Income Tax and NIC Flashcards
Child Income
Income of a child exceeding 100 is treated as income of the parent. This is not applicable to gifts by other relatives
Trading Allowance
If trading income doesnt exceed £1000 then it is not taxable
Property Income Allowance
If property income doesnt exceed £1000 then it is not taxable
Savings nil band rate
£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
Dividend nil band rate
0% for first £2000
These amounts contribute to taxable income figures
Exempt interest payments
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.
Personal Allowance
£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This means for adjusted net income over £125,000 that the personal allowance will be completely withdrawn.
Adjusted Net income
Net income - gross gift aid donations - gross personal pension contributions
Transfer of personal allowance
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)
Child Benefit Tax Charge
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.
Cash Basis - property
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
Acruals Basis - property
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.
Capital Expenditure - property
Not an allowable expense. But repairs are allowable and replacement of furniture on a like for like basis is allowable.
Property Finance Cost
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.
Rent-a-room
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.
REIT
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.
Living accommodation
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,
Living Expenses
Generally taxable on cost to employer.
Or limited to 10% of employment income if accommodation is employment related.
Assets made available for private use
20% of market value is taxable benefit
Allowable deductions
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.
Subscriptions to professional bodies
If on the HMRC approved list. If the subscription is relevant to the duties of the employment.
Statutory Mileage Rate Scheme
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.
Assets transferred to employee following private use
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.
Employee Related Loans
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%.
