Income tax (individual)

Question 1

What can income expenditure generally only be deducted from?

Answer 1

Income receipts

Question 2

What is capital expenditure?

Answer 2

Money spent to purchase a capital asset for infrastructure

Question 3

What constitutes income receipts?

Answer 3

Money received on a regular basis such as trading profits, interest from banks, and rent

Question 4

Define capital receipts.

Answer 4

Money received as one-off transactions

Question 5

How are trading profits calculated?

Answer 5

Income Receipts – Income Expenditure

Question 6

What are capital allowances?

Answer 6

A proportion of capital expenditure deducted from income receipts over time - relevant for calculating Corporation Tax.

Question 7

What is the tax year for individuals in the UK?

Answer 7

6 April – 5 April

Question 8

What is the financial year for companies in the UK?

Answer 8

1 April – 31 March

Question 9

What are the two ways to collect income tax?

Answer 9

• Self-Assessment
• Deduction at Source

Question 10

What is total income?

Answer 10

Gross income from all sources - this includes benefits in kind.

NEVER include ISAs

Question 11

Define net income.

Answer 11

Total income less available tax reliefs

Question 12

What is taxable income?

Answer 12

Net income less personal allowance

Question 13

How do you calculate Net Income?

Answer 13

Deduct Available Tax Relief from Total Income.

Question 14

What tax reliefs might you be able to deduct at stage 2?

Answer 14

a. Qualifying loans (loans to buy an interest in a partnership/contribute capital/shares)
b. Pension scheme contributions
c. Charity

Question 15

What is the current Personal Allowance?

Answer 15

Currently £12,570.

Question 16

How does the Personal Allowance reduce?

Answer 16

Reduces by £1 for every £2 of net income above £100,000 –> 12,570 - [(net income - 100,000) / 2] = new allowance

Question 17

How do you split Taxable Income?

Answer 17

Split into Non-Savings, Savings, and Dividend Income.

Question 18

What is the formula for Non-Savings Income?

Answer 18

Taxable Income - Savings Income - Dividend Income = Non-Savings Income.

Question 19

How is the Personal Savings Allowance (PSA) determined?

Answer 19

• Basic rate taxpayers - first £1,000 of savings is received at 0%
• Higher rate taxpayers - first £500 received
• Addiitonal rate taxpayers - no personal savings allowance

Question 20

What should be applied first when calculating tax at step 6?

Answer 20

Apply Personal Savings Allowance and Dividend Allowance (£2000 tax free!) first.

Question 21

How do you calculate total tax liability?

Answer 21

Add Total Taxed Figures together to get total tax liability.

Question 22

What are the tax rates for additional tax payers?

Answer 22

Non-savings - 45%
Savings 45%
Dividend - 39.98%

Question 23

What are the tax rates for higher rate tax payers?

Answer 23

Non-savings - 40%
Savings - 40%
Dividend - 33.75%

Question 24

What are the tax rates for basic rate tax payers?

Answer 24

Non-savings - 20%
Savings - 20%
Dividend - 8.75%

Question 25

What should be done with any remaining income tax at the end of the tax year?

Answer 25

It should be paid in a final payment to HMRC.

Question 26

Are tax refunds possible?

Answer 26

Yes, tax refunds are possible.

Question 27

Can a taxpayer reduce their income tax liability by gifting dividend-relating shares to children?

Answer 27

No, the taxpayer will still be charged.

Question 28

What is the General Anti-Avoidance Rule (GAAR)?

Answer 28

It is to combat avoidance arrangements that go beyond lawful tax avoidance.

Question 29

What happens if abusive tax avoidance arrangements are uncovered?

Answer 29

The taxpayer will be notified and may be fined

Question 30

What does the GAAR advisory panel do?

Answer 30

It deals with any representations by the taxpayers.

Question 31

How do you calculate income tax?

Answer 31

1. Add up income (total income) 2. Deduct reliefs (net income) 3. Deduct peronsl allowance (taxable income) 4. Split taxable income 5. Is the personal savings allownace available? 6. Apply tax rates 7. Add up the numbers from above (total tax liability)