Income tax

Question 1

Net income =

Answer 1

total income - allowable reliefs

Question 2

Taxable income =

Answer 2

total income - allowable reliefs - personal allowances

Question 3

Examples of sources of income

Answer 3

• trading income (eg. sole trader),
• property income (eg. rent),
• savings + investment income,
• employment + pensions income

Question 4

Allowable reliefs example

Answer 4

Interest payments on “qualifying loans”, including:
- loan to buy share in partnership/lend to partnership,
- loan to invest in close trading company,
- loan to PRs to pay IHT

Question 5

Personal allowance

Answer 5

12,570
If income over 100,000, reduced by 1 for every 2 over
Cannot carry it forward
Can transfer up to 1,260 to spouse if don’t use it all

Question 6

Blind person’s allowance

Answer 6

Gets extra 3,070 in allowance

Question 7

Personal savings allowance (PSA)

Answer 7

= first 1,000 of savings income is tax-free if basic rate tax payer
If higher rate, then 500 tax-free
If additional rate, no PSA

Question 8

Dividend allowance

Answer 8

= first 500 of dividend income tax-free (applies to everyone)

Question 9

Order of taxation

Answer 9

1. non-savings non-dividend income (NSNDI)
2. savings income (interest)
3. dividends

Question 10

NSNDI tax rates

Answer 10

20% up to 37,700
40% if 37,701 to 125,140
45% if above 125,140

Question 11

Savings tax rates

Answer 11

0% if NSNDI + PSA under 5,000
20% if NSNDI + PSA 5,001 to 37,700
40% if NSNDI + PSA 37,701 to 125,140
45% if NSNDI + PSA over 125,140

Question 12

Dividend tax rates

Answer 12

8.75% if NSNDI + savings income + dividend allowance under 37,700
33.75% if NSNDI + savings income + dividend allowance 37,701 to 125,140
39.35% if NSNDI + savings income + dividend allowance over 125,140

Question 13

Tax on employee benefits

Answer 13

Usually, taxable
BUT: no tax chargeable if benefit is:
- free/low-rent accommodation of necessary for employee to live on premises, and provided so employee can better perform duty
- interest free/low-interest loans below 10,000
- employer’s pension contributions
- share scheme,
- deductible expenditure (necessary to perform duty)

Question 14

Timing of tax returns

Answer 14

Online: return by 31.1. after end of tax year
Paper: return by 31.10. after end of tax year

Question 15

Timing of payments

Answer 15

1. 1st payment on account: by 31.1. in tax year (about 50% of liability based on last tax year)
2. 2nd payment on account: by 31.7. at end of tax year (other 50%)
3. Any balancing payment: by next 31.1. (any balance)

NO payments on account required if remainder after tax deducted at source is below limit (so eg. employees don’t pay it)

Question 16

General anti-avoidance rule (GAAR) definition

Answer 16

= prohibits “abusive tax arrangements”

“arrangement” = reasonable to conclude tax advantage main/one of main purposes

“abusive” = arrangement cannot reasonably be regarded as a reasonable course of action