Chapter 2 - HMRC Tax Regime Flashcards
When was A-Day and what was it?
6th April 2006
The government removed all of the existing complex rules, regs & tax regimes & replaced them with one single simplified tax & regulatory regime.
What counts as relevant UK earnings?
Employment income (salary, wages, bonus, overtime & commission)
Income from carrying on or the exercise of a trade, profession or vocation
Income arising from patient rights & treated as earned income
General earnings from overseas crown employment, subject to UK tax
What is the net pay method?
Employee contributions are taken from the employers gross pay before tax is deducted
What is the relief at source method?
Contributions are paid net of basic rate tax
Contributions to personal & stakeholder pensions receive tax relief via this method.
What are unauthorised payments tax charges?
Unauthorised payments can be subject to several tax charges:
- An unauthorised payments charge of 40% (scheme member)
- An unauthorised payments surcharge of 15% (scheme member)
- A scheme sanction charge, normally 15% (the scheme)
What js the current tapering amount for adjusted income?
Adjusted income of £240k or more
Where these rules apply, the annual allowance is reduced by £1 for every £2 of adjusted income above the relevant threshold
Carry forward
- Up to 3 tax years
- Must use the current tax year allowance first
- For each of the previous 3 tax years, the unused annual allowance is calculated by deducting the pension input from £40k (or the tapered annual allowance).
Why would a 16:1 valuation factor be used when assessing pension against the annual allowance?
A DB scheme
The input amount is the capitalised value of the increase in the DB benefits over the input period, using a factor of 16:1
How is the input amount calculated?
The input amount is calculated by subtracting the opening value of the benefits from the closing value.
