How much is the annual trading income tax allowance?

A

£1,000 before deductions

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11
Q

True or false: even if your trading income falls within the allowance, you still have to declare it

A

False

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12
Q

If your trading income exceeds the allowance…

A

You may choose to deduct the £1,000 from your trading income instead of deducting your actual expenses

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13
Q

What does PAYE stand for?

A

Pay as you earn

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14
Q

Income from UK property is taxable…

A

whether it is received by a UK or non-UK resident

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15
Q

Income from overseas property is taxable…

A

only when the property business is carried on by a UK resident

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16
Q

How do trading income accounts differ from property letting accounts?

A
  • Trading income accounts can be drawn up to any date
  • Property income accounts must be drawn up to 5th April or 31st March
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17
Q

When are property income accounts drawn up on a simplified cash-basis?

A

When total income before deducting expenses is £150k or less

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18
Q

What basis is used if a landlord opts out of the simplified cash-basis?

A

Accruals basis

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19
Q

When is property income assessed?

A

In the tax year in which it arises

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20
Q

How are property income and expenses pooled?

A
  • Income & expenses from all properties pooled together
  • Except overseas property
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21
Q

What are allowable expenses for property income?

A
  • Maintenance & repairs
  • Rates & rents
  • Replacing furnishings
  • Any other expense incurred wholly & exclusively in course of lettings
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22
Q

What is the tax relief for residential landlords’ finance costs?

A

Basic rate e.g. if their finance costs are £100, they get a 20% (£20) deduction from their income tax

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23
Q

Do finance costs count as an allowable property expense?

A

Only for furnished holiday or non-residential lettings

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24
Q

How much is the annual property income allowance?

A

£1,000 before deductions

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25
Q

True or false: even if your property income is within the allowance, you still have to declare it on your tax return

A

False

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26
Q

If your property income exceeds the annual allowance, you can choose to…

A

deduct the £1,000 from your property income instead of deducting actual expenses

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27
Q

How much is rent-a-room relief?

A

£7,500 per year

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28
Q

What are some examples of savings income?

A
  1. Interest
  2. Purchased life annuity payments
  3. Gains from life assurance contracts
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29
Q

What deductions are allowable against investment income?

A

None

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30
Q

Who is subject to investment income tax?

A
  1. UK residents, whether the source is within the UK or not
  2. Non-UK residents if the source is within the UK
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31
Q

When is investment income taxed?

A

In the tax year in which it arises

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32
Q

What are some examples of ‘other’ taxable income?

A
  1. Receipts from intellectual property
  2. Beneficiaries’ income from estates in administration
  3. Income taxed under the settlements anti-avoidance rules
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33
Q

What are the key parts of ITTOIA 2005?

A
  • Part 2, trading & professional income
  • Part 3, property income
  • Part 4, investment income
  • Part 5, other income
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34
Q

What does ITEPA stand for?

A

Income Tax (Earnings & Pensions) Act 2003

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35
Q

What is the difference between employee and self-employed?

A
  • Contract of service = employee
  • Contract for services = self-employed
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36
Q

What are some tax advantages of being self-employed?

A
  1. More allowable expenses
  2. Lower NICs
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37
Q

How do expenses differ for the self-employed vs employed?

A
  • Self-employed: incurred wholly & for business (often includes travel)
  • Employed: incurrent wholly, exclusively & necessarily for business (does not include travel)
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38
Q

What are NICs for employees?

A

Class 1 NICs (12%)

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39
Q

What are some indicators of self-employment, as opposed to employment?

A
  • Low level of control / supervision
  • No set hours, holidays etc.
  • Freedom to sub-contract
  • Taking on financial risk
  • Providing own equipment
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40
Q

Who is responsible for determining employment vs self-employment?

A

The employer

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41
Q

How are salaried members of LLPs usually taxed?

A

As employees

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42
Q

What conditions might cause a salaried member of an LLP to be taxed as self-employed?

A
  • More than 20% of remuneration is based on profitability
  • Significant say in running the business
  • Significant capital contribution (at least 25% of expected income)
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43
Q

What types of income are paid gross of tax?

A
  • Interest from banks & building societies
  • Interest from investment trusts, unit trusts & OEICs
  • Interest from corporate bonds
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44
Q

When is tax deducted from interest payments, and how much?

A

20% when a company (or partnership w/ a company for a member) pays interest to an individual, non-UK partnership, or non-UK company

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45
Q

If you receive interest net of tax, when can you reclaim the tax?

A
  • If you’re a non-taxpayer
  • If the income falls within your PSA
  • If it’s subject to the 0% starting rate for savings income
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46
Q

What is the tax treatment of rewards from banks (e.g. for maintaining a certain balance)?

A
  • They are not treated as savings income
  • They are paid net of basic rate tax
  • They do not benefit from the PSA
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47
Q

What happens if an annuity payment exceeds profits subject to income tax?

A

The payer must deduct 20% of the payment and pay it to HMRC

48
Q

What happens if an annuity payment does not exceed profits subject to income tax?

A

The payer may optionally deduct & retain 20% of the payment

49
Q

True or false: most purchased life annuities are paid net of basic rate tax

A

True

50
Q

What is ‘grossing up’ net payments?

A

If you receive income with 20% deducted at source, you must use the gross amount to calculate your tax liability

51
Q

Are UK company dividends received net or gross?

A

Gross

52
Q

How do you reach the amount on which tax is calculated?

A
  1. Add up total income
  2. Deduct tax reliefs given as deduction from income (= net income)
  3. Deduct personal allowances
53
Q

What tax reliefs are given as deduction from income?

A
  1. Qualifying interest payments
  2. Allowable business losses
  3. Gifts of securities to charities
  4. Qualifying contributions to occupational pensions/retirement annuities
54
Q

What is a tax reducer?

A

A tax relief given as a specified % reduction in tax liability

55
Q

What are examples of tax reducers?

A
  1. 20% for property income finance costs
  2. 30% for VCTs and EIS
  3. 50% for SEIS
56
Q

Are interest payments an allowable deduction from total income?

A

Yes, if you took the loan out for qualifying purposes

57
Q

What are the main loan purposes for which interest payments are qualifying deductions from total income?

A
  1. Buying shares in loaning money to your own company
  2. Investing in a partnership
  3. Buying plant/machinery for partnership
  4. Paying IHT
58
Q

What is the annual cap for deducting interest + business losses from total income?

A

£50k OR 25% of adjusted total income, whichever is higher

59
Q

What is adjusted total income?

A

total income + any payroll giving - any pension contribution

60
Q

If you pay interest on a loan to purchase/develop let non-residential property…

A

the interest is an allowable deduction from the property-letting accounts

61
Q

If you pay interest on a loan to purchase/develop let residential property…

A

20% of the interest is deducted from your tax liability

62
Q

If you pay interest on a loan to purchase/develop non-let property…

A

there is no tax relief

63
Q

When is a company ‘close’?

A

If it is controlled by its directors, or by up to 5 shareholders

64
Q

Who gets relief for interest paid on loans to invest in a close company?

A

Those who own more than 5% of the shares OR work significantly in company’s management / business

65
Q

To qualify for relief when loaning money to a close company, the loan must be used…

A

for the purpose of its business

66
Q

What is the rate of relief for interest paid on loans to invest in close companies?

A

The borrower’s top tax rate

67
Q

What is the cap on interest relief?

A

£50k or 25% of adjusted total income, whichever is higher

68
Q

True or false: you can get relief for interest paid on loans to buy EIS shares

A

False, no interest relief is available if you also claim EIS relief

69
Q

If you borrow money to pay IHT, how long can you claim interest relief?

A

For one year after taking out the loan

70
Q

Who can claim interest relief for IHT loans?

A

Personal representatives of the deceased

71
Q

Can non-UK residents use gift aid?

A

Only if the donation is made up of income/gains subject to UK tax

72
Q

To use gift aid on donations up to £100, any reciprocal benefit must not exceed…

A

25% of the donation

73
Q

To use gift aid on donations over £100, any reciprocal benefit must not exceed…

A
  • £25 + 5% of the excess over £100
  • £2,500
74
Q

How does the charity benefit from gift aid?

A

Multiply the donation by 1.25 and reclaim the difference from HMRC

75
Q

How does the donor benefit from gift aid?

A

Their income tax bracket thresholds are increased by the grossed-up amount

76
Q

With payroll giving, is the donation deducted before or after calculating PAYE?

A

Before

77
Q

What are the maximum + minimum payments under payroll giving?

A

None

78
Q

When donating qualifying assets to charity, what % of the market value is deductible from your income?

A

100%

79
Q

What assets are qualifying deductions when donated to charity?

A
  1. Listed securities
  2. Unlisted securities on recognised exchanges like AIM
  3. Collective investment schemes
  4. Freehold / leasehold property
80
Q

What is the tax relief for donating pre-eminent objects to the nation?

A

30% of the object’s value, deducted from your tax liability (can be spread up to 5 years in a pre-arranged way)

81
Q

Tax relief for relievable pension contributions is given through:

A
  1. Relief at source
  2. Net pay arrangement
  3. Relief by making a claim
82
Q

Can UK individuals with no relevant UK earnings contribute to registered pensions?

A

Yes, up to £3,600 gross p.a., but can only get tax relief if the pension scheme operates the ‘relief at source’ scheme

83
Q

WRT relievable pension contributions, who is a ‘relevant UK individual’?

A
  1. Has relevant UK earnings
  2. Was UK-resident at some point in the tax year
  3. Was UK-resident when they joined the pension scheme, within the last 5 years
84
Q

What is the annual limit for pension contribution tax relief?

A

£3,600 or amount of relevant UK earnings chargeable to income tax, whichever is higher (up to £60k (formerly £40k))

85
Q

Do employer contributions count as pension savings for tax purposes?

A

Yes

86
Q

If you don’t use your full annual allowance for pension contribution tax relief, what happens to the remainder?

A

Provided you’re a member of a pension scheme, you can carry it forward for up to 3 years

87
Q

How does ‘relief at source’ work?

A

You keep 20% of your pension contribution, then the scheme administrator claims it back from HMRC

88
Q

How do you get higher- and additional-rate ‘relief at source’?

A

Increase your tax bracket thresholds by the amount of the gross contribition

89
Q

If you have a personal pension scheme, you probably get tax relief via…

A

Relief at source

90
Q

If you have an occupational pension, you probably get tax relief via…

A

Net pay arrangement

91
Q

What is ‘net pay arrangement’?

A

Your pension contributions are deducted from your salary before tax

92
Q

If you have a retirement annuity, you probably get tax relief via…

A

Making a claim

93
Q

What happens under a retirement annuity scheme?

A

You make payments gross, then deduct them from total income

94
Q

What is the annual contribution limit for retirement annuities?

A

100% of relevant UK earnings

95
Q

For each employee who receives benefits or expense payments…

A

employers must fill out HMRC form P11D

96
Q

How are employee benefits treated for tax purposes?

A

As earned, taxable income

97
Q

How much are employee benefits worth for tax purposes?

A

Cash equivalent minus any contribution from employee

97
Q

How do you calculate the cash equivalent of employee benefits?

A

Cost to employer (marginal cost if provided in-house)

98
Q

If an employee is outright given an asset they previously had use of, what is its cash equivalent?

A

The market value at time of gift or first use, whichever is higher

98
Q

If an employee benefit is the use of an asset (besides a car or accommodation), what is the cash equivalent?

A

‘Annual value’ (20% of market value), or rent paid if employer rents the asset

98
Q

What are some examples of in-house benefits ruled to have no marginal cost & therefore no cash equivalent?

A
  • Discounted goods (provided employee pays at least wholesale price)
  • School places (provided employee pays at least 15% usual fee)
98
Q

If a car is provided to an employee (or member of their family) for private use, what is the taxable benefit?

A

0–37% of the list price of the car, based on the CO₂ emissions (list price includes accessories but not car phones or disability adaptations)

99
Q

What happens if an employee makes a capital contribution towards their company car?

A

Contributions up to £5,000 are deducted from the list price

100
Q

When is a company car regarded as ‘not for private use’?

A

When private use is specifically prohibited

101
Q

When can a company car tax charge be reduced?

A

If it’s unavailable for 30 days or more, the charge is reduced proportionately

102
Q

What is the tax charge when an employer provides fuel for private use?

A

0–37% (the same as for car benefit purposes) of a set figure (£10,286 in 2023/4)

103
Q

What is the tax charge for employee benefits aimed at discouraging car use (e.g. railcards, bikes)?

A

None

104
Q

How much can employers reimburse employees for business travel as passengers without incurring tax?

A

5p per mile

105
Q

How much can employers reimburse employees for business mileage without incurring income tax?

A
  • 45p per mile for the first 10k miles
  • 25p per mile thereafter
106
Q

How much can employers reimburse employees for business mileage without incurring NICs?

A

45p per mile

107
Q

How much can employers reimburse employees for private travel without incurring tax?

A

Nil

108
Q

How much can employers reimburse employees for business travel by bike/motorbike without incurring tax?

A
  • 24p per mile for the first 10k miles
  • 20p per mile thereafter
109
Q

What is the tax on employers providing charging for electric/hybrid cars?

A

None

110
Q

What is the taxable benefit of a company van for private use?

A
  • £3,960
  • £757 for fuel
  • Nil for a zero-emissions van
111
Q
A

R03 Personal Taxation (1 decks)

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