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Tax Compliance > Income Tax > Flashcards

Income Tax Flashcards

1
Q

How do you calculate relief for finance costs on residential property?

A

IN HARDMAN’S

The 20% deduction is based on the lowest of:

  • The finance costs for the tax year plus any finance costs brought forward
  • Property income for the tax year (after using any brought forward property losses)
  • Adjusted total income (excluding savings and dividend income) that exceeds the personal allowance for the tax year (ie NSI amount after PA)

This can be identified as ‘mortgage interest’ or ‘capital’

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2
Q

Where a sole trader’s first year of business extends beyond the tax year, how should you calculate their trading income within the income tax computation?

i.e started trade on 1 September 2021 with a year-end of 31 May 2022. Trading profits of £58,285

A

Apply first year basis rules:
- I.e. Commencement of trade to following 5 April
- £58,285 x 7/9 = 45,333
1 September 2021 - 5 April 2022
- Then if longer, the 12 months to the accounting period
ie. 5 April onward
- No rounding to March

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3
Q

Are speeding fines by employees allowable?

A

No, they are taxable

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4
Q

What are solar shading and moveable partition walls?

A

Capital items. These must go into the capital allowance computation

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5
Q

What is the limit for an employee contribution towards the cost of a car?

A

£5,000

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6
Q

If an individual earns more than 60,000, what does this mean for their child benefit?

A

The full amount is taxable. This is added to the income tax liability after the full computation. PAYE is deducted after this.

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7
Q

Which capital allowances should you pro-rate?

A

WDA and AIA

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8
Q

What should you do if the year straddles 2021 and 2022? (Capital allowances)

A

Pro-rate the AIA for each yearly limit.
I.e. (1,000,000 x 3/12) + (200,000 x 3/12)

A maximum of £50,000 post 1 January 2022

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9
Q

How do you treat loss relief for an individual?

A
  • First carried back three tax years
  • You can remove all profits before personal allowance
  • Don’t forget to take off personal allowance where relevant
  • Current year may therefore be taxed normally
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10
Q

How do you account for a car leased to an individual with emissions greater than 50g/km?

A

Times the lease price by 85%

This is the value that is taxable

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11
Q

How do you account for fuel costs for a leased car with both private and business mileage?

A

Fuel cost given x business mileage/total mileage

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12
Q

For income tax, how do you apportion the fixed-rate mileage?

A

For income tax, only calculate the fixed-rate mileage on business miles

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13
Q

How is DTR calculated?

A

Lower of:

  • UK tax on overseas income (if needs be, calculate the income tax liability computation without the overseas income included and then deduct the difference of it with included)
  • Tax on overseas income
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14
Q

How do you account for insurance premiums for individuals?

A

Only account for the insurance premium paid in the year i.e on property

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15
Q

How do you treat loans from employers at less than the national rate of interest?

A

Calculate what is should be and then time apportion for availability. The excess/difference from the national rate is what is taxable

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16
Q

Do you charge Class 1 secondary for freelancers?

A

No

17
Q

If you have to deduct to reach zero on a capital allowance disposal it is a what?

A

Balancing allowance

18
Q

If you have to add to reach zero on a capital allowance disposal it is a what?

A

Balancing charge

19
Q

How do you calculate notional loss allocation? (partnerships)

A

If between partners:
Take the partners individual profit, divide it by the total profit and multiply by the total loss
EG:

Edward	Robert	Jon	          Total C	7200	3600	9600	20,400
-9840	-3280	-3280	-16,400
-2640	320  	6320	 4,000

Notional loss allocation: 2,640 -127 -2513
Between Robert and Jon as they are the profit making partners
So: their profit divided by total profit made
Robert: 320/6640
Jon: 6320/6640
x the total loss
Robert: (320/6640) x 2,640 127.2289157
Jon: (6320/6640) x 2,640 2512.771084
add the total profit to the loss maker
Total 0 193 3807 4,000

20
Q

If given total tax-adjusted trading profits for partners, what should you do first?

A

Calculate interest on capital

21
Q

What do you do if they make a pension contribution in the year?

A
  • Deduct their contribution from employment income (if included)
  • Extended the BRB by the grossed up amount = amount x 100/80
22
Q

How do you adjust the PA for earners over 100,000?

A

(Amount earned - 100,000)/2 = new PA

23
Q

If you have medical costs for travelling abroad, are these taxable?

A

NO

24
Q

What NICs are partners in partnerships responsible for?

A

Class 2 and Class 4

25
Q

What should you do with a bad debt provision in a sole traders tatp calculation?

A

Add it back

26
Q

What do you with interest from HMRC on a late repayment of tax?

A

This is not taxable

27
Q

When do the company cover travel to place of secondment?

A

When the secondment is less than 24 months long

28
Q

Cheryl runs her own business as a sole trader making significant profits. She is an additional rate taxpayer. Cheryl needs to employ a new delivery driver. She already has several employees and her liability to employer’s national insurance contributions exceeds the employment allowance.

Cheryl is considering how best to structure the remuneration package for the new delivery
driver and is looking at two options:

Option One
Annual salary of £13,500 plus the use of a car with CO 2 emissions of 100g/km provided by the business.
The car has a taxable benefit of £3,000 pa. Cheryl will lease the car at a cost of £4,000 pa and incur associated running costs (including petrol for business deliveries) of £2,300 pa. The new delivery driver will pay for any private petrol.

Option Two
Annual salary of £8,300 plus shopping vouchers of £100 per week. The new delivery driver would use his own car for deliveries instead of a car provided by the business. The business pays 60p per business mile and Cheryl estimates that the delivery driver would need to drive 6,000 miles pa to complete all the deliveries.

Under either option the new delivery driver will have no other income.

Requirements
For each option:
Calculate the annual employer’s national insurance contributions payable by Cheryl in respect of the new delivery driver

A

NIC (a)

Option One
Employer’s class 1 NIC
(£13,500 – £8,840) × 13.8%  = 643
Class 1A NIC on car benefit = £3,000 × 13.8% 414
Total NIC 1,057
Option Two
Salary 8,300
Shopping vouchers = £100 × 52 5,200
Mileage allowance = 6,000 × (60p – 45p) 900
---------
14,400
Less secondary threshold (8,840)
\_\_\_\_\_\_\_\_\_\_
5,560
Class 1 contributions @ 13.8% 767
29
Q

Cheryl runs her own business as a sole trader making significant profits. She is an additional rate taxpayer. Cheryl needs to employ a new delivery driver. She already has several employees and her liability to employer’s national insurance contributions exceeds the employment allowance.

Cheryl is considering how best to structure the remuneration package for the new delivery
driver and is looking at two options:

Option One
Annual salary of £13,500 plus the use of a car with CO 2 emissions of 100g/km provided by the business.
The car has a taxable benefit of £3,000 pa. Cheryl will lease the car at a cost of £4,000 pa and incur associated running costs (including petrol for business deliveries) of £2,300 pa. The new delivery driver will pay for any private petrol.

Option Two
Annual salary of £8,300 plus shopping vouchers of £100 per week. The new delivery driver would use his own car for deliveries instead of a car provided by the business. The business pays 60p per business mile and Cheryl estimates that the delivery driver would need to drive 6,000 miles pa to complete all the deliveries.

Under either option the new delivery driver will have no other income.

Calculate the annual after-tax cost to the business.
Assume the new delivery driver’s employment starts on 6 April 2023 and use 2021/22 rates and allowances

A

Option One

Salary 13,500
Employer NIC (part (a)) 1,057
Allowable leased car cost = £4,000 4,000
Car running costs 2,300
----------
20,857

Cost to the business of option one = 11,054

Option Two
Salary 8,300
Shopping vouchers (part (a)) 5,200
Mileage allowance = 6,000 × 60p 3,600
Employer NIC (part (a)) 767
--------------
17,867

Cost to the business of option two 9,470

30
Q

How do you treat contributions to a personal pension scheme?

A

Extend the BRB by the gross PPS contribution:

Amount contributed x 100/80

31
Q

How would you deal with this property income?

‘Property income of £10,000 from renting out a furnished room in her home. Amy incurred rental expenses of £850’

A

You would only tax the excess over the rent-a-room limit which is £7,500.

So property income in the income tax computation would be £2,500

OBT - in Hardman’s

32
Q

Where can you find out about the election for the cash basis?

A

In Hardman’s

Tax Compliance (9 decks)

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