1. Introduction to tax Flashcards
What taxes are individuals liable for?
Income tax, capital gains tax, VAT and National Insurance
When does the individual tax year run?
6th April to 5th April
What taxes are partners personally liable for?
Income tax on their share of their profits
CGT on share of gains
What taxes are partners jointly liable for?
Income tax of employees
NICs as employer
VAT supplier
What taxes are companies liable for?
CT
PAYE of employees
VAT
NICs
when does the company financial year run?
1 April to 31 March
Responsibilities of HMRC
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.
Incomes that are chargeable in IT
Employment income
trading income
Property income
Savings income (interest and dividends)
Miscellaneous income
Exempt income from IT
- 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
What is the personal allowance for 2020/21? Does it get reduced?
£12,500
Reduce by £1 for every £2 net income is over £100,000.
Therefore, PA completely gone if net income over £125,000.
What is the marriage allowance?
- 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
What is assessable in employment income?
Salaries/bonuses
Benefits
Pensions
Expense allowances/reimbursed expenses
When is the basis of assessment for employment income
The earlier of:
- time payment is made
- time when person becomes entitled to payment
Tests for exempt accommodation
(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
Additional benefit for accommodation benefit formula using MV instead of cost
= Official rate of interest (start of tax year) x (MV when employee moves in + capital improvements before start of tax year - 75,000)
What is the PAYE system?
When must be paid for electronic vs non payments; who can pay electronically; can you pay quarterly?
- 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
Method for getting PAYE code: if allowances less deductions = positive
- 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
Method for getting PAYE code: if allowances less deductions = negative
- Taxable pay is increased
- remove last digit
- deduct 1
- add K at beginning of code
Name 3 of the 9 badges of trade
- 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
Disallowable expenditure (CABDED)
- 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
Disallowable car costs
- CO2 > 110: flat rate disallowance = 15% x hire charge
- CO2 <= 110: no adjustment needed
What is the writing down allowance?
18%
What are the qualifying first year allowances?
- 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
What is the annual investment allowance?
£200,000
What is the basis period under the current year basis?
Which ever accounting period ends in the assessable tax year
What is the basis period for closing tax year?
Basically, profits in final tax year = any profits not yet taxes - overlap profits
Who can use the cash basis of accounting
Unincorporated businesses (not companies with:
Receipts of under 150,000
Must leave if over £300,000
Dates for self-assessment tax return
In tax tables
Who can file a short tax return?
Employees, pensioners and sole traders with turnover < £85,000
What is a simple assessment and when is it due?
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..
Time limits for keeping records
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
When would a company require an SAO
Turnover > 200m
and/or BS total >2b
at end of previous financial year
CGT liability calculation
Chargeable disposal of a chargeable asset by a chargeable person
Exempt assets from CGT
MC GINC
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
Annual exemption from CGT for individuals
12300
What is a chattel, non-wasting vs wasting?
Tangible moveable property
wasting: life over 50 years (exempt from CGT)
non-wasting: life under 50 years
Rules for non-wasting chattels (Price/Cost)
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
Indexation allowance formula
(RPI at disposal - RPI at expenditure)/RPI at expenditure x cost
Corporation tax computation
TTP * 19%
When is a company a large company vs a very large company
Large 1,500,000 < augmented profits > 20m
Very large 20m < profits
2 tests to see if need to be VAT registered
- 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.
- 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.
Fuel scale charge
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
What is pre-registration VAT
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
Time limits for discovery assessments, depending on reason for loss of tax
From end of relevant tax year:
Not due to care less or deliberate behaviour - 4 years
Careless behaviour - 6 years
Deliberate behaviour - 20 years
What to do with gift aid for personal tax
Increase basic rate bracket by (gift aid x 100/80)
What assets are in the main pool and therefore get the WDA?
Machinery, fixtures, and fittings and equipment
Vehicles that aren’t cars
Cars with CO2 51-110 (since 2018)
What assets qualify for first year allowances? 100% off
New and unused zero emission goods vehicles
Cars with:
<50 CO2 purchased after 1.4.18
<75 CO2 purchased before 1.4.18
What qualifies for AIA? 100% off up to £200,000
All P&M except cars
What are the NIC classes?
1 Primary - employee cash
1 secondary - employer cash
1A employer benefits
2 self-employed 3.05 pw
4 self -employed trading income
What qualifies a company as a substantial traders and how does it affect VAT submission
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
What is the annual accounting scheme? and who can qualify
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
Deadline to notify HMRC of need for a self-assessment form
5th October following the end of tax yearr
Rules for HMRC directly recovering unpaid income tax from individual
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
When is PAYE due?
PAYE is payable 14 days after the end of each tax month.
When is a P11D form due?
P11D forms are due 6 July following tax year end
When must a P60 be issued to employees by a company?
31 May
When must a claim for overpayment relief be made?
Within 4 years of end of AP
Time limits for discovery assessments - depending on reason for loss of tax
Innocent - 4 years
Careless - 6 years
Deliberate - 20 years
What notice can a taxpayer appeal?
Can appeal an information notice,
Cannot appeal against an inspection notice
When can HMRC open an enquiry
First anniversary of the quarter date following the actual submission or
just year on from submission date if not late
What legal fees are disallowable? (add back in trading profit calc)
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
House expense
Higher of rental value or annual value
Additional charge if original cost > 75000
Official rate of interest at start of year x (cost - 75000)
Up to what point are childcare vouchers allowable?
Up to 28pw (unless started receiving before April 2011)
Are gifts inwards allowable?
Only if under £250 (can’t be cash)
Are gifts outwards allowable?
Yes to employees
Yes to clients IF they’re not food drink or tobacco and less that £50 with company name
Time limits for keeping records (CT, income and CGT, VAT)
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
PAYE code method
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
Notice of intention to make an enquiry by HMRC
First anniversary of submission date
Unless late, in which case quarter date
Time limits for discovery assessments (IT, CGT, CT and VAT)
Not Careless - 4 years
Careless - 6 years
Deliberate - 20 years
How long does taxpayer have to appeal
30 days
What is the annual accounting scheme?
and who is eligible
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
What is the cash accounting scheme and who can apply?
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
What is the flat rate scheme?
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
What is the percentage for things like cameras as a benefit in income calculation
20%!
