Bus 167 week 1 intro

Question 1

what are direct taxes

Answer 1

Direct taxes are charged on income, profits or gains and are either deducted at source or paid directly to the tax authorities.

Question 2

what are the main direct taxes

Answer 2

income tax, capital gains tax, inheritance tax, corporation tax

Question 3

what are indirect taxes

Answer 3

indirect taxes are taxes on spending and are charged when a taxpayer buys an item

Question 4

what are the main indirect taxes

Answer 4

VAT, customs duties

Question 5

indirect taxes

Answer 5

Indirect taxes are paid to the vendor as part of the purchase price of the item and the vendor then passes the tax on to the tax authorities.

Question 6

what is the tax year for individuals

Answer 6

6 april - 5 april

Question 7

what is the tax year for individuals also referred to as

Answer 7

fiscal years, years of assessment

Question 8

what is the tax year for companies

Answer 8

1st april - 31st march

Question 9

Corporation tax years are known as

Answer 9

“financial years” (FYs) and are identified in accordance with the calendar year in which they begin.

Question 10

what is HMRC

Answer 10

HM Revenue and Customs (HMRC) is a body of civil servants headed by the Commissioners for Revenue and Customs.

Question 11

who carries out HMRC’s routine work

Answer 11

The routine work of HMRC is carried out by Officers of Revenue and Customs whose main function is to calculate or “assess” a taxpayer’s tax liability (or check the taxpayer’s self-assessment) and ensure that the correct amount of tax is paid.

Question 12

what is self assessment

Answer 12

The system used to assess an individual’s liability to income tax (and capital gains tax) each year

Question 13

when must a taxpayer complete a tax return

Answer 13

31st jauary
If the liability for the year cannot be collected entirely by deduction at source (or via PAYE) the taxpayer must usually complete a tax return.

Question 14

when are tax return notices normally issued

Answer 14

Tax return notices are normally issued in April each year to taxpayers who need to complete a return.

Question 14

Tax return filing dates

Answer 14

A Self Assessment tax return which is submitted electronically must normally be filed by 31 January following the tax year to which the return relates.

Question 14

what is tax evasion

Answer 14

Dishonest behaviour (e.g. concealing income) is “tax evasion” and is illegal.

Question 14

Tax return filing dates (paper)

Answer 14

A Self Assessment tax return which is submitted on paper must normally be “filed” with HMRC by 31 October following the tax year to which the return relates.

Question 15

how long does a taxpayer in business or propery letting need to keep their records for

Answer 15

A taxpayer who is in business or who lets property must keep these records for five years after 31 January following the tax year.

Question 16

tax avoidance

Answer 16

the use of legal methods to minimise the amount of income tax owed by an individual or a business.

Question 17

making tax digital

Answer 17

Tax returns are to be replaced by online “digital tax accounts” which will be pre-populated with information already held by HMRC

Self-employed taxpayers and landlords will be required to use MTD-compliant accounting software to record income and expenditure and will update their digital tax accounts quarterly.
MTD was introduced for VAT in April 2019 and will be extended to income tax as from April 2024 for taxpayers who are self-employed or landlords.

Question 18

taxable persons

Answer 18

1. Individuals who are resident in the UK for a tax year are generally charged to income tax on all of their income for that year, whether arising in the UK or overseas.
2. Individuals who are not UK resident are liable to pay income tax on their UK income only.
3. Income tax is payable by adults, children, trustees and personal representatives.
4. Companies pay corporation tax on their profits, not income tax.

Question 19

classification of income categories

Answer 19

employment income
property income
trading income
interest
dividends

Question 20

exempt income

Answer 20

income from Individual

Savings Accounts (ISAs)

income from National
Savings Certificates

certain minor benefits provided to employees
certain lump sums from pension schemes

“rent-a-room” income

Premium Bond prizes and betting winnings

some social security benefits

Trading income of up to £1,000 per annum and property income of up to £1,000 per annum are also exempt.

Question 21

how are married couples taxed

Answer 21

independently

Question 22

what is the basic tax rate

Answer 22

20%

Question 23

what is the higher rate

Answer 23

40%

Question 24

what is the additional rate

Answer 24

45%

Question 25

non savings income consists

Answer 25

mainly of employment income, business profits and property income.

Question 26

what is savings income

Answer 26

Savings income includes bank and building society interest, interest on government securities and loan interest.

Question 27

savings income tax

Answer 27

In tax year 2022-23, savings income is taxed at the “starting rate” of 0% if it falls within the first £5,000 of taxable income.

Question 28

personal savings allowance

Answer 28

In tax year 2022-23, a taxpayer’s personal savings allowance (PSA) is £1,000 unless:
taxable income exceeds the basic rate limit of £37,700, in which case the PSA is £500
taxable income exceeds the higher rate limit of £150,000, in which case the PSA is £nil

Question 29

what is the basic rate limit

Answer 29

£37,700

Question 30

what is the higher rate limit

Answer 30

£125,140

Question 31

what is the additional rate limit

Answer 31

£150,000

Question 32

dividend income

Answer 32

Dividends are not classed as non-savings income or savings income but constitute a third layer which is the top slice of taxable income.

Question 33

In 2022-23, the tax rates which apply to dividend income forming part of taxable income are generally:

(dividend rates)

Answer 33

Ordinary rate 7.5%
Upper rate 32.5%
Additional rate 38.1%

Question 34

Dividend allowance

Answer 34

In tax year 2022-23, all taxpayers are entitled to a dividend allowance of £2,000.
(0%)

Unlike the personal savings allowance, the dividend allowance is not reduced for taxpayers with taxable income exceeding the basic rate limit or the higher rate limit.