1 - Income Tax (A)

Question 1

What is meant by basis of assessment?

Answer 1

Where self-employed individuals can prepare annual accounts up to whatever date in the tax year they choose. Their accounts do not have to coincide with the tax year.

Question 2

What dates are:
1. current-year basis
2. tax-year basis
3. transition year

Answer 2

1. up to and inc. 2022/23
2. from 2024/25
3. 2023/24 (between the two above)

Question 3

With a collective fund, the type of income paid is determined by the main type of asset(s) within the underlying funds. How is this determined?

Answer 3

Market value of the fund more than 60% of cash or fixed interest securities = non-equity fund and income is treated as savings income, so income taxed..

Market value 60% or less in cash or fixed interest = equity fund and income is dividend distribution.

Question 4

What is a collective fund known as when it makes two distributions – one interest and one dividend, based on the actual income produced by the fund?

Answer 4

Tax elected fund

Question 5

What is the annual trading allowance amount?

Answer 5

£1,000

Question 6

Which residents pay tax on UK property income?

Answer 6

Both UK resi. and non-UK

Question 7

When do property-letting accounts need to be drawn up to?

Answer 7

Up to 5 April or 31 March

Question 8

What is meant by property allowance?

Answer 8

The first £1,000 of your income from property rental is tax-free, on property you personally own.

Question 9

If property-letting income (before deducting expenses) is £150,000 or less, accounts are drawn up on which basis?

Answer 9

Simplified cash-basis, unless the landlord opts out, in which case the accruals basis is used.

Question 10

Name 4 allowable expenses that can be deducted by the landlord when calculating property letting income.

Answer 10

• maintenance and repairs;
• rates and rents;
• replacing furniture, furnishings, appliances and kitchenware provided for the tenant; and
• any other expenses wholly and exclusively incurred in the course of the lettings.

Question 11

What tax relief amount is available for any finance costs incurred when property-letting, such as mortgage interest?

Answer 11

Basic rate tax deduction

Example: £4,000 at 20% = £800.

Question 12

When property-letting a residential property, finance costs are an allowable expense. True or false?

Answer 12

False

Question 13

Savings income comprises of which 3 elements?

Answer 13

Interest, purchased life annuity payments and gains from life assurance contracts

Question 14

Does a UK resident have to pay income tax on investment income if the investment is outside of the UK?

Answer 14

Yes

Question 15

What are the allowable deductions available against investment income for income tax purposes.

Answer 15

There are none!

Question 16

What is intellectual property?

Answer 16

Intellectual property is an umbrella term for a set of intangible assets or assets that are not physical in nature (such as trademarks, patents, and copyrights)

Question 17

The follow acts apply to which areas of income?

ITEPA 2003
ITTOIA 2005 part 2
ITTOIA 2005 part 3
ITTOIA 2005 part 4
ITTOIA 2005 part 5

(T P - I O)

Answer 17

ITEPA 2003 Employment, pension and State income

ITTOIA 2005 part 2 Trading and professional income

ITTOIA 2005 part 3 Property income

ITTOIA 2005 part 4 Investment income

ITTOIA 2005 part 5 All income not covered elsewhere

Question 18

What is the difference between a contract of service and contract for services when it comes to determining someones employment status?

Answer 18

• a contract of service (employee); or
• a contract for services (self-employed).

Question 19

What are the 2 main factors considered a benefit when going self-employed?

Answer 19

1. Treatment of expenses
2. Lower levels of NICs

Question 20

What was the outcome in the case of Hall v. Lorimer (1993)?

Answer 20

A vision mixer in the film industry was found to be self-employed. Although many factors indicated he was employed, but proves that not all factors when considering employment status are conclusive on their own.

Question 21

A salaried member of an LLP is taxed as an employee, except in which 3 circumstances?

Answer 21

1. 20%+ of their remuneration is based on the profitability of the LLP
2. Have a significant say in the running of the business
3. Made a significant capital contribution to the LLP (invested the equivalent of at least 25% of their expected income from the LLP for a particular tax year)

Question 22

For the self-employed, the change of basis periods have no impact accounts are made up to which 2 dates?

Answer 22

31 March and 5 April