Income Tax

Question 1

When is PAYE paid?

Answer 1

Paid to HMRC Monthly or Quarterly (if paying less than £1,500 per month)

Payment must be received by HMRC on 22nd of the month

Question 2

When is self-assessment due?

Answer 2

Tax return - 31 January AFTER TAX YEAR

1 x Payment on account due 31 January IN THE TAX YEAR
2 x Payment on account due 31 July AFTER THE TAX YEAR

50% of the previous tax year liability

Balancing payment = 31 January AFTER TAX YEAR

Question 3

Penalties for late or wrong self-assessment

Answer 3

Careless error: 30% of the tax due

Purposeful error: 100% of the tax due

Question 4

Is foreign income taxable?

Answer 4

YES

UK resident pays income tax on UK and foreign income

Residency: 183 days in the year spent in UK

Question 5

What kind of income is not subject to income tax?

Answer 5

ISAs
Winnings on Premium Bonds
Benefits
National Savings Certificates

Question 6

How do we calculate trading profit?

Answer 6

Trading income

• business expenses
• capital allowances (plant and machinery but NOT cars, land or buildings)
• writing down allowance of 18% or 6% of the asset (applies to cars land and buildings)

writing down allowance can be on a pool of assets!

Question 7

Are overlap profits recoverable?

Answer 7

No, unless accounting year is moved closer to the tax year or the business stops trading

Question 8

What is the income tax calculation?

Answer 8

1. Calculate total income
2. Deduct any qualifying loans to arrive at net income
3. Deduct personal allowance (consider taper) to arrive at Taxable income (work out whether you are a basic rate or higher rate / additional rate payer here)
4. From taxable income, take away savings income and dividends income to get NSNDI income
5. Tax NSNDI income at relevant rates
6. Then tax savings income, if you are a higher rate you get £500 0% allowance, and if you are lower rate you get £1000 0%, this eats further into the tax band though
7. Then calculate dividends - rates will be given - but £2000 is tax free

Question 9

How much is the marriage allowance (to get to net income)

Answer 9

transferors personal allowance is reduced by £1260 and transferee can make a deduction of £252 from their tax liability

Question 10

Tax rates

Answer 10

0-37,700 - 20%
37,700 - 150,000 - 40%
150,000 - 45%

Question 11

Trading losses - four alternatives

Answer 11

1. Set trade losses against total income in current year or prior year, using any balance to offset capital gains (must use ALL loss before personal allowance)
2. Carry the loss forward to set off against future trading profits (not any income - trading profits from same trade)
   3 Incorporation - set off against salary or dividends received from new company
3. Terminal loss relief - when cease trading, set losses against trading losses in previous 3 years, with later years coming first

Question 12

Tax avoidance - double reasonableness test

Answer 12

GAAR - HMRC must be able to prove that the arrangement cannot reasonably be regarded as a reasonable course of action

If abuse found, tax adjustment should be ‘just and reasonable’ in the circumstances