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AF1 2022/23 (Modified) > Income Tax > Flashcards

Income Tax Flashcards

1
Q

What is Self-Assessment?

(3 Points)

A

Yearly Tax Return

Shows Income + Gains

Mainly for Self Employed / Directors.

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2
Q

What are the deadlines for completing and submitting the self-assessment?

A

Paper - 31st October

Online - 31st January

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3
Q

Indications someone is Employed

(Quick Fire x4)

A

Company has high degree of control

Contract of service

Set hours/set pay

Long term, single “employer”

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4
Q

Self-assessment Payment Dates?

(Quick Fire x3 + % Amount Paid)

A

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.

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5
Q

What is PAYE and what does it consist of?

A

“Pay as you earn” - Refers to income Tax and National Insurance deducted from salary before you receive it.

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6
Q

QUICK FIRE

5 General Tax Planning Strategies to reduce Income Tax

A

Pension Payments

Charity Payments

Reduce income generating investments / place them into ISA

Investment Bonds

VCT, EIS, SEIS (Dependent on Risk)

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7
Q

Indications someone is Self-Employed

(Quick Fire x4)

A
  • Company has low control
  • Contract to provide service
  • Fee basis and can subcontract
  • Risks own money - own tools, equipment etc
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8
Q

How do you do a Income Tax calculation?

(SDECR)

A

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
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9
Q

Taxation of salaries members of LLPs?

A

Taxed under Self-Assessment rather than PAYE (standardly).

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10
Q

What is the Marriage Allowance?

A
  • 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.
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11
Q

High income child benefit charge

Key Points - Go!

A
  • 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.

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12
Q

What order of priority is income taxed at?

(Big 4)

A
  • 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
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13
Q

If a parent invests money on behalf of their child and the interest earned is less than £100 who is this taxed on?

A
  • 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
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14
Q

What are “Relief at source pension payments”?

(Key points x4)

A

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.

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15
Q

Net pay arrangement Tax Treatment (Income Tax)

A

Contributions to your pension are taken before wages are taxed.

Examples schemes are Occupational AVCs.

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16
Q

Gift Aid - Taxation treatment

A
  • 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.
17
Q

Rent a Room Relief Qualifiers?

(Requirements / Qualifiers x6)

A

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

18
Q

Woodlands - When is it free of Income Tax?

A

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.

19
Q

What is the “Property Exemption” in relation to Income Tax?

A

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.

20
Q

What is Cash Based Accounting?

A

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.

21
Q

What is Traditional Accounting?

A

When service delivered it is recorded. With expenses when invoiced (even if payment not made yet).

22
Q

When does the Tax Year start and end?

A

6th April to 5th

23
Q

Do the Dividend and Savings allowances fall in or out of the tax bands?

A

In, that is why they are described as 0% Tax rather than Tax Free like ISA’s.

24
Q

How much is the Personal Savings Allowance (PSA)?

A

(BRB) £1,000
(HRB) £500
(ARB) Nil

25
Q

Dividend Allowance - £ + Who gets?

A

0% on first £2,000
Available to all tax payers

26
Q

Income Tax Priority Order?

A

Non savings (Earnings, Pension, Rent)

Savings Income (Interest, Gross Gilts/Bonds)

Dividend Income (FTSE 100 Tracker, Unit Trusts, OEICs)

Chargeable gains from life policies

27
Q

Personal Savings Allowance (PSA)

What can we use it on?

A

Interest

Investment Bond Gains (On + Off)

28
Q

When is “Adjusted Net Income” used?

A

When calculating

  1. Adjusted Net Income over £100k reduces the Personal Allowance, see tax table.
  2. Adjusted Net Income over £50k causes the High Income child Benefit charge, see tax table
29
Q

Child Benefit - Rounded which way and how many decimals?

A

Rounded Down

No Decimal Places

30
Q

Child Benefit - Who pays back the “overpayment” tax charge?

A

Whoever earns the most income in the family household.

31
Q

How do you calculate Adjusted Net Income “ANI”?

A

Combined the total big four less any extensions (Pensions + Charity)

32
Q

What type of income for “Equity OEICS”?

A

Dividends (Type 3)

33
Q

What type of income for any type of “Corporate Bond”?

A

Savings (Type 2)

34
Q

What type of income for any type of “Benefit in Kind”?

A

Non-Savings (Type 1)

AF1 2022/23 (Modified) (11 decks)

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