Business tax chapter 1 Flashcards
Tell me about sole traders
1) A single individual owns the business
2) If the business cannot afford to pay its debts, the owners have unlimited personal liability to pay off these debts
3) Income tax is paid on profits
4) There is no set format for their accounts
Tell me about partnerships
1) Several individuals own the business
2) If the business cannot afford to pay its debts, the owners have unlimited personal liability to pay off these debts
3) Income tax is paid on profits
4) There is not set format for their accounts
Tell me about limited companies
1) A separate legal entity
2) Shareholders own the company
3) Shareholders have limited liability for the debts of the business, up to the value of their shares.
What taxes do unincorporated businesses pay?
Income tax, capital gains tax, national insurance class 2 and 4
What taxes do incorporated business pay?
Corporation tax and national insurance class 1 secondary and class 1A. (Companies pay corporation tax on the profits made from the sale of business assets)
What dates does a fiscal year cover?
6th April to the 5th of April
Who is responsible for the administration of UK tax?
HMRC
What do the service offices and district offices of HMRC deal with?
Service offices deal with income tax. District offices deal with corporation tax.
Where do tax rules and regulations come from?
1) Statute law - e.g. the annual Finance Act
2) Case law, decided by the courts when there are disagreements between HMRC and the taxpayer
3) HMRC guidance - notes that assist in the interpretation and application of the tax laws
What are the fundamental ethical principles of the AAT?
1) Integrity
2) Objectivity
3) Professional competence and due care
4) Confidentiality
5) Professional behaviour
(IOPCP)
Who should money laundering suspicions be reported to?
If you are a sole practitioner, to the National Crime Agency. If you are part of a larger organisation, a Money Laundering Reporting Officer.
What should AAT members do if a possible irregularity arises?
1) Establish the facts
2) Advise the client to disclose, advising them of the potential consequences
3) If they do not agree to disclose, cease to act for the client
4) Consider whether a report should be made to the MLRO or NCA
5) Consider carefully the response to any professional enquiry letters received from future advisors of the client
What is the difference between tax evasion and tax avoidance?
Tax avoidance is a legal way of minimising a taxpayers liability, but there are two types;
1) Methods of tax planning that the government intended when they made the legislation
2) Methods of tax planning that exploits loopholes in legislation to avoid paying tax
Tax evasion is illegal and involves breaking the law to reduce your tax bill, i.e. not declaring all of your income.
What are the badges of trade?
1) Subject matter (is the asset being sold usually held for investment purposes? i.e. is it an investment in a company?)
2) The frequency of transactions
3) The length of ownership
4) Improvement expenditure
5) Motive for profit
6) Reason for sale (unwanted gifts that are sold are less likely to be viewed as
