2 Basic income tax computation Flashcards
Who are assessable persons?
All individuals, including children, are chargeable to income tax.
What are residents of the UK taxed on?
Worldwide income
How is income treated for married couples?
Generally, income generated from assets jointly owned is split 50:50 between spouses regardless of the actual percentage ownership
How can you change the percentage of ownership in a marriage in relation to income from assets?
Where jointly owned assets are held other than in a 50:50 ratio, an election can be made to HM Revenue & Customs (HMRC) for the income to be taxed on the individual spouses according to their actual percentage ownership.
What is the order of income?
Trading income, employment income, property income, pension income, savings income, UK dividends
What are the sources of income categorised as?
Non-savings income, savings income or dividend income
What does non savings income compromise of?
Trading income, employment income, pensions income and property income.
What are property income be?
Property income is typically rental income, but also includes other items such as the income element of a premium on granting a short lease.
What are sources of investment income?
Savings income and dividend income
What income is exempt?
Interest from NS&I, Gambling and lottery winnings, income from an ISA
What is the personal allowance for 16/17?
£11,000
What can the personal allowance not be set against?
Capital gains
How do you reduce a persons personal allowance if earning over £100,000.
Net income - gift aid - personal pension contributions = net income. net income -100000 *50%.
What is the basic rate band for 16/17?
£32,000
What percentages are used for non savings income?
20%, 40%, 45%
Is the ANI exceeds £xxxxxx the personal allowance is reduced to Nil
£122,000
What is the marriage allowance?
The marriage allowance (MA) allows a spouse or civil partner to elect to transfer a fixed amount of the personal allowance to their spouse/civil partner.
What might the marriage allowance be referred to?
The MA may also be referred to as the transferable amount of the PA.
When is the marriage allowance available?
The MA is available provided neither spouse (or civil partner) is a higher rate or additional rate taxpayer.
What percentage of the personal allowance is given to the spouse?
10%
What is the maximum benefit of the marriage allowance?
£220
How do you work out the maximum saving of the marriage allowance?
Unused personal allowance x basic rate income tax
When must the marriage allowance be claimed for during the tax year?
By 5th April 2017
Do you need to reapply each year for the marriage allowance?
No
When can you claim marriage allowance for?
Within 4 years by April 2021
What is income tax payable?
The final tax bill to be paid via self-assessment after deducting, tax already paid on employment income (PAYE).
What is income tax liability?
The total income tax due on the taxpayer’s total gross income, after deducting reliefs and the personal allowance.
What relief is given for employees? (2)
- The purchase of plant or machinery by an employed person for use in his employment.
- The purchase of shares in a employee-controlled trading company by a full-time employee.
What relief is given for partners? (2)
- The purchase of a share in a partnership, or the contribution to a partnership of capital or a loan. The borrower must be a partner in the partnership.
- The purchase of plant or machinery for use in the partnership, by a partner.
How is relief given for qualifying interest payments?
Relief is given by deducting the amount of interest paid in a tax year from total income.
What two ways can you get tax relief for charitable giving?
- Donations under the gift aid scheme
2. Payroll giving under the payroll deduction scheme.
How do basic rate tax payers obtain tax relief on gift aid payments?
Obtain the tax relief at the time of payment, by only paying 80% of the amount of the donation.
How do higher and additional rate tax payers obtain tax relief on gift aid payments?
The effect of extending the basic and higher rate bands is that income equivalent to the value of the gross donation is taxed at:
– 20%, rather than 40% for a higher rate taxpayer or
– if an additional rate taxpayer, at 20% rather than 45%.
What is child benefit tax charge?
Child benefit is a tax free payment from the Government that can be claimed in respect of children.
When does a child benefit income tax charge occur?
When an individual or spouse have adjusted net income of £50,000 or more.
What percentage is charged on income between £50,000 and £60,000 for child benefit?
1% of each £100 of income over £50,000
What percentage is charged on income over £60,000 for child benefit?
The amount of child benefit received
When working out child benefit charge. What do you use as the income figure?
Adjusted net income (less gift aid)
Under what three conditions is a individual a resident in the uk?
- Do not meet one of the automatic non-UK residence tests
- Meet one of the automatic UK residence tests
- Meet one or more of the sufficient ties tests.
What is the procedure to determine residence?
- Check automatic non-UK residence test - if not satisfactory -
- Check automatic UK residence tests, if not -
- Determine how many sufficient ties with the UK exist, and, how many days are spent in the UK in the tax year, then use tax tables to decide status
What is the automatic non-UK residency tests?
An individual is automatically not UK resident if they are ‘in the UK’ in the tax year for less than:
16 days or, 46 days and has not been a resident in the UK in any of the previous three tax years or 91 days and works full time overseas
When is an individual automatically a resident in the UK? (3)
they are in the UK for at least 183 days in the tax year or
their only home is in the UK or they work full-time in the UK.
What time does it count if the resident is in the UK for residency?
Midnight
What are the five ties that HMRC determine if a UK resident?
- Family
- Accommodation
- Work
- Days in the UK - 90 days in the UK
- Country - More time here than anywhere else
If a individual is leaving the country, what ties are relevant?
All five
If a individual is arriving in the country, what ties are relevant?
Only the first four ties, not the country one
