1 - Income Tax Flashcards
Contract of service
Contract for service
Of service - employment
For service - self employment
Who’s duty is it to decide an individual’s employment status?
Employer (Responsible for applying for HMRC guidance)
Income tax ITEPA act covers what 3 things?
Employment
Pension
Social security
ITTOIA act cover what 4 things
Trades
Property
Savings and investments
Miscellaneous
CEST tool is for what?
Check Employment Status for Tax
What is IR35 for?
Gives HMRC right to collect additional tax where an employer contracts an individual for work, where the individual is an employee in all but name
7 steps for calculating income tax
- Calculate gross income
- Make allowable deductions (if needed)
- Deduct personal allowance
- Calculate extended tax bands (if needed)
- Apply tax
- Give credit for tax paid (if needed)
- Deduct tax reducers (if needed)
Tax year from and to dates
6th April to 5th April
4 Categories of gross income
Non savings income
Savings income
Dividend income
Chargeable gains
What is overlap profits regarding tax returns
When a business first starts up and their 1st tax year runs over 2 HMRC tax years. The actual figures are used to forecast first full tax years profits and then this forecasted figure is taxed and the actual figures are taxed the next year. So effectively taxed twice for same period. Will offset extra tax when ceases trading or become a limited company.
Letting/rent reducer amount on income tax and can this be used with claiming expenses? What is the main limitation to this allowance?
£1k and no one either take allowance or claim expenses. Also only available for basic rate tax payers
How are obscure benefits taxed for an individual
If they are personally exclusive e.g. a TV. Then they are taxable
If they are more general e.g. a free works bus. Then they are not taxable
Taxable car benefit and benefit is based on what?
Based on list price of the car:
2% - pure electric cars
15% - cars with emissions from 51-55grams per kilometre
1% increase there after for each 5grams per km upto max. of 160grams per km which is then a set 37%
What is classified as a classic car and what value are they based on?
15yrs at the end of tax yr and current market value of £15k+
What if an individual contributes to purchase of a company car or is allowed to use for personal use?
This is deducted before tax calculated or if allowanble for personal use this is deducted proportionally
What is the set figure for fuel tax? And how do you calculate this?
£25,300
Calculate by:
- work out percentage needed
- multiply percentage by £25,300
- multiply answer by income tax bracket
What is a beneficial loan
If an employer offers an employee a discount on a loan
Min. original loan value for beneficial loan to be taxable and how do you work out what is taxable?
£10k and taxable at difference between official rate and beneficial rate
How are benefits in kind from employer taxable benefit calculated?
Cost of benefit provided to employer - amount paid by employee = taxable benefit
Personal savings allowance
Starter rate - £5,000
Basic rate - £1,000
Higher rate - £500
Additional rate - £0
Dividend allowance
£1,000
Will be £500 in 24/25
What is classed as savings income so Personal Savings Allowance is applied?
Interest, gilts, corporate bonds, collective investments (or dividend income).
Chargeable gains events
DAMPS
Death
Assignment
Maturity
Part surrender
Surrender
Allowable deductions
Allowable loans - loan to help a private company or partnership or pay IHT bill upto £50k
Pension contributions
Charity contributions
Personal income tax allowance
£12,570
At what point is personal income tax allowance reduced and how?
Income past £100k reduces personal savings allowance by £1 for every £2 of income. (So gone at £125,140).
How to extend tax rate bands
Making charity or pension contributions on income gives this income tax relief of 20% therefore extending income within other band
Dividend tax bands and tax allowance
Basic - 8.75%
Higher - 33.75%
Additional - 39.35%
Allowance of £2k
Non savings income tax
Basic - 20%
Higher - 40%
Additional - 45%
Savings income tax
Starting rate - 0% (First £5k of income)
Basic - 20%
Higher - 40%
Additional - 45%
Chargeable gains tax
Basic - 20%
Higher - 40%
Additional - 45%
3 Types of tax reducers
Marriage tax allowance
Married couples allowance
EIS, SEIS, VCT
Marriage tax allowance purpose and 4 rules
Can transfer fixed amount of personal allowance to spouse or civil partner
Rules:
- neither can be above basic rate band
- amount transferable is fixed at £252
-cannot take with married couples allowance
- can be back dates upto 4yrs and once taken will auto continue in future
Married couples allowance
If either spouse born before 6th April 1935
10% reducer of tax from £3,640 upto £9,415
- Threshold at £31,400 then lose £1 allowance for every £2 received
-initially allocated to higher earner
Tax reducer/relief and max. investment for EIS, SEIS, VCT
EIS - 30% - £1mil
SEIS - 50% - £100k
VCT - 30% - £200k
When is a gift income to a child taxable and who from and who to?
When gift Income from PARENT ONLY is over £100 in tax year then taxable to parent
When does income received start to effect child benefit?
When income for highest earning parent is over £50k then lose 1% for every £100 earned over £50k
Statutory rates for business to employee for fuel reimbursement
45p per mile for first 10,000 miles (24p for motorbike)
25p thereafter (20p for motorbike)
What pays more in fuel tax petrol or diesel?
Deisel pays a 4% surcharge compared to petrol
Exempt or taxable benefits:
- a company credit card
- group income protection
- company car
- beneficial loan
- works bus
- pool car
- accommodation
- medical insurance
- relocation expenses
- a company credit card - T
- group income protection - N
- company car - T
- beneficial loan - T
- works bus - N
- pool car - N
- rent free accommodation - T
- medical insurance - T
- relocation expenses
Personal income tax brackets
PA - £12,750
Basic - £12,751 to £37,700
Higher - £37,701 to £125,140
Addit. - Over £125,141
Corporation tax rate bands
Upto £50k - 19%
£50k to £250k - 26.5%
Over £250k - 25%
