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PTX > Introduction To Income Tax > Flashcards

Introduction To Income Tax Flashcards

1
Q

Who pays income tax?

A

All individuals resident in the UK

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2
Q

What period is income tax calculated based on?

A

The tax year

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3
Q

IT: 2 types of income

A

Exempt

Chargeable

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4
Q

IT: Ways chargeable income can be taxed

A

At source
So recieve net

Direct assessment
So receive gross

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5
Q

Is ISA income exempt?

A

Yes

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6
Q

Is junior ISA income exempt?

A

Yes

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7
Q

Is interest from National Savings Certificates (NS&I certificates) exempt?

A

Yes

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8
Q

Are winnings exempt?

E.g. betting, lottery, premium bond

A

Yes

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9
Q

Is housing benefit exempt?

A

Yes

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10
Q

Are scholarships exempt?

A

Yes

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11
Q

Is income tax repayment interest exempt?

A

Yes

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12
Q

Are apprenticeship bursaries paid to individuals leaving authority date exempt?

A

Yes

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13
Q

Is compensation made under qualifying payments schemes e.g. the Windrush compensation scheme exempt?

A

Yes

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14
Q

How is employment income treated, as it is received net?

A

Individual will receive a credit for the amount of tax already paid

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15
Q

In the exam are salaries given net or gross by default?

A

Gross

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16
Q

IT: Taxable income =

A

Net income after deducting PA

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17
Q

What is the order of deducting the PA?

A

Left to right

(NSI, SI, DI)

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18
Q

Is the PA available in full at the year of death/birth?

A

Yes

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19
Q

Is the PA available against non-income taxes?

A

No, just IT

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20
Q

Salary PA is gradually reduced?

A

£100k

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21
Q

What is the withdrawal of PA based on?

A

ANI

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22
Q

ANI

A

Adjusted net income

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23
Q

Amount PA is reduced by =

A

(ANI-100k)x0.5

Rounded up to the £

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24
Q

So what is the income where there is no PA?

A

£125,140

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25
Q

When does the starting IT savings rate of 0% only apply?

A

If savings income falls into the first £5k of taxable income

My be reduced/eliminated by other income because taxed first

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26
Q

Who is the savings income nil rate band available for?

A

Taxable income less £150k
Who’s savings income isn’t covered by SRB

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27
Q

How much is the savings income nil rate band?

A

£1k for basic rate taxpayers
£500 higher rate

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28
Q

What is the tax for savings income nil rate band?

A

0%

But uses up part of basic/higher band

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29
Q

How is it ensured that employment income isn’t taxed twice?

A

The PAYE deducted at source is deducted from the IT liability to give IT payable

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30
Q

What happens if tax paid exceeds IT liability?

A

Repayment generated

31
Q

Gift aid process

A
  1. Donor donates and makes GA declaration
  2. Amount paid deemed to be net of 20% tax
  3. Individual deemed to have paid 80% of ultimate donation
    Charity can claim 20% from HMRC
32
Q

How is GA tax relief obtained?

A

Depends on the donor

33
Q

How is GA relief obtained for basic rate taxpayers?

A

Given at time of donation
By only given 80% to charity

So no adjustment is needed in the IT computation

34
Q

How is GA relief obtained for higher rate taxpayers?

A

20% relief at time do payment

Maximum of 20% (40%-20%) extra relief given by increasing HR threshold by gift gross
So total relief is 40%

35
Q

How is GA relief obtained for additional rate taxpayers?

A

20% granted at time of relief

Max 25% (45%-20%) extra relief given by increasing the other thresholds by gift gross

So total relief is 45%

36
Q

When can a spouse transfer their marriage allowance?

A

If transferor:
Has no tax liability (or will only be basic rate after transfer)
And recipient is basic rate

37
Q

What does the transferred marriage allowance reduce?

A

Recipient’s IT liability at basic rate

38
Q

How does a marriage allowance transferor create the transfer?

A

Making an election

39
Q

When is there no need to complete a tax return?

A

All tax paid under PAYE

Employees can also pay under £3k additional via PAYE

40
Q

Tax return available for employees (not directors), pensioners and traders with turnover up to VAT reg limit?

A

Short tax returns

41
Q

Deadline for informing HMRC they need a tax return if not provided when needed?

A

5 Oct after end of tax year

42
Q

Can HMRC issue assessments without a taxpayer who should have done submitting a return?

A

Yes

Simple assessments

43
Q

Due date for tax return depends on

A

Whether TR is electronic or paper

44
Q

Deadline for correcting tax returns they consider incorrect

A

9m
Of actual filing date

45
Q

Deadline for amending their tax return (for any reason)

A

Within 12m
After the later of:
31 Jan after end of tax year
3m after return issued

46
Q

‘Overpayment relief’ claim deadline

A

4y after end of tax return

47
Q

What is paid to taxpayers who overpaid IT/penalties?

A

Repayment interest

48
Q

When does repayment interest run from?

A

The later of:
Due date
Date of actual payment

To the day before repayment

49
Q

Do you have to pay income tax on repayment interest?

A

No

50
Q

For what can a late payment be charged?

A

Additional tax payments from self-assessment amendments

Late payments under discovery assessment

51
Q

When does late payment interest run for late tax and penalties?

A

Between (not including):
Due date
Date payment made

52
Q

When does late payment interest run for additional tax due?
(From amendments and discovery assessments)

A

From: Annual submission date
To: Day before payment made

53
Q

Penalty if taxpayer has taken reasonable care to compete return
And taken reasonable steps to disclose any errors

A

No penalty

54
Q

Who is responsible for IT if the taxpayer uses an agent (e.g. accountant)?

A

The taxpayer

55
Q

Due date for IT penalties sent by HMRC

A

30d

56
Q

How long can penalties be suspended to allow taxpayer to put things right?
E.g. improve accounting records

A

2y

57
Q

Can a taxpayer appeal against a penalty?

A

Yes

58
Q

Circumstances penalties are charged?

A
  1. Understated tax
  2. Excessive or false loss claim
  3. Excessive or false tax repayment
  4. Incorrect claims and reliefs

Also failing to advise of incorrect assessment within 30d of assessment issue

59
Q

What are IT penalties based on?

A

PLR

60
Q

PLR

A

Potential lost revenue

61
Q

What is PLR?

A

(Basically) the unpaid tax as a result of the error

62
Q

Max PLR?

A

100% PLR

63
Q

Penalties vary according to whether it is…

A
  1. Careless
    E.g. failing to check return consistent with underlying records
  2. Deliberate but not concealed
    E.g. paying wages without operating PAYE/NIC
    Omitting large amounts of income from tax return
  3. Deliberate and concealed
    E.g. creating false invoices, destroying records
64
Q

When can penalties be reduced?

A

When disclosure made by taxpayer

Greater reduction for unprompted disclosure
I.e. HMRC no reason to believe HMRC know error

65
Q

When do (PTX) penalties apply?

A

Failure to notify about:
Charge-ability of tax

Failure to register for:
VAT

66
Q

Is there a penalty if reasonable care had been taken?

A

Yes

67
Q

How far can penalty despite reasonable care being taken be reduced?

A

To zero

68
Q

When can penalty despite reasonable care being taken be reduced?

A

If failure rectified within 12m
Through unprompted disclosure

69
Q

From who else can penalties be collected (fully or partially)?

A

From an officer of a company
E.g. director

If ‘deliberate action’ is attributable to them

(Taxpayer can appeal)

70
Q

When can penalty for non-deliberate IT failure be reduced to zero?

A

If there is a reasonable excuse

71
Q

Reasonable (IT) excuse

A

Issue
That prevents
Taxpayer from meeting an obligation
Despite taking reasonable care to reply

72
Q

Reasonable (IT) excuses examples

A

Death of close relative shortly before due date
Unexpected hospital stay
Serious life-threatening illness
Disability
Computer/software failure when online return
HMRC online service issues
Fire, flood, theft, postal delays

73
Q

Is lack of funds to pay IT a reasonable excuse?

A

No

74
Q

Which taxes does common penalty regime late filing penalty apply to?

A
  1. Income tax (personal/partnership)
  2. Capital gains tax (personal)

PTX (14 decks)

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