Ch.9 - Income tax and NICs Flashcards
What is tax treatment of apprenticeship levy?
- payable by companies (under RTI) based on 0.5% of annual paybill (all amounts subject to Class 1 secondary NIC)
- levy allowance of £15,000 means that employers only have a liability is paybil > £3m
- funds can be recouped if paying for training and exam costs
- payments deductible from profits
What is a qualifying company for venture capital trust (VCT) relief?
- company quoted on UK Stock Exchange and approved by HMRC
- income derived from shares and securities in unquoted trading companies that have < 250 full-time e’es and must have raised no more than £5m in EIS and VCT schemes in last 12m (£10m for knowledge intensive companies)
- 30% of funds raised by VCT must be invested within 12m of the end of relevant CAP.
What is knowledge intensive company (KIC)?
- has either created intellectual property which is used for its main business activity, or
- employs high proportion (>20%) of skilled employees engaged in R&D
What is tax treatment of VCT for individuals?
Individual must be over 18y and subscribe for newly issued shares.
Income tax relief:
- 30% of amount invested up to £200k is deducted from tax liability (only available in the year of investment
- can only reduce liability to Nil
- tax relief is withdrawn is sold within 5 years by bringing charge back to the year of disposal
Dividends:
- tax free
CGT:
- gains are exempt and losses are not allowed
What is a qualifying company for enterprise investment scheme (EIS) relief?
- UK unquoted company carrying out qyalifying trade
- gross assets before issue
What is tax treatment of EIS for individuals?
Individual must be unconnected to the company or together with his associated must not control more than 30% of issued sahre capital (applies for the period of up to 2y prior share issue and 3y after
- need not be UK resident
Income tax relief:
- 30% of the amount subscribed deducted from liability (up to Nil)
- maximum investment £2m in tax year (amount above £1m must be in KIC)
- relief given in the year invested or in the PY (if claimed - can claim all or part)
- relief is withdrawn if sold within 3y by bringing back into charge in the year of disposal
Dividends:
- fully taxable
CGT:
- gain arising 3y after investment are not chargeable
- capital losses are allowed (can be offset against general income in CY or PY)
- when calculate capital loss, cost of shares is reduced by EIS relief not withdrawn
What is tax treatment of EIS reinvestment relief?
- to qualify, investor must be UK resident at the time gain in realised and at the time shares are purchased
- if any chargeable asset is sold and proceeds are feinvested in EIS shares, gain is deferred
- reinvestment must be done between 12m before disposal and 3y after
- maximum deferred relief is lower of:
a) gain on old asset (can claim lower amount to utilise AEA)
b) subscription cost of new EIS shares - deferred gain arises at earlier of:
a) sale of EIS shares
b) if within 3y of investment, individual stops being resident in the UK
c) if within 3y of investment, shares cease to be qualifying shares - if original disposal before 3 December 2014 and individual eligible for ER relief, ER can be claimed on deferred gain
What is a qualifying company for seed enterprise investment scheme (SEIS) relief?
- similar as EIS but aimed at investors in small start-ups
- UK unquoted trading company
- does not own or is owned by another company
- is not in financial difficulty
- trade must be new (less than 2y before share issue)
- gross assets value before share issue
What is tax treatment of SEIS for individuals?
Individual must be unconnected to the company
- doesn’t need to be UK resident
Income tax relief:
- 50% of amount subscribed deducted from liability, down to Nil
- maximum investment of £100k in tax year
- relief given the year when purchased or can claim to carry back to PY
- no relief available until company has spent at least 70% of fund invested (compliance certificate needs to be issued)
- relief withdrawn if sold within 3y by bring back the charge in tax year when relief was originally taken
Dividends:
- fully taxable
CGT:
- same as for EIS
What is tax treatment of SEIS reinvestment relief?
- if any chargeable asset is sold and proceeds are reinvested in SEIS shares, gain is EXEMPT
- maximum exemption is 50% of the lower of:
a) amount of gain
b) subscription cost of new SEIS shares (max 50% of £100k) - if an election is made to treat SEIS as made in PY, the investment is also treated as made in that year
- EIS relief and SEIS exemption cannot be claimed on the same expenditure
- if SEIS shares sold within 3 years, reinvestment relief will be withdrawn and adjustment is added to original tax comp
What tax relief is available for individual savings accounts (ISAs)?
- all income from ISA is exempt from income tax
- disposal of investments within ISA are exempt from CGT
Limit of £20k per tax year
- individuals agest 16 and 17 can invest up to £20k in cash ISA but not stocks and shares
- from 6 April 2017, adults under 40y can contribute up to £4k into ‘lifetime ISA’ and receive 25% bonus from government (it counts towards annual limit)
- for lifetime ISAs, there is 25% withdrawal charge unless funds are used towards first home, individual aged over 60y or terminally ill
