Calculations Flashcards
How to calculate trading profit
Income Less Expenditure Less allowances = trading profit or loss
What kind of income and expenditure are applicable to a trading profit calculation
Income in nature (not capital) reoccurring
Incurred wholly and exclusively for purpose of trade (eg not eating out as you would eat anyway)
What allowances apply to calculation for trading profit
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%
Income tax steps
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
Gross up calculation
Net income / (1- tax rate)
What are qualifying loans for income tax relief
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)
What are the allowances for income tax
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
How to reduce personal allowance for income tax if income is over £100k
12,500 - (net income - 100,000 then / 2)
Round to nearest £1
What is personal savings allowance for income tax
£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
What is dividend allowance for income tax
£2k for everyone
How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate
This card will just demonstrate NSNDI element
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
How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate
This card will just demonstrate Savings element
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
How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate
This card will just demonstrate dividends element
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%
Capital gains tax calculation steps
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
What is CGT payable
On chargeable gains made by chargeable person on disposal of chargeable asset
CGT- what are chargeable people
Individuals PRs Ps Trustees Not companies or charities
What are chargeable assets - CGT
All property including debts
Not cash
What is expenditure when calculating gain for CGT
Acquisition, disposal or producing costs
Preserving title
Enhance value reflected at time of disposal
What are reliefs for CGT
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
Rates for CGT
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
When can CGT be paid in 10 annual instalments
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
CGT relief on incorporation of business
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
CGT hold over relief on gifts
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
CGT relief on replacement of business asset (rollover relief)
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
Can relief on incorporation of business Hold over relief on gift Relief on replacement of business asset Business asset disposal relief Be used together
No must chose just one
CGT exemption damages for personal injury
These are exempt from CGT
CGT exemption principle private residence relief
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
CGT - tangible movable property
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
Business asset disposal relief
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
When can disposal of shares qualify for business asset disposal relief
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
What is a trading company
Cannot have activities that include to a substantial extent activities other than trading activities. Cannot hold substantial case reserves or investments
Does CGT apply to part disposals
Yes apportion initial and subsequent
eg sell 25% of asset then use 25% of cost when calculating gain
How does CGT apply to disposals between spouses
No gain or loss on disposals between spouses
When recipient disposes of it they pay CGT on their gain and spouses gain
When is buy back of shares taxed with CGT
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%
How is LLP treated for CGT
Same as general partnership
How is CGT calculated for partnership
Each P pays portion of CGT based on their percentage ownership
Each P can decide which reliefs they want to apply
Corporation Tax Calculation
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%
How are carry across, carry back and terminal carry back reliefs different for COrporation tax
Claimed within 2 years from end of AP loss incurred
How is carry forward relief different for corporation tax
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)
How soon must a company notify HMRC of the beginning of their first accounting period
Within 3 months of the start of that accounting period
What is the deadline for self assessment return
12 months from end of accounting period
Deadline for payment of CT
9 months and 1 day from end of accounting period
Might be before tax return is filed
Are intangible fixed assets capital or income when calculating CT
Treated as income receipts for CT
CT on good will and IP
Expenditure on these deductible when calculating income profits
CT relief on intangible fixed assets
When disposed any profit can be rolled over into acquisition of replacement intangible fixed assets to defer CT
When an asset is disposed of for less then market value how do you calculate gain or loss for CT
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
What if a capital disposal results on a loss when calculating chargeable gain for CT
Can deduct loss from chargeable gains not income profits
Can carry forward to subsequent AP and deducted from first chargeable gains made
When does indexation allowance apply to Calculation of capital gain for CT
On assets owned from 31 March 1982
Not applied to expenditure incurred after 31 Dec 2017
Calculation for indexation allowance when calculating capital gain for CT
Proceeds of disposal - cost of asset - expenditure - (initial expenditure X IF when IE incurred) - subsequent expenditure X IF when SE incurred) = gain after indexation
Roll over relief on replacement of qualifying business assets for CT
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
What is a close company
When company controlled by either
5 or fewer participants
Or
Any number of participants who are all Ds or shadow Ds
What is a participator of a close company
S or right to become S
Meaning of control
Re close company
Participator owns more than half shares in company or right to acquire more than half shares
Or has more than half of voting power
What does a close company have to do if it makes a loan to a participator or their associate (close relative or business partner)
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
CT benefits for groups of companies
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
What is a group of companies re group relief for income losses
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
What is a group re transfer of capital assets on tax neutral basis
75% subsidy and its 75% subsidies
All must be 51% subsidy of principle company
