Bus 167 week 1 intro Flashcards
what are direct taxes
Direct taxes are charged on income, profits or gains and are either deducted at source or paid directly to the tax authorities.
what are the main direct taxes
income tax, capital gains tax, inheritance tax, corporation tax
what are indirect taxes
indirect taxes are taxes on spending and are charged when a taxpayer buys an item
what are the main indirect taxes
VAT, customs duties
indirect taxes
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.
what is the tax year for individuals
6 april - 5 april
what is the tax year for individuals also referred to as
fiscal years, years of assessment
what is the tax year for companies
1st april - 31st march
Corporation tax years are known as
“financial years” (FYs) and are identified in accordance with the calendar year in which they begin.
what is HMRC
HM Revenue and Customs (HMRC) is a body of civil servants headed by the Commissioners for Revenue and Customs.
who carries out HMRC’s routine work
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.
what is self assessment
The system used to assess an individual’s liability to income tax (and capital gains tax) each year
when must a taxpayer complete a tax return
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.
when are tax return notices normally issued
Tax return notices are normally issued in April each year to taxpayers who need to complete a return.
Tax return filing dates
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.
what is tax evasion
Dishonest behaviour (e.g. concealing income) is “tax evasion” and is illegal.
Tax return filing dates (paper)
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.
how long does a taxpayer in business or propery letting need to keep their records for
A taxpayer who is in business or who lets property must keep these records for five years after 31 January following the tax year.
tax avoidance
the use of legal methods to minimise the amount of income tax owed by an individual or a business.
making tax digital
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.
taxable persons
- 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.
- Individuals who are not UK resident are liable to pay income tax on their UK income only.
- Income tax is payable by adults, children, trustees and personal representatives.
- Companies pay corporation tax on their profits, not income tax.
classification of income categories
employment income
property income
trading income
interest
dividends
exempt income
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.
how are married couples taxed
independently
what is the basic tax rate
20%
what is the higher rate
40%
what is the additional rate
45%
non savings income consists
mainly of employment income, business profits and property income.
what is savings income
Savings income includes bank and building society interest, interest on government securities and loan interest.
savings income tax
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.
personal savings allowance
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
what is the basic rate limit
£37,700
what is the higher rate limit
£125,140
what is the additional rate limit
£150,000
dividend income
Dividends are not classed as non-savings income or savings income but constitute a third layer which is the top slice of taxable income.
In 2022-23, the tax rates which apply to dividend income forming part of taxable income are generally:
(dividend rates)
Ordinary rate 7.5%
Upper rate 32.5%
Additional rate 38.1%
Dividend allowance
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.
