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BLP > Calculations > Flashcards

Calculations Flashcards

1
Q

How to calculate trading profit

A 
Income 
Less
Expenditure 
Less 
allowances 
= trading profit or loss
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2
Q

What kind of income and expenditure are applicable to a trading profit calculation

A

Income in nature (not capital) reoccurring

Incurred wholly and exclusively for purpose of trade (eg not eating out as you would eat anyway)

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3
Q

What allowances apply to calculation for trading profit

A

Annual investment allowance up to £1million on plant and machinery
Can have WDA of 18% on anything above £1m
Also WDA on previous years pool of plant and machinery at 18%

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4
Q

Income tax steps

A

Calculate total income (might need to gross up)
Deduct reliefs (qualifying loans)
Deduct allowances
Calculate tax on each type of income NSNDI, savings and dividends
Add together

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5
Q

Gross up calculation

A

Net income / (1- tax rate)

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6
Q

What are qualifying loans for income tax relief

A

A loan to PR to pay IHT
A loan to invest in a close trading company
A loan to buy a share in partnership or to contribute to capital or make loan to firm (cap £50k or 25% of their total income in year relief is claimed)

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7
Q

What are the allowances for income tax

A

Personal allowance - 12,500 apply in order of NSNDI, savings and dividends. Cannot carry forward. Reduce £1 for every £2 over £100k of income

Spouse - £1,250 unused personal allowance unless higher or additional rate reciever

Blind person £2,500

Property and trading allowance £1k off gross income instead of actual expenses to arrive at taxable income

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8
Q

How to reduce personal allowance for income tax if income is over £100k

A

12,500 - (net income - 100,000 then / 2)

Round to nearest £1

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9
Q

What is personal savings allowance for income tax

A

£1k for basic rate
£500 for higher rate
Nothing for additional rate

Work out which rate based on NSNDI plus savings income

Basic up to 37,500
Higher is 37,500-150,000
Additional 150,000 and over

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10
Q

What is dividend allowance for income tax

A

£2k for everyone

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11
Q

How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate

This card will just demonstrate NSNDI element

A

NSNDI = step 3 income less savings less dividends

NSNDI element will fall into either basic (up to 37,500) higher (37,500-150,000) or additional (over 150,000)

Then tax 20% for basic, 40% for higher and 45% for additional

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12
Q

How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate

This card will just demonstrate Savings element

A

Deduct PSA either £1k or £500

Then add NSNDI and PSA to work out which rate. Either starting (up to £5k), basic (5k - 37,500), higher (37,500-150,000) or additional (150,000+

Then tax at starting 0%, basic 20%, higher 40%, additional 45%h

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13
Q

How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate

This card will just demonstrate dividends element

A

Deduct £2k allowance

Then add £2k to NSNDI and total savings income to work out which rate

Ordinary 0-37,500
Upper 37,500-150,000
Additional 150,000+

Ordinary 7.5%
Upper 32.5%
Additional 38.1%

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14
Q

Capital gains tax calculation steps

A

Disposal of chargeable asset
Calculate gain (sale price - purchase price - expenditure) indexation allowance
Reliefs
Deduct annual exemption (12,300 from highest rate items first. Cannot carry forward)
Aggregate
Apply rate

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15
Q

What is CGT payable

A

On chargeable gains made by chargeable person on disposal of chargeable asset

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16
Q

CGT- what are chargeable people

A 
Individuals
PRs
Ps
Trustees
Not companies or charities
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17
Q

What are chargeable assets - CGT

A

All property including debts

Not cash

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18
Q

What is expenditure when calculating gain for CGT

A

Acquisition, disposal or producing costs
Preserving title
Enhance value reflected at time of disposal

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19
Q

What are reliefs for CGT

A 
Replacement of business asset/ roll over 
Incorporation of business 
Hold over on gift
Business asset disposal relief
Tangible moveable property 
Principle private residence relief
Damages for personal injury
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20
Q

Rates for CGT

A

All gains other than residential property and BAD relief: if capital gains plus taxable income equals £37,500 or less pay 10%. If more than £37,500 10% up to 37,500 and 20% over 37,500

Residential property has 8% surcharge so 18% or 28%

BAD relief 10% regardless of income

PR and trustee taxed at 20% and 28% for residential property

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21
Q

When can CGT be paid in 10 annual instalments

A

If disposal was gift
Qualifying asset is land, a controlling shareholding in company or any share (controlling or not) in a company whose shares are unquoted
And
Conditions for holdover relief are not met

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22
Q

CGT relief on incorporation of business

A

Interest in incorporated business sold to a company
Gain deducted from cost of acquisition of new shares
Must transfer business with all assets ignoring cash
Annual exemption cannot be used

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23
Q

CGT hold over relief on gifts

A

Gain deducted from market value to give low acquisition cost to donee
Cannot use annual exemption
Must be gift of business asset which includes:
Assets used in trade
Shares in trading company unlisted
Shares in personal trading company (own 5% shares) listed or unlisted
Assets used by S and used in their personal trading company

24
Q

CGT relief on replacement of business asset (rollover relief)

A

Gain deducted from cost of replacement
Cannot use annual exemption
Get replacement 1 year before or 3 year after disposal
Claim relief within 4 years of disposal or replacement (whichever is later)
Qualifying asset: land, buildings, goodwill, fixed plant and machinery NOT shares
Asset must be used in business and not as investment
Asset must be owned by P, firm, ST and S with 5% voting shares

25
Q 
Can relief on incorporation of business
Hold over relief on gift 
Relief on replacement of business asset 
Business asset disposal relief
Be used together
A

No must chose just one

26
Q

CGT exemption damages for personal injury

A

These are exempt from CGT

27
Q

CGT exemption principle private residence relief

A

Disposal of a dwelling house including grounds up to 1/2 hectors is exempt from CGT provided they occupied it as their only or main residence through their ownership

Last 9 months of ownership are ignored

28
Q

CGT - tangible movable property

A

These are wasting assets ( predictable life less than 50 years) and are exempt from CGT

Even if they increase in value eg antiques they are still exempt if consideration for disposal is less than £6k

29
Q

Business asset disposal relief

A

Lifetime cap of £1 million qualifying gains
Rate of tax reduced to 10%
Qualifying business disposal: when ST or P disposed of whole or part of a business including as a going concern or assets following cessation
Must own for 2 years prior to disposal
Must dispose within 3 years of cessation
Assets used to carry on business only not investment assets
Claim before 1 year anniversary of 31 Jan following end of tax year in which disposal was made
Cannot use annual exemption

30
Q

When can disposal of shares qualify for business asset disposal relief

A

They company is a trading company
And
It is their personal company (5% voting rights)
And either entitled to 5% profits on winding up or 5% proceeds of sale if sold as going concern
And
Disposer is employee or officer of company for 2 years before disposal or cessation
And disposal within 3 years of cessation

31
Q

What is a trading company

A

Cannot have activities that include to a substantial extent activities other than trading activities. Cannot hold substantial case reserves or investments

32
Q

Does CGT apply to part disposals

A

Yes apportion initial and subsequent

eg sell 25% of asset then use 25% of cost when calculating gain

33
Q

How does CGT apply to disposals between spouses

A

No gain or loss on disposals between spouses

When recipient disposes of it they pay CGT on their gain and spouses gain

34
Q

When is buy back of shares taxed with CGT

A

Usually IT but will be CGT if:
Trading company is purchaser
Unlisted
To fund IHT or to benefit of the company’s trade
Must have owners them for at least 5 years
And
Must be reducing their shareholding by at least 25%

35
Q

How is LLP treated for CGT

A

Same as general partnership

36
Q

How is CGT calculated for partnership

A

Each P pays portion of CGT based on their percentage ownership
Each P can decide which reliefs they want to apply

37
Q

Corporation Tax Calculation

A

Income profits
Chargeable gains (roll over relief on qualifying business assets)
Add
Reliefs for any loss ( carry across/ carry back, terminal carry back, carry forward)
Tax 19%

38
Q

How are carry across, carry back and terminal carry back reliefs different for COrporation tax

A

Claimed within 2 years from end of AP loss incurred

39
Q

How is carry forward relief different for corporation tax

A

Claim within 2 years of end of AP in which it is applied to reduce profit
Max claim is £5m plus 50% of remaining total profits after deduction of the allowance

Can be set against total profits (was only profits from same trade before 1 April 2017)

40
Q

How soon must a company notify HMRC of the beginning of their first accounting period

A

Within 3 months of the start of that accounting period

41
Q

What is the deadline for self assessment return

A

12 months from end of accounting period

42
Q

Deadline for payment of CT

A

9 months and 1 day from end of accounting period

Might be before tax return is filed

43
Q

Are intangible fixed assets capital or income when calculating CT

A

Treated as income receipts for CT

44
Q

CT on good will and IP

A

Expenditure on these deductible when calculating income profits

45
Q

CT relief on intangible fixed assets

A

When disposed any profit can be rolled over into acquisition of replacement intangible fixed assets to defer CT

46
Q

When an asset is disposed of for less then market value how do you calculate gain or loss for CT

A

Bad deal- use amount it was disposed for
Gift- market value
Sale to connected person - market value

Connected - control the company either alone or with others connected to them.
Company is controlled by other company of both controlled by same person and others connected to them

47
Q

What if a capital disposal results on a loss when calculating chargeable gain for CT

A

Can deduct loss from chargeable gains not income profits

Can carry forward to subsequent AP and deducted from first chargeable gains made

48
Q

When does indexation allowance apply to Calculation of capital gain for CT

A

On assets owned from 31 March 1982

Not applied to expenditure incurred after 31 Dec 2017

49
Q

Calculation for indexation allowance when calculating capital gain for CT

A

Proceeds of disposal - cost of asset - expenditure - (initial expenditure X IF when IE incurred) - subsequent expenditure X IF when SE incurred) = gain after indexation

50
Q

Roll over relief on replacement of qualifying business assets for CT

A

Includes land, buildings, fixed plant and machinery
Assets must be used in trade, not held as investment
Company shares, IP and good will don’t qualify
Acquire new asset 1 year before or 3 years after disposal
Deduct gain from cost of new item

51
Q

What is a close company

A

When company controlled by either
5 or fewer participants
Or
Any number of participants who are all Ds or shadow Ds

52
Q

What is a participator of a close company

A

S or right to become S

53
Q

Meaning of control

Re close company

A

Participator owns more than half shares in company or right to acquire more than half shares
Or has more than half of voting power

54
Q

What does a close company have to do if it makes a loan to a participator or their associate (close relative or business partner)

A

Must pay 32.5% of loan to HMRC
Refunded when loan is repaid or written off
Unless
Company is a loan company or
Loan( plus any others) is less than £15k and borrower works full time for company and owns no more than 5% of shares

55
Q

CT benefits for groups of companies

A

No SDLT or Stamp Duty on transfers between companies in group
May be able to register for VAT as a group
Can claim income loss relief as group
Can transfer losses and expenses to other companies in group
Can transfer capital assets between companies in group on tax neutral basis
Roll over relief can be acquisition by other company in group

56
Q

What is a group of companies re group relief for income losses

A

1 company must be 75% subsidy of other
Or
Both companies must be 75% subsidy of third company

Multiple to get percentage ownership in chain

57
Q

What is a group re transfer of capital assets on tax neutral basis

A

75% subsidy and its 75% subsidies

All must be 51% subsidy of principle company

BLP (22 decks)

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