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Tax > 1. Introduction to tax > Flashcards

1. Introduction to tax Flashcards

1
Q

What taxes are individuals liable for?

A

Income tax, capital gains tax, VAT and National Insurance

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2
Q

When does the individual tax year run?

A

6th April to 5th April

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3
Q

What taxes are partners personally liable for?

A

Income tax on their share of their profits

CGT on share of gains

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4
Q

What taxes are partners jointly liable for?

A

Income tax of employees
NICs as employer
VAT supplier

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5
Q

What taxes are companies liable for?

A

CT
PAYE of employees
VAT
NICs

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6
Q

when does the company financial year run?

A

1 April to 31 March

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7
Q

Responsibilities of HMRC

A

Collect and administer IT, CGT, NIC, CT and VAT

Pay and administer universal credit, tax credits and child benefit

Collect repayment of student loans

Ensure employers meet minimum wage rules

Protect us from tax fraud. alcohol and tobacco smuggling, drug importation.

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8
Q

Incomes that are chargeable in IT

A

Employment income
trading income

Property income

Savings income (interest and dividends)

Miscellaneous income

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9
Q

Exempt income from IT

A
  • Interest on national savings certificates
  • Income from ISAs
  • Betting, competition, lottery and premium bond winnings
  • some social security benefits such as housing benefit
  • Scholarships
  • Income tax repayment interest
  • Apprenticeship bursaries paid to individuals leaving local authority care
  • Compensation payments made under qualifying payment schemes e.g. Windrush
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10
Q

What is the personal allowance for 2020/21? Does it get reduced?

A

£12,500
Reduce by £1 for every £2 net income is over £100,000.
Therefore, PA completely gone if net income over £125,000.

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11
Q

What is the marriage allowance?

A
  • Spouse can transfer £1250 of their PA to their partner
  • Transferor must be basic rate or non-taxpayer
  • Transferee must be basic rate taxpayer
  • Transferee deducts (transferred allowance x 20%) from their liability
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12
Q

What is assessable in employment income?

A

Salaries/bonuses
Benefits
Pensions
Expense allowances/reimbursed expenses

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13
Q

When is the basis of assessment for employment income

A

The earlier of:

  • time payment is made
  • time when person becomes entitled to payment
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14
Q

Tests for exempt accommodation

A

(job related?) (meet one)

  • Necessary
  • Customary
  • Security

Directors can only claim one of the first two if they

  • own less than 5% of company
  • work full-time or company is non-profit or charity
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15
Q

Additional benefit for accommodation benefit formula using MV instead of cost

A

= Official rate of interest (start of tax year) x (MV when employee moves in + capital improvements before start of tax year - 75,000)

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16
Q

What is the PAYE system?

When must be paid for electronic vs non payments; who can pay electronically; can you pay quarterly?

A
  • Method of collecting IT and NICs on payments to employees
  • IT and NICs paid by 19th each month - extended to 22nd for electronic payments
  • Large employers (>= 250 emp.) must pay electronically
  • Small employers have choice
  • If monthly PAYE total <= 1500, can pay quarterly
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17
Q

Method for getting PAYE code: if allowances less deductions = positive

A
  • Remove last digit
  • add L for basic personal allowance
    EDIT
    Although if marriage allowance:
    PA is 11250 for transferor and add N
    PA is 13750 for transferee and add M
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18
Q

Method for getting PAYE code: if allowances less deductions = negative

A
  • Taxable pay is increased
  • remove last digit
  • deduct 1
  • add K at beginning of code
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19
Q

Name 3 of the 9 badges of trade

A
  • nature of the asset
  • profit motive
  • length of ownership
  • number of transactions
  • connection with existing trade
  • supplementary work
  • way sale was carried out
  • method of acquisition
  • source of finance
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20
Q

Disallowable expenditure (CABDED)

A
  • Capex
  • Depreciation
  • Disposal of fixed assets: loss = add back, profit = deduct
  • Appropriations of profit: salary to ST or partner; ST income tax or NIC; private expenses
  • Also disallow non-trade Bad debts

Plus all the rules around Entertainment and gifts

  • Car adjustments (other flash card)

Add back to profits in adjustments to calculate tax

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21
Q

Disallowable car costs

A
  • CO2 > 110: flat rate disallowance = 15% x hire charge

- CO2 <= 110: no adjustment needed

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22
Q

What is the writing down allowance?

A

18%

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23
Q

What are the qualifying first year allowances?

A
  • new and unused zero emission goods vehicles
  • new qualifying low emission cars - electrically propelled or with emissions:
  • <= 50 Co2 (80 pre 1/4/18)
  • electric vehicle charging points
  • deduct disposal proceeds
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24
Q

What is the annual investment allowance?

A

£200,000

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25
Q

What is the basis period under the current year basis?

A

Which ever accounting period ends in the assessable tax year

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26
Q

What is the basis period for closing tax year?

A

Basically, profits in final tax year = any profits not yet taxes - overlap profits

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27
Q

Who can use the cash basis of accounting

A

Unincorporated businesses (not companies with:

Receipts of under 150,000

Must leave if over £300,000

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28
Q

Dates for self-assessment tax return

A

In tax tables

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29
Q

Who can file a short tax return?

A

Employees, pensioners and sole traders with turnover < £85,000

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30
Q

What is a simple assessment and when is it due?

A

If HMRC has sufficient information to calculate a liability they can issue a simple assessment, removing the need for the individual to submit a tax return. The tax due as a result is payable on 31 January after the end of the tax year. or 3 months from the assessment if later..

31
Q

Time limits for keeping records

A

Corporation tax - six years from end of AP

Income and CGT - 5th anniversary of 31/1 following end of tax year (if in business);
1st anniversary of 31/1 following end of tax year (if not in business)

VAT - six years

32
Q

When would a company require an SAO

A

Turnover > 200m
and/or BS total >2b
at end of previous financial year

33
Q

CGT liability calculation

A

Chargeable disposal of a chargeable asset by a chargeable person

34
Q

Exempt assets from CGT

MC GINC

A

cash

motor cars

most wasting chattels

chattels which are not wasting chattels if cost and proceeds < 6000

gilt-edged securities

national savings certificates and premium bonds

shares and investments held in an ISA

35
Q

Annual exemption from CGT for individuals

A

12300

36
Q

What is a chattel, non-wasting vs wasting?

A

Tangible moveable property

wasting: life over 50 years (exempt from CGT)

non-wasting: life under 50 years

37
Q

Rules for non-wasting chattels (Price/Cost)

A

P&C<6000 - exempt

P>6000, C<6000 - restrict gain to lower of: 5/3*(gross proceeds-6000) OR actual gain

P<6000, C>6000 - deemed gross proceeds = 6000

P&C>6000 - normal CGT rulesq

38
Q

Indexation allowance formula

A

(RPI at disposal - RPI at expenditure)/RPI at expenditure x cost

39
Q

Corporation tax computation

A

TTP * 19%

40
Q

When is a company a large company vs a very large company

A

Large 1,500,000 < augmented profits > 20m

Very large 20m < profits

41
Q

2 tests to see if need to be VAT registered

A
  1. Historic test, at the end of each month look back 12 months for if taxable supplier exceed £85,000. Notify in 30 days and start month after notification.
  2. Future test, at any time look forward 30 days for if taxable supplier exceed £85,000. Notify in 30 days and start day of test.
42
Q

Fuel scale charge

A

Reclaim all input VAT used by employee/owner for private miles

Charge output tax according to fuel scale charges - quarterly scale charge (given in exam) x 1/6

43
Q

What is pre-registration VAT

A

Input VAT suffered before registration can be removed on the first VAT return:

  • goods supplied within 4 years of registration (still in use or in stock)
  • Services supplied within 6 months of registration
44
Q

Time limits for discovery assessments, depending on reason for loss of tax

A

From end of relevant tax year:

Not due to care less or deliberate behaviour - 4 years

Careless behaviour - 6 years

Deliberate behaviour - 20 years

45
Q

What to do with gift aid for personal tax

A

Increase basic rate bracket by (gift aid x 100/80)

46
Q

What assets are in the main pool and therefore get the WDA?

A

Machinery, fixtures, and fittings and equipment

Vehicles that aren’t cars

Cars with CO2 51-110 (since 2018)

47
Q

What assets qualify for first year allowances? 100% off

A

New and unused zero emission goods vehicles

Cars with:
<50 CO2 purchased after 1.4.18

<75 CO2 purchased before 1.4.18

48
Q

What qualifies for AIA? 100% off up to £200,000

A

All P&M except cars

49
Q

What are the NIC classes?

A

1 Primary - employee cash

1 secondary - employer cash

1A employer benefits

2 self-employed 3.05 pw

4 self -employed trading income

50
Q

What qualifies a company as a substantial traders and how does it affect VAT submission

A

VAT liability > 2.3m

Pay 1/24 previous year’s total VAT liability at end of second and third months in each quarter

Pay balancing payment with VAT return at end of month following end of quarter

Must be paid electronically

51
Q

What is the annual accounting scheme? and who can qualify

A

Taxable supplies < 1.35m

Pays in 9 monthly interim payments between months 4 and 12, then submit return and balancing payment 2 months after y/e

OR

3 quarterly interim payments on months 4,7 and 10 of 25% and balancing and return due 2 months after y/e

52
Q

Deadline to notify HMRC of need for a self-assessment form

A

5th October following the end of tax yearr

53
Q

Rules for HMRC directly recovering unpaid income tax from individual

A

For HMRC directly recovering the debt: there is a period of objection, they must be satisfied the debtor is aware, HMRC can only recover this way if it’s over £1000, and the debtor must be left with £5000

54
Q

When is PAYE due?

A

PAYE is payable 14 days after the end of each tax month.

55
Q

When is a P11D form due?

A

P11D forms are due 6 July following tax year end

56
Q

When must a P60 be issued to employees by a company?

A

31 May

57
Q

When must a claim for overpayment relief be made?

A

Within 4 years of end of AP

58
Q

Time limits for discovery assessments - depending on reason for loss of tax

A

Innocent - 4 years

Careless - 6 years

Deliberate - 20 years

59
Q

What notice can a taxpayer appeal?

A

Can appeal an information notice,

Cannot appeal against an inspection notice

60
Q

When can HMRC open an enquiry

A

First anniversary of the quarter date following the actual submission or

just year on from submission date if not late

61
Q

What legal fees are disallowable? (add back in trading profit calc)

A

dealings with HMRC, capital legal fees

Allowable:
trade and business legal fees, renewal of short lease (<50 years); registering trade patent; raising long term finance

62
Q

House expense

A

Higher of rental value or annual value

Additional charge if original cost > 75000

Official rate of interest at start of year x (cost - 75000)

63
Q

Up to what point are childcare vouchers allowable?

A

Up to 28pw (unless started receiving before April 2011)

64
Q

Are gifts inwards allowable?

A

Only if under £250 (can’t be cash)

65
Q

Are gifts outwards allowable?

A

Yes to employees

Yes to clients IF they’re not food drink or tobacco and less that £50 with company name

66
Q

Time limits for keeping records (CT, income and CGT, VAT)

A

CT: 6 years from end of AP

Income and CGT: 5th anniversary of 31/1 following end of tax year (if in business); or 1st anniversary if not in business

VAT: 6 years

67
Q

PAYE code method

A

Allowances - deductions; take off zero

See TT for letters but if anything other than L, minus 1 after taking off zero

Also, if tax deduction is given in, divide by appropriate income tax percentage and x100 to find real deduction

68
Q

Notice of intention to make an enquiry by HMRC

A

First anniversary of submission date

Unless late, in which case quarter date

69
Q

Time limits for discovery assessments (IT, CGT, CT and VAT)

A

Not Careless - 4 years
Careless - 6 years
Deliberate - 20 years

70
Q

How long does taxpayer have to appeal

A

30 days

71
Q

What is the annual accounting scheme?

and who is eligible

A

1 VAT return per year making electronic POA

9 monthly interim payments of 1/10 estimated VAT between end of months 4 and 12. Then a VAT return and balancing payment 2 months after y/e.

Have to have expected taxable supplies (excluding VAT) of < 1.35m

72
Q

What is the cash accounting scheme and who can apply?

A

Expected taxable supplies (excluding VAT) in following year <1.35m (this is in TT)

Account for VAT on cash paid and received basis (ignore tax point rules)

Automatic bad debt relief

73
Q

What is the flat rate scheme?

A

Annual taxable supplies (excl. VAT) <150k (in TT)

VAT due = %(industry sector) x VAT INClusive turnover

Turnover includes taxable and exempt supplies and sale of capital assets

Do not reclaim input tax

74
Q

What is the percentage for things like cameras as a benefit in income calculation

A

20%!

Tax (1 decks)

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