Income Tax

Question 1

When must you make first payment of tax?

Answer 1

31 January of the year in which you started trading.

Question 2

When must you file taxes?

Answer 2

31 January following the relevant financial year

Question 3

How are payments on account calculated?

Answer 3

Payments on account are always calculated using 50% of the prior year’s income tax payable figure.

Question 4

When is relief from overlap profits available?

Answer 4

Relief from tax on overlap profits is available only at cessation or if the taxpayer changes her accounting date to a month nearer to 5 April (for example, if the adviser has a December year end, she would need to change it to a January, February, or March year end to be eligible)

Question 5

What 4 categories of gains are exempt from CGT?

Answer 5

1. Tangible personal property sold for less than £6,000
2. Chattels with a predictable life of 50 years or less – such as race horses
3. Gains from sales of cars
4. Prize money and gambling winnings

Question 6

What is the tax paid by self-assessed tax payers based on? How many payments are made during the year?

Answer 6

Taxpayers who self-assess (such as sole traders) are required to
make two payments on account, each based on 50% of the previous year’s tax
liability

Question 7

How do you calculate net income from trading?

Answer 7

Net income from trading generally equals gross income from
trading less revenue-related expenses (such as salaries and electricity bills) and
capital allowances.

Question 8

What do partnernships have to file each year?

Answer 8

A partnership does not pay income tax but must still nominate a
partner to fill in a Partnership Tax Return.

Question 9

How is partnernship income taxed?

Answer 9

Each partner pays tax on their agreed share of the profits whether or not the profits
are distributed.
*NB - partnership agreement silent? Presumed equal split.

Question 10

What expenses which may be deducted
against gross income to determine the trading income of a business?

Answer 10

Only revenue-related expenses that are recurring (NOT one off expenses)

Question 11

What is the ‘wholly and exclusively’ test for determining whether
an expense is deductible from gross income to determine trade income?

Answer 11

If an expense has a personal element, the expense is deductible, but only to the extent of the business aspect and only
if the expense is not materially for a personal or non-business purpose.

Question 12

Can unused annual investment allowance be carried forward in future years?

Answer 12

NO - can only use the amount in the relevant year.

Question 13

What conditions must be satisfied for marriage allowance to apply?

Answer 13

10% of personal allowance can be transferred to partner IF

• The couple must be married or in a civil partnership.
• The transferring spouse’s income must be less than the Personal Allowance.
• The transferring spouse must reduce their allowance by the amount transferred.
• The recipient spouse must be a basic rate taxpayer

Question 14

What is the Personal Savings Allowance for each category of taxpayer?

Answer 14

Basic rate taxpayers are entitled to a £1,000 Personal Savings
Allowance (PSA), higher rate taxpayers are entitled to a £500 PSA, and additional
rate taxpayers are not entitled to any PSA.

**BUT it’s just a nil rate band - so it’s really taxed at 0%

Question 15

What is the Dividends Allowance?

Answer 15

All UK income taxpayers are entitled to a £2,000 Dividend Allowance.

**BUT it’s really a nil rate band - so it’s just taxed at 0%

Question 16

Penalties may be imposed of up to XX% if a taxpayer deliberately falsifies or omits their income.

Answer 16

100%!!

Question 17

If a sole trader has claimed current year or prior year loss
relief for a trade loss against net income, when can excess loss be reduced from capital gains?

Answer 17

As long as a claim has been made to use the trade loss against their net income,
any remaining loss can be used to reduce the taxpayer’s capital gains tax.

ONLY of the same tax year. Can’t carry it forward.

Question 18

How does ‘carry forward relief’ apply on incorporation of a company?

Answer 18

If a sole trader or partner transfers a business to a company in
exchange for shares, the sole trader can set off any unused trading losses from the
transferred business against salary or dividends they receive from the company
whilst they own stock until the loss is used up.

Question 19

What circumstances allow the HMRC to set aside a tax arrangement?

Answer 19

GAAR is designed to allow HMRC to set aside a tax arrangement if it cannot
reasonably be regarded as a reasonable course of action.

Question 20

When and how may a one-off payment be deducted from trade profits over time?

Answer 20

1. Annual investmnet allowance - allows you to deduct tools, machines, and computers - this was £1,000,000 in 2021
2. BUT AIA is NOT available for car, land, buildings.
3. IF cost exceeds AIA or not available - Writing Down Allowance - 18% for most assets deducted each year, 6% for long-life assets.

Question 21

What penalties would HMRC impose for incorrectly recording income on self-assessment?

Answer 21

careless error - 30% (could be reduced to 15% or 0% if genuine mistake at HMRC’s discretion)

fraudulent error - 100%

Question 22

What is the marriage allowance for income tax?