Income Tax and NIC

Question 1

Child Income

Answer 1

Income of a child exceeding 100 is treated as income of the parent. This is not applicable to gifts by other relatives

Question 2

Trading Allowance

Answer 2

If trading income doesnt exceed £1000 then it is not taxable

Question 3

Property Income Allowance

Answer 3

If property income doesnt exceed £1000 then it is not taxable

Question 4

Savings nil band rate

Answer 4

£1000 for basic rate tax payers.
£500 for high rate tax payers
£nil for additional tax rate payers.

These amounts contribute to taxable income figures

Question 5

Dividend nil band rate

Answer 5

0% for first £2000

These amounts contribute to taxable income figures

Question 6

Exempt interest payments

Answer 6

Interest paid on the following is deductable:

Loans used to buy Plant and Machinery in partnership or employment purposes.

Loan to buy shares closed company or employee controlled company.

Loan to invest in a partnership.

Question 7

Personal Allowance

Answer 7

£12500

However if you have adjusted net income over £100,000 then for every £1 over £100,000 the allowance will be reduced by 1/2(adjusted net income - 100,000).

This means for adjusted net income over £125,000 that the personal allowance will be completely withdrawn.

Question 8

Adjusted Net income

Answer 8

Net income - gross gift aid donations - gross personal pension contributions

Question 9

Transfer of personal allowance

Answer 9

If both parties are basic rate tax payers, a spouse or civil partner can elect to transfer £1250 to the other which doesn’t earn enough to use their personal allowance (£12,500)

Question 10

Child Benefit Tax Charge

Answer 10

Eldest child benefit of £1076 per year, and then £716 per year for other children.

If the tax payer has adjusted net income between £50,000 and £60,000 then they will incur a charge.

The charge is 1% for every £100 over £50,000.

If the tax payer has adjusted net income over £60,000 they will have a charge equal to all child benefit they have received.

Question 11

Cash Basis - property

Answer 11

If property receipts are less than £150,000 the cash basis is the automatic method.

Calculated as cash receipted minus allowable expenses paid.

The tax payer has the option to opt for acruals basis

Question 12

Acruals Basis - property

Answer 12

If property receipts are more than £150,000 the acruals basis is used.

Acrual having the same principal as in accounting.

Receipts relevant to the period minus allowable expenses relevant to the period.

Question 13

Capital Expenditure - property

Answer 13

Not an allowable expense. But repairs are allowable and replacement of furniture on a like for like basis is allowable.

Question 14

Property Finance Cost

Answer 14

Relevant to property used for residential purposes. Interest or loans are deductible from property income at 25% fully and then 75% taxed only at the basic rate (20%), regardless if the taxpayer is higher or additional, rate payer.

Question 15

Rent-a-room

Answer 15

When a room in a residential property is less than 7500 it will be tax exempt.

£7500 rent relief annually.

If rent is more than 7500 the taxpayer can elect to use rent-a-room or normal method (deducting allowable expenses). Whichever method is more advatangeous will depend on if the expenses are higher than the annual relief amount.

The property allowance can not be used alongside the rent-a-room relief.

Question 16

REIT

Answer 16

Real Estate Investment Trusts (REITs).

Amounts paid out are treated as non-savings income for tax purposes. Amounts are paid net of basic rate tax (20%) and therefore need to be grossed up in tax computations.

There will therefore be an amount paid at source.

Question 17

Living accommodation

Answer 17

Basic charge is the higher of annual value and rent paid.

And for properties worth more than 75000 on first purchase there is an additional benefit to be calculated.

(Cost - 75,000) x 2.5%

Cost is replaces with MV when made available , if the purchase of the property was more than 6 years ago,

Question 18

Living Expenses

Answer 18

Generally taxable on cost to employer.

Or limited to 10% of employment income if accommodation is employment related.

Question 19

Assets made available for private use

Answer 19

20% of market value is taxable benefit

Question 20

Allowable deductions

Answer 20

Generally allowed if the expense is incurred is in the course of employment. If it is incurred wholly, exclusively and necessarily in the performance of duties of employment. If the employee is obliged to incur the expense.

Question 21

Subscriptions to professional bodies

Answer 21

If on the HMRC approved list. If the subscription is relevant to the duties of the employment.

Question 22

Statutory Mileage Rate Scheme

Answer 22

There may be an allowable expense or taxable income arising from flat rate milage allowances given to employees, this will depend on whether the rate is lower or higher than the statutory rates. See tables.

There will be no allowable deduction where a passenger payment has been below statutory rates.

Question 23

Assets transferred to employee following private use

Answer 23

The benefit will be calculated as the higher of :

• Current Market Value
  OR
• Market value of the asset when it was first provided minus any amounts already taxed under private use rules.

If the assets transferred are a car, van or bike, then the taxable benefit is current MV less employee contributions.

Question 24

Employee Related Loans

Answer 24

If the total of loans given to employee is >£10,000 then a benefit is arising.

If there has been no loan repayment during the year the benefit is calculated as:

Loan balance x official interest rate (2.5%)
Minus: Interest Paid

Where there has be repayment of the loan during the tax year there will be two options for calculating the taxable benefit. These are the average and strict method.

The average method is, loan at begining of year + loan at end of year divided by 2 and times 2.5%.

The strict method time apportions the loan balance and multiplies each balance by 2.5%.