IAS 12 Income Taxes Flashcards
What are the four major types of income tax?
Income Tax /PAYE
Corporation Tax
Capital Gains Tax
Value Added Tax (sales tax)
What are the three key defined areas for small companies income tax?
Current tax expenses- estimated amount of tax payable on the taxable profits of the enterprise for the period Dr income tax expense (IS) Cr income tax liability (SOFP)
Over or under provision in relation to previous period tax charges -in following accounting period income tax will be paid. Normally be discovered estimate was over or/under the actual amount paid. Over/under provision recorded in following accounting period as an adjustment to the income tax expense in income statement
Deferred tax - the estimated future tax consequences of transactions and events recognised in the financial statements of the current and previous periods
What are the disclosures for income tax expenses?
Current tax x
(Over)/under provision in prior periods (X)/X
Deferred tax X/(X)
X
At 1/1/13 Pegasus plc acquired motor vehicles at a cost of £100,000.
Depreciation is charged at the rate of 20% per
annum on the straight line basis.
For tax purposes, capital allowances are
claimed at the rate of 25% per annum, on
the reducing balance basis.
The income tax rate is 30%
Calculate the provision for deferred tax for 31/12/13 & 31/12/14
Year 31/12/13 Accounting basis Tax basis Cost 100,000 Cost 100,000 Dep’n (20,000) CA (25,000) Carrying 80,000 Tax base 75,000
Provision = 30% X (80,000-75,000) = £1,500.
Year 31/12/14 Accounting basis Tax basis Cost 100,000 Cost 100,000 Dep’n (20,000) CA (25,000) 80,000 75,000 Dep’n (20,000) CA (18,750) Carrying 60,000 Tax base 56,250
Provision = 30% x (60,000 – 56,250) = £1,125
What is the HMRC definition of income tax?
Tax not paid
income from tax-exempt accounts, like Individual Savings Accounts (ISAs) and National Savings Certificates
some state benefits
premium bond or National Lottery wins
the first £4,250 of rent from a lodger in own home
Income Tax allowances and reliefs
Most people in the UK get a Personal allowance of tax-free income. This is the amount of income allowed before tax id due to be paid .
The amount of tax paid can also be reduced by tax reliefs based on qualification .
Income Tax is a tax paid on an individual’s income.
Tax paid on:
money earned from employment
profits from being self-employed
some state benefits
most pensions, including state pensions, company and personal pensions and retirement annuities
interest on savings and pensioner bonds
rental income (unless as a live in landlord live-in landlord receive £4,250 or less)
benefits from an employer
income from a trust
dividends from company shares
If you have £11,500 personal allowance and you get payed £35,000 PA what is your taxable pay?
35,000-11,500=23,500
Tax at 20% of 23,500
What is HMRC corporation tax definition?
Limited company must pay Corporation Tax on its taxable profits.
Corporation Tax also applies to:
most unincorporated associations eg clubs and co-operatives
foreign companies with a UK branch or office
Company must keep records for Corporation Tax.
Profits you pay Corporation Tax on
Taxable profits include the money your company makes from:
doing business (‘trading profits’)
investments
selling assets for more than they cost (‘chargeable gains’)
If company is based in the UK pays Corporation Tax on all its profits from the UK and abroad.
If company not based in the UK but has an office or branch here, it only pays Corporation Tax on profits from its UK activities
What is HMRC’s definition of Capital gains tax?
Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value It’s the gain you make that’s taxed, not the amount of money you receive.
What don’t you pay capital gains tax on?
Do not usually pay tax on gifts to your husband, wife, civil partner or a charity.
You do not pay Capital Gains Tax on certain assets, including any gains you make from:
betting, lottery or pools winnings
NISAs, ISAs or PEPs
UK government gilts and Premium Bonds
On death
When you inherit an asset Inheritance Tax is usually paid by the estate of the person who has died.
You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.
Inheritance Tax (IHT) is paid when a person’s estate is worth more than £325,000 when they die - exemptions, passing on property. Sometimes known as death duties.
What is HMRC’s definition of value added tax?
You must register for VAT with HM Revenue and Customs
(HMRC) if your business’ if VAT taxable turnover is over £85,000
You can register voluntarily if it’s below this, unless everything sold
is exempt
When you register receive a VAT registration certificate.
This confirms:
your VAT number
when to submit your first VAT Return and payment
your ‘effective date of registration’ this is the date you went over the threshold, or the date you asked to register if it was voluntary
Your VAT responsibilities: From the effective date of registration you must: charge the right amount of VAT pay any VAT due to HMRC submit VAT Returns keep VAT records and a VAT account
What are the VAT recording requirements?
An entity would normally be required to keep the following records to support its VAT or sales tax returns: Orders and delivery notes Purchase and sales invoices Credit and debit notes Purchase and sales books Cashbooks and receipts Bank statements Import and export documents VAT account
