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Tax Cert > Chapter 2 - Introduction to income tax > Flashcards

Chapter 2 - Introduction to income tax Flashcards

1
Q

What is exempt income in relation to income tax

A
  • > Income from ISAs
  • > Interest from National Savings Certificate (sometimes referred to as NS&I
  • > Winnings e.g. betting, lottery, premium bond
  • > Social security benefits e.g. housing benefit
  • > Scholarships
  • > Income tax repayment interest
  • > Apprenticeship bursaries paid to individuals leaving authority care
  • > Compensation made under qualifying payments schemes e.g. Windrush Schemes
  • (You don’t need to know details)
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2
Q

What is chargeable income?

A

Usually gross in this exam

> Trading income
Property income
Interest income
Dividend income

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3
Q

What is Net income?

A

Total of all chargeable income minus reliefs (Not to confuse it with taxable income)

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4
Q

What is taxable income?

A

Net income after the deduction of the tax-free personal allowance (PA)

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5
Q

What is the order the PA (Personal Allowance) deducted with the various types of income

A
  1. Non savings income
  2. Savings income
  3. Dividend income
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6
Q

What is the personal allowance for 2023/2024

A

£12,570

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7
Q

What are the three income tax bands

A

Basic Rate band (BRP)
Higher rate band (HRB)
Additional rate band (ARB)

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8
Q

What % is the basic rate bands (BRB) and the value for non-saving income

A

£0-£ 37,700

20%

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9
Q

What % is the Higher rate band (HRB) and the value for non-saving income

A

£37,701 - £125,140

40%

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10
Q

What % is the Additional rate band (ARB) and the value for non-saving income

A

£125,140+

45%

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11
Q

What are the four income tax rate bands for savings income

A

STARTING RATE BAND (SRB)

BASIC RATE BAND (BRB)

HIGHER RATE BAND (HRB)

ADDITIONAL RATE BANDS (ARB)

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12
Q

What % is the starting rate bands (SRB) and the value for savings income

A

£0 - £5,000

0%

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13
Q

What % is the basic rate band (BRB) and the value for savings income

A

£0 - £37,700

20%

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14
Q

What % is the higher rate band (HRB) and the value for savings income

A

£37,701 - £125,140

40%

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15
Q

What % is the additional rate band (HRB) and the value for savings income

A

£125,140 +

45%

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16
Q

What are the three types of tax payers?

A

Basic rate taxpayer (BRTP) - Just BRTP
Higher rate taxpayer (HRTP) - BRP +HRB
Additional rate taxpayer (ARTP) - BRB + HRB + ARB

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17
Q

What is a savings income nil rate band

A

For taxpayers with taxable income below £125,140 but isn’t covered by the SRB

Savings income nil rate band is £1,000 for BRTP and £500 for HRTP

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18
Q

What are the three tax bands for dividend income?

A

> BRB - Basic rate
HRB - Higher rate
ARB - Additional rate

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19
Q

What % is the basic rate band (BRB) and the value for dividend income

A

£0 - £37,700

8.75%

20
Q

What % is the higher rate band (HRB) and the value for dividend income

A

£37,701 - £125,140

33.75%

21
Q

What % is the additional rate band (ARB) and the value for dividend income

A

£125,140 +

39.35%

22
Q

How does gift aid work in general?

A

Donor donates to charity
Charity can claim 20% from HMRC

23
Q

How does gift aid work for BRTP

A

Relief is given at time of donation by only given 80% to the charity

No adjustment is needed in the income tax computation as the appropriate amount of tax relief is given at source

24
Q

How does gift aid work for HRTP

A

20% tax relief is granted at the time same as for BRTP

And then you can claim back another 20%

So in total it’s 40%

25
How does gift aid work for ARTP
20% tax relief is granted at the time same as for BRTP But you can claim back an extra 25% so therefore the total relief you can get is 45%
26
What is the marriage allowance and the rule surrounding it
Can transfer £1260.00 of the personal allowance for the tax year 2023/2024 to his, her or their spouse or civil partner. ONLY if they have no tax liability or will only be a BRTP
27
What is the deadline for a taxpayer to notify HMRC for a tax return
5th October
28
When do you not need to fill in a tax return?
If all tax is paid under PAYE. Dividends up to £10,000 (they can request the associated income to be deducted from their earnings via their tax code)
29
What's the deadline to have submitted a tax return online
31st January
30
In terms of amending tax returns - What timeframe does HMRC have to amend
Within 9 months
31
In terms of amending tax returns - What timeframe does an individual have to amend
Within 12 months after 31st January
32
When can a taxpayer make a claim for overpayment relief?
Within four years
33
What's the penalty if tax is more than 30 days late
5% up to 6 months then it doubles to 10%
34
What's the penalty if a tax return is more than 6 months late?
six months late, then a penalty based on a further 5% of the amount can be charged. so total 10%
35
What's the penalty if a tax return is more than 12 months late?
15%
36
What's the common penalty reigme?
Legislation introduced to standardised penalties in relation to different taxes under a common penalty regime
37
What are the penalties for errors then who is responsible for the errors and how long do you have to pay HMRC?
1. If everything is done right and errors disclosed - None 2. If taxpayer uses agent to complete return the taxpayer remains responsible 3. 30 Days
38
What situations can arise that causes penalties for tax (4points)
1. Understated tax 2. Excessive/false loss claim 3. Excessive false tax repayment 4. Incorrect claims and reliefs
39
What is the potential loss revenue? (PLR)
Unpaid tax as a result of error
40
What can be the penalties set by HMRC
Based on PLR and up to 100% of PLR
41
What three things are the penalties dependent on?
Careless Deliberate but not concealed Deliberate and concealed e.g., creating false invoices or destroying evidence
42
In terms of penalty, what's a non-reasonable excuse?
Issue that prevents tax payer from meeting an obligation despite having taken reasonable care to comply
43
What are the 7 types of reasonable excuse (but not limited to)
1, Death of a close relative of the taxpayer shortly after due date 2. Tax payer required to have an unexpected stay in hospital 3. Taxpayer having a serious life-threatening illness 4. Delays relating to disability to taxpayer 5. Computer or software failure while filing return 6. Service issues with HMRC online services 7. Fire, flood to pay tax
44
What are the penalties for filing tax returns late
> Income tax - personal tax return, partnership tax return > Capital Gains tax - Personal tax return
45

Tax Cert (11 decks)

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