Introduction To Income Tax Flashcards
Who pays income tax?
All individuals resident in the UK
What period is income tax calculated based on?
The tax year
IT: 2 types of income
Exempt
Chargeable
IT: Ways chargeable income can be taxed
At source
So recieve net
Direct assessment
So receive gross
Is ISA income exempt?
Yes
Is junior ISA income exempt?
Yes
Is interest from National Savings Certificates (NS&I certificates) exempt?
Yes
Are winnings exempt?
E.g. betting, lottery, premium bond
Yes
Is housing benefit exempt?
Yes
Are scholarships exempt?
Yes
Is income tax repayment interest exempt?
Yes
Are apprenticeship bursaries paid to individuals leaving authority date exempt?
Yes
Is compensation made under qualifying payments schemes e.g. the Windrush compensation scheme exempt?
Yes
How is employment income treated, as it is received net?
Individual will receive a credit for the amount of tax already paid
In the exam are salaries given net or gross by default?
Gross
IT: Taxable income =
Net income after deducting PA
What is the order of deducting the PA?
Left to right
(NSI, SI, DI)
Is the PA available in full at the year of death/birth?
Yes
Is the PA available against non-income taxes?
No, just IT
Salary PA is gradually reduced?
£100k
What is the withdrawal of PA based on?
ANI
ANI
Adjusted net income
Amount PA is reduced by =
(ANI-100k)x0.5
Rounded up to the £
So what is the income where there is no PA?
£125,140
When does the starting IT savings rate of 0% only apply?
If savings income falls into the first £5k of taxable income
My be reduced/eliminated by other income because taxed first
Who is the savings income nil rate band available for?
Taxable income less £150k
Who’s savings income isn’t covered by SRB
How much is the savings income nil rate band?
£1k for basic rate taxpayers
£500 higher rate
What is the tax for savings income nil rate band?
0%
But uses up part of basic/higher band
How is it ensured that employment income isn’t taxed twice?
The PAYE deducted at source is deducted from the IT liability to give IT payable
What happens if tax paid exceeds IT liability?
Repayment generated
Gift aid process
- Donor donates and makes GA declaration
- Amount paid deemed to be net of 20% tax
- Individual deemed to have paid 80% of ultimate donation
Charity can claim 20% from HMRC
How is GA tax relief obtained?
Depends on the donor
How is GA relief obtained for basic rate taxpayers?
Given at time of donation
By only given 80% to charity
So no adjustment is needed in the IT computation
How is GA relief obtained for higher rate taxpayers?
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%
How is GA relief obtained for additional rate taxpayers?
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%
When can a spouse transfer their marriage allowance?
If transferor:
Has no tax liability (or will only be basic rate after transfer)
And recipient is basic rate
What does the transferred marriage allowance reduce?
Recipient’s IT liability at basic rate
How does a marriage allowance transferor create the transfer?
Making an election
When is there no need to complete a tax return?
All tax paid under PAYE
Employees can also pay under £3k additional via PAYE
Tax return available for employees (not directors), pensioners and traders with turnover up to VAT reg limit?
Short tax returns
Deadline for informing HMRC they need a tax return if not provided when needed?
5 Oct after end of tax year
Can HMRC issue assessments without a taxpayer who should have done submitting a return?
Yes
Simple assessments
Due date for tax return depends on
Whether TR is electronic or paper
Deadline for correcting tax returns they consider incorrect
9m
Of actual filing date
Deadline for amending their tax return (for any reason)
Within 12m
After the later of:
31 Jan after end of tax year
3m after return issued
‘Overpayment relief’ claim deadline
4y after end of tax return
What is paid to taxpayers who overpaid IT/penalties?
Repayment interest
When does repayment interest run from?
The later of:
Due date
Date of actual payment
To the day before repayment
Do you have to pay income tax on repayment interest?
No
For what can a late payment be charged?
Additional tax payments from self-assessment amendments
Late payments under discovery assessment
When does late payment interest run for late tax and penalties?
Between (not including):
Due date
Date payment made
When does late payment interest run for additional tax due?
(From amendments and discovery assessments)
From: Annual submission date
To: Day before payment made
Penalty if taxpayer has taken reasonable care to compete return
And taken reasonable steps to disclose any errors
No penalty
Who is responsible for IT if the taxpayer uses an agent (e.g. accountant)?
The taxpayer
Due date for IT penalties sent by HMRC
30d
How long can penalties be suspended to allow taxpayer to put things right?
E.g. improve accounting records
2y
Can a taxpayer appeal against a penalty?
Yes
Circumstances penalties are charged?
- Understated tax
- Excessive or false loss claim
- Excessive or false tax repayment
- Incorrect claims and reliefs
Also failing to advise of incorrect assessment within 30d of assessment issue
What are IT penalties based on?
PLR
PLR
Potential lost revenue
What is PLR?
(Basically) the unpaid tax as a result of the error
Max PLR?
100% PLR
Penalties vary according to whether it is…
- Careless
E.g. failing to check return consistent with underlying records - Deliberate but not concealed
E.g. paying wages without operating PAYE/NIC
Omitting large amounts of income from tax return - Deliberate and concealed
E.g. creating false invoices, destroying records
When can penalties be reduced?
When disclosure made by taxpayer
Greater reduction for unprompted disclosure
I.e. HMRC no reason to believe HMRC know error
When do (PTX) penalties apply?
Failure to notify about:
Charge-ability of tax
Failure to register for:
VAT
Is there a penalty if reasonable care had been taken?
Yes
How far can penalty despite reasonable care being taken be reduced?
To zero
When can penalty despite reasonable care being taken be reduced?
If failure rectified within 12m
Through unprompted disclosure
From who else can penalties be collected (fully or partially)?
From an officer of a company
E.g. director
If ‘deliberate action’ is attributable to them
(Taxpayer can appeal)
When can penalty for non-deliberate IT failure be reduced to zero?
If there is a reasonable excuse
Reasonable (IT) excuse
Issue
That prevents
Taxpayer from meeting an obligation
Despite taking reasonable care to reply
Reasonable (IT) excuses examples
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
Is lack of funds to pay IT a reasonable excuse?
No
Which taxes does common penalty regime late filing penalty apply to?
- Income tax (personal/partnership)
- Capital gains tax (personal)
