Introduction to taxation Flashcards
What are the direct taxes?
Direct taxes are imposed by reference to a taxpayer’s circumstances, for example, CGT is assessed by reference to an individual’s chargeable gain calculated on the basis of that individual’s circumstances.
Income tax
CGT
Corporation tax
What is indirect tax and what is an example?
Indirect taxes are imposed by reference to transactions.
VAT
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 income receipts?
Money received on a regular basis will be classified as an income receipt.
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 a capital receipt?
If a receipt is from a transaction that is not part of such regular activity, this is likely to be classified as a capital receipt. Think of capital transactions as `one-off’ transactions.
What is income expenditure?
Money spent as part of the day-to-day trading, is `income’ expenditure.
What are examples of income expenditure?
Bills for heating
Rent
Lighting
Marketing
Stationary expenses
staff wages
General repairs
Interest payable on a loan (as paid to the lender on a regular basis).
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.
What are examples of capital expenditure?
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 = trading profits
In general, when can relief for capital expenditure be deducted?
Only from the proceeds realised when a capital asset is disposed of.
What is the purpose of capital allowances?
Through capital allowances, a proportion of the cost of some capital assets (capital expenditure) can be set off against trading profits (income receipts) of the business each year during the life of the asset concerned.
How do capital allowances work?
They spread the cost of capital expenditure on certain capital items over a period of time. This is achieved by a proportion of the capital expenditure being deducted from income receipts over a period of time.
