Individual taxation Flashcards
What are the direct taxes?
Taxes imposed by reference to a taxpayer’s circumstances.
Income tax
CGT
Corporation tax
What is an example of an indirect tax?
VAT
What is an income receipt?
Money received on a regular basis will be classified as an income receipt.
What is a capital receipt?
Receipt from a transaction that is not part of such regular activity. One-off transactions.
What is a receipt?
Money paid TO the business and often referred to as income.
What is an expense?
Money the business pays OUT.
What are examples of income receipt?
Trading profits.
Interest a bank pays in relation to savings held in an account.
Rent payments received by a landlord from their tenant.
What is income expenditure?
Money spent as part of the day-to-day trading e.g. bills for heating, general repairs and interest payable on a loan.
What is capital expenditure?
If money is spent to purchase a capital asset or as an enduring benefit for the business, it is `capital expenditure’.
Capital expenditure can be seen as a `one-off’ transaction.
Expenditure on large items of equipment and machinery or property will be capital expenditure.
Equally, expenditure on enhancing a capital asset (other than routine maintenance) will be capital expenditure. Even though these assets are used by a business to trade, they are one-off purchases.
How do you calculate trading profits?
Income receipts - income expenditure.
What is capital allowances?
A regime that allows certain types of capital expenditure to be deducted when calculating income receipts, thereby reducing the taxpayers bill.
When are individuals assessed to income tax and CGT?
On the basis of a tax year which runs from 6 April one year to 5 April the next.
When are companies assessed to corporation tax?
On the basis of a financial year which runs from 1 April in one year to 31 March in the next.
What is the PAYE system?
o In some cases, income tax is deducted at source and this is known as `withholding tax’.
o The payer of a sum that is taxable in the hands of the recipient deducts the tax due in respect of the sum and accounts for it to HMRC.
o The recipient of the taxable sum therefore receives the sum net of tax.
What are the two ways in which HMRC collects income tax?
Self-assessment and Deduction at source.
What is total income?
a taxpayer’s gross income from all sources
What is net income?
the total income less available tax reliefs
What is taxable income?
Is net income less the personal allowance
What is a summary of the income tax calculation?
- Calculate total income
- Calculate net income (total income less available tax reliefs)
- Calculate taxable income (net income less personal allowance).
- Calculate the the non-savings income (taxable income less savings income and dividend income) + apply relevant rates.
- Calculate savings income (savings less any PSA)
- Calculate dividend income (dividends less dividend allowance)
- Add, the tax payable.
Where income has been received by a taxpayer after the deduction of tax (net of tax) how do you calculate?
Include the gross amount in the calculation of the total income.
What allowances apply to savings?
Basic rate taxpayers are entitled to their first £1,000, and higher rate taxpayers are entitled to their first £500 of interest received on savings at the nil rate.
What allowances apply to dividends?
No individual (regardless of income received) does not pay income tax on the first £500 of dividends.
What are benefits in kind part of?
They are part of the total income.
When calculating the total income what is part of the deduction?
Interest paid out of qualifying loans and pension contributions.
