Income Tax Flashcards
True or false
a) In a Partnership, each partner pays income tax on their share of the profits and CGT on their share of gains
b) Companies pay income tax on all profits - including gains
c) Each partner does their own income tax return
d) In a partnership, the partners are responsible for ensuring all income tax on the business’ profits are paid to HMRC
e) The whole partnership will also do its own income tax return - business as a whole is responsible for collecting PAYE, NIC (Ees & Eers) and VAT
a) TRUE
b) FALSE - Corporation Tax
c) TRUE
d) FALSE - The partners are inly responsible on an individual basis for their own income tax liabilities
e) TRUE
What is the structure of HMRC?
Queen appoints commissioners, who appoints officers
Which of the following is not a responsibility of HMRC?
a) Collect and administer tax
b) Pay and administer universal credit
c) Run the child support agency
d) Collect repayment of student loans
e) Ensure employers meet minimum wage laws
c - the child support agency is NOT looked after by HMRC
How is tax legislation created, updated and announced?
Created by acts of parliament
Updated by finance acts
Announced in the budget (March - can be more than one)
What are statutory instruments?
Biggest source of tax law each year
Not debated in parliament
Automatically becomes law as long as there is no objection from parliament
What is case law?
Arises when there are disagreements between the tax payer and the inland revenue and have resulted in court
Arises where law is unclear
Judge’s decision sets a precedent for all future decisions about that point of law
How do HMRC publications differ from sources of tax law
Anything produced by the revenue is taking law and telling us how to apply it - not law itself
Which of the following is an example of exempt income?
a) Interest from banks and building societies
b) NS&I Investment Accounts
c) Income from government securities
d) Interest on National Savings Certificates
e) Interest on loans between relatives
d
How is the nil rate band for savings income determined and what are the levels for each band?
The NRB depends on an individual’s highest rate of tax if this nil rate is ignored - taxable income
Basic Rate tax payer = £1000 taxed at 0%
Higher rate tax payer = £500 taxed at 0%
Additional rate tax payer = no nil rate band
Can a tax payer benefit from both the Starting rate band of £5000 on savings income, and the nil rate band of £1000?
Yes
What is the difference between an income tax liability and income tax payable?
Liability: total tax individual is liable for within the tax year
Payable: Remaining tax owed to HMRC that year - less what has already been paid
Charlie and Sarah are married. In 2021/22 Charlie and Sarah had net income of £23,000 and £11,250 respectively.
What effect would the marriage allowance have on Charlie and Sarah’s income tax liabilities in 2021/22?
a) Both liabilities would decrease
b) Charlie’s liability would decrease and Sarah’s would be unchanged
c) Charlie’s liability would be unchanged and Sarah’s would decrease
d) Both liabilities would remain unchanged
b
Charlie’s liability would be reduced by 20% of £1,260. Sarah’s liability is £nil and would remain so because her income is covered by the personal allowance both with and without the claim for the marriage allowance.
Maalik is employed by Artichoke Ltd and has taxable income in 2021/22 of £20,000 (after deduction of the personal allowance). On 1 December 2021 Maalik paid £420 to a charity under the Gift Aid provisions.
In 2021/22 the Gift Aid payment will:
a) Increase Maalik’s income tax liability.
b) Decrease Maalik’s income tax liability.
c) Have no impact on Maalik’s income tax liability.
d) Generate a refund of income tax payable to Maalik.
c
Maalik is a basic rate taxpayer so increasing the upper limit of his basic rate band will have no impact on the calculation of his income tax liability.
When do you pro rata WDA?
a) When the asset has been owned for less than 12 mos
b) When the accounting period is less than 12 mos
c) Both
b
No matter what you only prorata the WDA if the accounting period is longer or shorter than 12 months.
Here it is a 12 month accounting period and as such no need to prorata
This is not like depreciation where we need to prorata for the length of ownership of the asset.
Which of the following is never a source of UK tax law?
a) The annual finance act
b) HMRC statements of practice
c) Case Law
d) Statutory instruments
b
Statements of practice are HMRCs interpretation of the law
John and David operate a VAT registered partnership, employing a large number of staff.
Which of the following are the partners jointly and severally liable for?
- Income tax on each partner’s share of the profits from the partnership
- Income tax of employees deducted under the PAYE system
- Employer and employee stational insurance contribuitions in respect of their staff
- CGT on each partner’s share of the partnership’s gains
- VAT as a supplier of goods
2, 3 & 5
Which of the following functions are carried out by HMRC?
a) Collect and administer direct taxes
b) Collect and administer indirect taxes
c) Pay and administer child support payments
d) Collect repayments of student loans
e) Pay and administer the state pension
a, b & d
Which of the following describes a statutory instrument
a) Published by HMRC for the guidance of its own staff
b) HMRC’s interpretation of tax legislation
c) Provides a relaxation of the strict legal position of tax legislation
d) Tax legislation, commonly in the form of regulations, containing detailed provisions
d
HMRC manuals are published for their own staff
Statements of practice set out HMRC’s interpretation of legislation
Extra statutory concessions provide relaxation of strict legislation
Sarah is married to Arthur. Sarah has net income of £29,900. Arthur has net income of £10,000. Wherever possible, they claim the marriage allowance.
What is Sarah’s taxable income?
17,330
The marriage allowance does not affect her personal allowance or taxable income. It only reduces the tax liability
How do you write a tax code if allowances less deductions are positive?
Remove last digit
Add L at the end
How do you write a tax code if allowances less deductions are negative?
Remove last digit
Minus 1
Add K at beginning
How do you adjust for an under/over payment of tax?
Tax x 100/(20 or 40 or 45) depending on the band
Identify whether the following types of income are chargeable or exempt:
Employment income
Trading income
Dividends from ISAs
Interest from ISAs
Rental income
Premium bond winnings
Housing benefit
Interest from an income tax repayment
Interest from investments
Chargeable income:
Employment income
Trading income
Rental income
Investment income & interest
Exempt income:
Interest on national savings certificates
Interest and Dividends from ISAs
Premium bond winnings
Housing benefit
Interest from income tax repayment
What is the taxable benefit to Joe who has a company provided Van that he takes to and from work and uses privately on the weekends?
Work also pay for all of his fuel, but Joe contributes £20/week
The benefit is an annual amount of £3,500
The fuel benefit is an annual amount of £669 - there is no reduction in the van fuel benefit if the employee makes a partial contribution
How do you calculate the taxable benefit of private use of business assets?
The higher of
Annual rent paid for asset
OR
20% of market value of the asset when first provided for use to employee
It is reduced by contributions and time apportioned
How long does HMRC have to amend tax return?
9 months from filing date
How long do individuals have to correct errors?
12 months from 31 Jan
When are payments on account and balancing payments due
1st POA: 31 Jan w/in tax year
2nd POA: 31st July w/in tax year
BP: 31st Jan after tax year
What can an employer use voluntary payrolling for?
Reporting all benefits bar living accommodation and beneficial loans
