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AAT Level 4 > Business Tax > Flashcards

Business Tax Flashcards

1
Q

Ethical Principles

A

Integrity
Objectivity
Professional Competence & Due Care
Professional Behaviour (Not bringing profession into disrepute)
Confidentiality (only breach if required by law or given permission)

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2
Q

Money Laundering

A

Cleaning dirty money
Obtained by illegal methods

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3
Q

Limited Company

A

Limited liability
Owned by shareholders
Ran by directors
Legally required annual accounts
Pay corporation tax ONLY
Shareholders are paid dividends (share of profit)

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4
Q

Sole Trader

A

Unlimited liability
Owned by one person, not a legally separate entity
Pay income tax, NI, capital gains tax
No requirements for accounts

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5
Q

Tax Traffic Lights

A

GREEN - GO - Tax Planning, Legal & Ethical, using rules to plan lower tax bills
AMBER - LIMBO - Tax Avoidance, Legal & Unethical
RED - STOP - Tax Evasion, Illegal & Unethical

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6
Q

What To Do If There Is An Error In Clients Tax Return

A
  1. Recommend they inform HMRC
  2. If they refuse, cease to act for the client (in connection with this return)
  3. Inform HMRC we no longer act for the client
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7
Q

LTD COMPANY
Accounting Periods

A

Only in blocks of 12
e.g 15 months = 12 + 3

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8
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Pre Trade Expenditure

A

Allowable
Going back 7 years, need to still be present now & were allowable at the time

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9
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Trade Samples

A

Allowable
True samples only, not for resale

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10
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Car Leasing

A

Allowable
15% deduct if over 50g emissions

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11
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Other Legal Fees

A

Allowable
Rent reviews
Debt collection
Employee matters & disputes

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12
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Irrecoverable Non-Trade Debt

A

Disallowable
e.g loan to employee

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13
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Private Mileage

A

Allowable
IGNORE PRIVATE MILEAGE FOR LTD COMPANIES

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14
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Depreciation / Gain or Loss on Disposals

A

Disallowable

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15
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Capital Expenditure

A

Disallowable
Should be on SFP

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16
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Repairs & Renewals

A

Allowable
Revenue

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17
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Improvements & Enhancements

A

Disallowable
Capital - SFP

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18
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Legal Fees Of a Capital Nature

A

Disallowable
Exceptions - Defending an asset, registering a patent

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19
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Fines

A

Breaking the law - Disallowable
Parking fines - Allowable (as long as not director)

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20
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Fraud

A

Allowable (non director only)

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21
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Donations

A

Small local - Allowable
Large national - Disallowable

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22
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Irrecoverable Trade Related Debt

A

Specific - Allowable
Provisions - Disallowable

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23
Q

LTD COMPANY
ALLOWABLE / DISALLOWABLE
Non Trade Interest Paid

A

Disallowable
e.g borrowing money for non trade investments

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24
Q

LTD COMPANY
Capital Allowances - Disposals

A

Full Expense - Full proceeds deducted from allowances
FYA - Proceeds deducted from general pool
Pool - Lower of cost / proceeds deducted from pool

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25
Q

LTD COMPANY
Negative Pool Balance

A

POOL CANNOT HAVE A NEGATIVE BALANCE
Create ‘Balancing Charge’
Add to main pool to balance to 0, deduct from total allowances

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26
Q

LTD COMPANY
Small Pool WDA

A

If pool is £1,000 (12 months time apportioned), can write it off as small pool WDA
Deduct from pool to balance to 0, add to total allowances

27
Q

LTD COMPANY
Business Ceases To Trade - Capital Allowances

A

No allowances in the last calculation
All pools cleared to 0 with balancing charge / balancing allowance

28
Q

LTD COMPANY
Chargeable Gains Layout

A

Gross Sale Proceeds
(Selling Costs)
=Net Selling Price
(Allowable Costs)
=Unindexed Gain
(Indexation)
=Indexed / Chargeable Gain

29
Q

LTD COMPANY
Indexation

A

COST X INDEX FACTOR
Stopped December 2017
Cannot create a loss
Cannot increase a loss

30
Q

LTD COMPANY
Disposal of Share Match Rules

A
  1. Bought on same day
  2. Bought in previous 9 days
  3. In the share pool (all shares after 10 days of purchase)

No indexation allowance is given for 1 & 2

Place every transaction in the pool
✔ where money changes hands
Do indexation ✔ to ✔ (keep subtotalling)

31
Q

LTD COMPANY
Bonus Issue

A

Free Shares
✘ in pool

32
Q

LTD COMPANY
Rights Issue

A

Cheap Shares
✔ in pool

33
Q

LTD COMPANY
Summary of Gains & Losses

A

Calc chargeable gain for every transaction
Add all together in a list
Less: capital losses b/f from previous years
=
Net Chargeable Gains

You pay corporation tax on this figure

34
Q

LTD COMPANY
Rollover Relief

A

Full Gain
(Amount not reinvested) - TAXED NOW ON THIS
= Amount of rollover relief

NEW ASSET COST =
Cost - Rollover relief

35
Q

LTD COMPANY
Taxable Total Profit Layout

A

Trading Profits (Adjusted trading profit - capital allowances)
Non-Trade Interest
Property Income
Net Chargeable Gains
=
Total Profits
(Qualifying Charitable Donations)
=
Taxable Total Profits (TTP)

36
Q

LTD COMPANY
Paying Corp Tax - Upper / Lower Limits & Associates

A

Limits are time apportioned
Also apported if there are associate companies

37
Q

LTD COMPANY
Marginal Relief

A
  1. Calculate corp tax at the main rate (25%)
  2. Calculate marginal relief using formula
  3. Deduct 2 from 1
    = Tax To Pay
38
Q

SOLE TRADER
Badges Of Trade

A

Subject Matter
Ownership
Frequency of Transactions
Improvements
Reason For Sale
Motive For Sale

39
Q

SOLE TRADER
Badges Of Trade - Subject Matter

A

What is the item / service in question?
is it inventory or for personal use?
Investment shares do not indicate trade

40
Q

SOLE TRADER
Badges Of Trade - Ownership

A

Length of ownership
Short ownership indicates trading

41
Q

SOLE TRADER
Badges Of Trade - Frequency of Transactions

A

High frequency indicates trading

42
Q

SOLE TRADER
Badges Of Trade - Improvements

A

Enhancing to improve - increases value - indicates trading

43
Q

SOLE TRADER
Badges Of Trade - Reason For Sale

A

No longer needed, need cash, inheritance - do not indicate trading

44
Q

SOLE TRADER
Badges Of Trade - Motive For Sale

A

Motive to make profit - indicates trading

45
Q

SOLE TRADER
ALLOWABLE / DISALLOWABLE
Excessive Family Salaries

A

Disallow the ‘excess amount’

46
Q

SOLE TRADER
ALLOWABLE / DISALLOWABLE
Goods For Own Use

A

Disallow:
Original cost
Profit that would have been made on the goods

47
Q

SOLE TRADER
ALLOWABLE / DISALLOWABLE
Private Usage By OWNER

A

Disallow

48
Q

SOLE TRADER
ALLOWABLE / DISALLOWABLE
Bills For OWNER

A

Disallow

49
Q

SOLE TRADER
Capital Allowances - Private Usage

A

Deduct WDA from ‘specific column’
Add % used by company into allowances column

50
Q

Tax Year

A

6th April - 5th April

51
Q

Allocation of Partnership Profits

A

Adjust profit for salaries, interest, etc
Split profit last
IF THERE IS A CHANGE:
Do different calculations for before & after the change

52
Q

Structures & Building Allowance

A

For commercial structures & buildings
Must be newly constructed or renovated from October 18
Does not include land, planning permission & stamp duty
Can only be claimed from the date the asset is used
BASED ON COST
Must time apportion
Disposal proceeds = Actual proceeds + SBA Claimed

53
Q

SOLE TRADER
When To Pay HMRC - Class 2 NI

A

31st Jan following end of tax year

54
Q

SOLE TRADER
When To Pay HMRC - Capital Gains Tax

A

31st Jan following end of tax year

55
Q

SOLE TRADER
When To Pay HMRC - Income Tax & Class 4 NI

A

31st Jan Follwing Tax Year End
Reference Material

56
Q

SOLE TRADER
Class 2 NI

A

Payable between 16 - state pension age
Only paid once even if own more than one business
£3.45 per week (52 weeks)

57
Q

SOLE TRADER
Class 4 NI

A

No liability if under 16 or over state pension age AT THE BEGINNING OF TAX YEAR
Paid with income tax

58
Q

LTD COMPANY
Losses

A

Carry forward - Can choose amount and when to do it
Current year / Carry back - must do current year first, QCD’s could be wasted

59
Q

Losses - Short Periods

A

Carry back can be done for 12 months
If period is less than 12 months, can be carried back for the remainder months time apportioned

60
Q

SOLE TRADER
Losses

A

Carry forward - automatically happens after other claims are made
Current / carry back - can do in any order, cannot preserve personal allowance

61
Q

SOLE TRADER
Calculating Capital Gains Tax

A
  1. Calculate chargeable gain
  2. Deduct annual exempt amount (£6,000) if available
  3. Calculate tax
    Basic rate £1 - £37,700
    High rate £37,700 +

UNLESS ELIGIBLE FOR BADR X 10%

62
Q

SOLE TRADER
Gift Relief

A

Both parties have to agree!

  1. Do a pretend sale to work out gain
  2. Deduct the gain from the cost of asset to create new base cost

Once asset is sold they will be taxed on it

63
Q

After Tax Proceeds

A

What is left in the bank after tax has been paid

64
Q

Dividend Allowance

A

£1,000

AAT Level 4 (5 decks)

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