Income Tax Flashcards
What is Self-Assessment?
(3 Points)
Yearly Tax Return
Shows Income + Gains
Mainly for Self Employed / Directors.
What are the deadlines for completing and submitting the self-assessment?
Paper - 31st October
Online - 31st January
Indications someone is Employed
(Quick Fire x4)
Company has high degree of control
Contract of service
Set hours/set pay
Long term, single “employer”
Self-assessment Payment Dates?
(Quick Fire x3 + % Amount Paid)
1st Payment on Account - Jan 31st @ 50%
2nd Payment on Account - July 31st @ 50% of the previous tax years liability
Balancing Payment - January 31st of following tax year. Balance owed.
What is PAYE and what does it consist of?
“Pay as you earn” - Refers to income Tax and National Insurance deducted from salary before you receive it.
QUICK FIRE
5 General Tax Planning Strategies to reduce Income Tax
Pension Payments
Charity Payments
Reduce income generating investments / place them into ISA
Investment Bonds
VCT, EIS, SEIS (Dependent on Risk)
Indications someone is Self-Employed
(Quick Fire x4)
- Company has low control
- Contract to provide service
- Fee basis and can subcontract
- Risks own money - own tools, equipment etc
How do you do a Income Tax calculation?
(SDECR)
Split - Deduct - Extend - Calculate - Reduce
- Split known income sources into the BIG 4!
- Non-savings
- Savings
- Dividend
- Chargeable Gains
- Take off allowable deductions (if any)
- Deduct Personal Allowance (PA)
- Extend Basic / High Rate if applicable (Pensions / Gift Aid)
- Calculate Tax Impact
- Tax off tax reducers
Taxation of salaries members of LLPs?
Taxed under Self-Assessment rather than PAYE (standardly).
What is the Marriage Allowance?
- Married couples / civil partners can transfer 10% of their personal allowance to each other.
- Provided neither pays tax at more than the Basic Rate
- Full 10% must be transferred.
High income child benefit charge
Key Points - Go!
- If adjusted income is more than £50,000 a year the charge withdrawals all or part of the child benefit received
- Removes 1% of child benefit received for every £100 of excess adjusted net income over £50,000
- Income over £60,000 - no child benefit
- Adjusted net income is income after gross pension payments and gift aid donations
Equivalent to 60% tax in some cases.
What order of priority is income taxed at?
(Big 4)
-
Non Savings Income
- Salary / Rental Income / Benefit in Kinds / Pension
-
Savings Income
- Bank Interest / Income, Gilt, Bonds (Paid Gross)
-
Dividend Income
- FTSE Tracker / OEIC etc
-
Chargeable Gains
- Investment Bond Withdrawals
If a parent invests money on behalf of their child and the interest earned is less than £100 who is this taxed on?
- Where interest is no more than £100 the income is treated as the child’s
- If interest is more than £100 the whole amount is taxed on the parent
What are “Relief at source pension payments”?
(Key points x4)
Pension contirbution is made after deducting tax.
Standardly applies to PP/GPP/SIPP
Scheme administrator reclaims from HMRC.
HR/ AR tax relief is given via self-assessment.
Net pay arrangement Tax Treatment (Income Tax)
Contributions to your pension are taken before wages are taxed.
Examples schemes are Occupational AVCs.
Gift Aid - Taxation treatment
- Extend basic and higher rate bands by gross contribution / donation.
- Gift aid:
- Charity donation treated as payment on which BR tax (20%) has been deducted.
- Charity can then recover the tax.
- No minimum or maximum donation.
Rent a Room Relief Qualifiers?
(Requirements / Qualifiers x6)
Must be in resident landlords main home
Must be in the UK
Must be let as a residence (office does not qualify)
Not self contained
Must be furnished
Owners must be living there at the time
Woodlands - When is it free of Income Tax?
When the property is used for Commercial Growing Purposes e.g. to grow timber.
Leisure usage does not count e.g. sports or camping - So the profit would be taxed.
What is the “Property Exemption” in relation to Income Tax?
If property income is less than £1,000 it is exempt from tax and does not need to be declared.
Useful for letting out driveways. Can be used twice (unless Rent a Room).
Can not be used alongside Rent a Room.
What is Cash Based Accounting?
Income is only booked in when money is received / paid out (rather than invoiced) **
This method is simpler but only available if the turnover is less than £300,000.
If turnover increases they can continue to use the cash basis until it reaches £600,000.
What is Traditional Accounting?
When service delivered it is recorded. With expenses when invoiced (even if payment not made yet).
When does the Tax Year start and end?
6th April to 5th
Do the Dividend and Savings allowances fall in or out of the tax bands?
In, that is why they are described as 0% Tax rather than Tax Free like ISA’s.
How much is the Personal Savings Allowance (PSA)?
(BRB) £1,000
(HRB) £500
(ARB) Nil
Dividend Allowance - £ + Who gets?
0% on first £2,000
Available to all tax payers
Income Tax Priority Order?
Non savings (Earnings, Pension, Rent)
Savings Income (Interest, Gross Gilts/Bonds)
Dividend Income (FTSE 100 Tracker, Unit Trusts, OEICs)
Chargeable gains from life policies
Personal Savings Allowance (PSA)
What can we use it on?
Interest
Investment Bond Gains (On + Off)
When is “Adjusted Net Income” used?
When calculating
- Adjusted Net Income over £100k reduces the Personal Allowance, see tax table.
- Adjusted Net Income over £50k causes the High Income child Benefit charge, see tax table
Child Benefit - Rounded which way and how many decimals?
Rounded Down
No Decimal Places
Child Benefit - Who pays back the “overpayment” tax charge?
Whoever earns the most income in the family household.
How do you calculate Adjusted Net Income “ANI”?
Combined the total big four less any extensions (Pensions + Charity)
What type of income for “Equity OEICS”?
Dividends (Type 3)
What type of income for any type of “Corporate Bond”?
Savings (Type 2)
What type of income for any type of “Benefit in Kind”?
Non-Savings (Type 1)
