Chapter 2- Income Tax Flashcards
What are 5 examples of exempt income?
1) Betting winnings
2) Interest on national saving certificates
3) Damages for personal injury
4) Income from individual savings accounts (ISA)
5) Premium bond winnings
What three incomes are classified as Non Saving Income (NSI)
1) Trade income
2) Employment
3) Land and Buildings
What are two forms of savings income
1) Bank interest
2) Building society interest
When looking at reduction in PA for high earning individuals, Adjusted net income (NSI + SI + DIV Income) is total income minus which four things?
1) Loss Relief
2) Qualifying interest payments
3) Gross Gift Aid contributions
4) Personal Pension contributions
What is the personal allowance reduced by if someone earns more than £100,000?
Is reduced by £1 for every £2 of ANI:
Earning = 120,000 (combination of NSI+SI+DIV)
Step 1 = (120,000-100,000)/2 = 10,000
Step 2 = 12,570 - 10,000 = 2,570
PA = 2,570
What are the qualifying steps when looking at deductable gift aid contributions?
1) Have to be a UK Registered Charity
2) Regular or one off
3) No maximum or minimum gift
4) Must give Gift Aid Declaration
5) Be unconditional
6) Donor receives limited benefit from gift
What relief can Gross Gift Aid contributions bring higher rate tax payers?
You extend the gift by the by the gross gift:
Gross gift aid of 5,000
Extension = 5,000 * (100/80) = 6,250
BR Tax Band becomes = 37,700 + 6,250
HR Tax Band Becomes 125,140 + 6,250
When does a tax charge apply on child benefit?
If a taxpayer in receipt of child benefit (or who’s partner is in receipt) has an adjusted net income of over £50,000 in a tax year
What is the tax charge on child benefit for ANI between £50,000 and £60,000?
1% for every £100 between 50,000 and 60,000:
(ANI - £50,000)/100
1,000 Child Benefit on ANI of 58,000:
(58,000-50,000)/100 = 80%
1000 * 0.8 = 800 add back in for tax liability
How much can be transfered under the marriage allowance election from spouse to spouse?
£1,260*20%(252 is the maximum liability reduction but transferer looses the full £1,260), but only if neither spouse is higher or additional rate taxpayer
When can an election for marriage allowance be made?
1) In advance (by April 5 2023 for tax year 23/24)
2) In Arrears (by 5 April 2027 for tax year 23/24)
Three factors that indicate someone is employed?
1) Have a contract of service with their employer
2) Receive taxable earnings
3) Pay tax under PAYE system
Two factors that indicate someone is self employed?
1) Enter into a contract for services
2) Pay tax on profits for a tax year
When is an employee expense deemed deductible?
The expense is incurred wholly, exclusively and necessarily for the purpose of employment
List six example of allowable expenses that can be deducted from employment income
1) Business calls from private phone (not line rental)
2) Annual deductions for protective clothing
3) Annual costs of working at home or £6 a week allowance can be claimed without any need to provide records
4) Employee contributions to an occupational pension scheme and employee contributions under he payroll deduction scheme
5) Professional subscriptions
6) Employment related insurance premiums if paid by employee
