2: Intro to Income Tax Flashcards
What are the 8 types of exempt income?
- Income from ISAs
- Interest from National Savings Certificates
- Winnings (bettings, lottery, premium bonds)
- Some social security benefits
- Scholarships
- Income Tax Repayment Interest
- Apprenticeship bursaries for those leaving authority care
- Compensation made under qualifying payment schemes
- Statutory Redundancy pay
What are the 5 types of income?
Trading
Property
Interest
Dividend
Employment (already net)
What’s the difference between Income Tax Liability and Income Tax Payable?
Liability - total tax due for the tax year
Payable - outstanding amount of that tax to pay
What is the rule about withdrawing personal allowance for incomes over £100,000?
For every £1 over £100,000, reduce the PA by 50p.
- Determine how much is over 100,000
- Times this by 0.50
- Take from the PA.
When can you use a Starting Rate Band of 0% for savings income?
Only applies if the savings income falls into the first £5,000 of taxable income.
Most often isnt applied as NSI normally takes up first £5,000!
Who can take advantage of the savings nil rate band? How much can be covered by this band?
Anyone who’s not an additional tax payer (income under £125,140)
£1,000 - basic rate tax payer
£500 - higher rate tax payer
Who is the dividends income nil rate band for?
Everyone! Everyone gets the first £1,000 at 0%.
How does gift aid affect tax payers at different levels?
Basic rate - no effect
Higher rate - extend the amount in the basic rate tax bands.
37,700 plus the GROSS amount of the gift
Additional rate - do the above, but also extend the higher rate tax band by the gross amount of the gift.
Remember: will be given to you net (80%). Gross will be 100%.
Under what conditions can a marriage allowance happen?
- amount of £1,260 is fully transferred
- transferor must be a basic rate taxpayer or have an income less than the PA
- recipient must be a basic rate tax payer
How much can you get off your tax liability from marriage allowance?
£252.
This is because the rate of marriage allowance is 0.20%.
It’s nearly always:
£1,260 x 0.20 = 252
What are two alternatives to tax returns?
Simple assessments
Issued by HMRC if they have enough information, part of the move by digital tax. No return at all
Short tax returns
Available to employees, pensioners and traders with a turnover up to the VAT registration limit
What are the key dates for amending tax returns and overpayment relief?
HMRC may amend within 9 months of the actual filing date
Taxpayer may amend within 12 months of when the return was officially due
Overpayment relief can be claimed up to 4 years after the end of the period to which it relates
When does repayment interest run from and until?
Runs from the later of:
- the due date
- the date of actual payment
To the day before repayment
Specific dates that interest runs between?
For late tax and penalties: the date after the due date, to the day before the payment is made
For additional tax: the annual submission date, to the date before the payment is made
What are 4 reasons for penalties?
Incorrect returns (errors)
Failure to notify
Late filing of returns (only for Income Tax and CGT)
Late payments
4 key facts about penalties?
Raised by HMRC
due within 30 days
Can be suspended for up to two years
Taxpayer can appeal
What are the 5 ‘errors’ that could be made on a tax return?
Understated tax
Excessive loss claim
Excessive tax repayment
Incorrect claims and relief
Taxpayer fails to advise HMRC of an incorrect assessment within 30 days of the assessment issue
What is PLR?
Potential Lost Revenue - the unpaid tax as a result of the error
What is a reasonable excuse, and when can it be used?
An issue that prevents a taxpayer from meeting an obligation despite having taken reasonable care to comply
Can be used to reduce non-deliberate failure to nothing
What are the 7 reasonable excuses?
Death of a close relative
Unexpected hospital stay for taxpayer
Life threatening illness for taxpayer
Disability of taxpayer
Computer or software failure
Service issues with HMRC
fire, floor, theft and postal delays
