Income Tax, National Insurance and Capital Gains Tax Flashcards
What is evasion?
Deliberate omission from tax return or false information, dishonest and a criminal act
What is avoidance?
Use of tax ‘loopholes’ not yet closed by HMRC, legal
What is mitigation?
Tax savings encouraged by government eg ISAs, pensions
What did HMRC used to be called?
Inland Revenue
What are the three main types of tax?
Income tax, capital gains tax (CGT) and inheritance tax (IHT)
What is income tax?
Based on all income from earnings, investments, and/or pensions
What is CGT?
Based on chargeable gains, eg sale of an asset about purchase price
What is IHT?
On individual’s wealth at death
Who is income tax payable by?
Anyone resident in the UK on employment income, self-employed income, interest, dividends, and property income
Who has an annual personal allowance (PA)?
Every individual (including a child)
What is a PA?
The amount of income an individual can receive tax-free in a tax year, before the remainder of their income becomes liable to income tax
When is the tax year?
6 April to 5 April
What does the rate of tax depend on?
It depends on income above allowance for basic-rate and higher-rate taxpayers, eg progressive tax
What is a basic-rate taxpayer?
A taxpayer whose entire taxable income is taxed at a basic rate
What is a higher-rate taxpayer
A taxpayer whose taxable income exceeds the basic rate band and hence some of their income is taxed at a higher rate
What is a tax code?
Used by HMRC to tell employer how much allowance you have against tax eg number and letter 1250L
What are the two key PAYE forms?
P60 and P45
What can parents/grandparents gift their children?
Income-earning assets, income is classed as the child’s, but if the asset/cash is a gift from parent it is classed as parent’s income if >£100 pa
When do employees stop paying NI?
When they reach State Pension Age, but employers still pays NI for staff who work beyond State Pension Age
Give examples of tax-free gains.
If assets held in an ISA or pension, an individual’s only or main home, private cars, personal possessions (‘chattels’) worth £6k, betting, lottering winnings or premium bond prizes, gifts to spouse/civil partner, gifts to charity
What can tax-wrappers be used for?
To ‘shelter’ gains from tax
