Introduction to Taxation – General Principles Flashcards
What taxes are covered in Business module?
2) Capital Gains Tax
3) Value added Tax
4) Corporation Tax
What is a direct tax?
Reference to taxpayer’s circumstances (e.g. Income Tax, CGT, Corporation Tax)
What is an indirect tax?
Tax imposed based on transactions (e.g. VAT)
What is the distinction between receipt and expense?
Receipt is paid into a business. Expense is what a business pays out.
What is the difference between income and capital?
Income expenditure can only apply to income receipts.
Capital expenditure can only apply to capital receipts.
What are income receipts?
Money received on regular basis, e.g. trading profits, rent receipt by landlord.
What are capital receipts?
One-off transactions, e.g. a gain on the sale of a premises
What is income expenditure?
Money spent as part of day-to-day trading, e.g. marketing, stationery expenses, rent
What is capital expenditure?
One-off transaction, such as acquiring assets as part of business
How are trading profits calculated?
Income receipts LESS income expenditure = Trading Profits
How is chargeable gain / loss calculated?
Chargeable receipts LESS chargeable expenditure
When is tax relief for capital expenditure applied?
Only when asset is sold / disposed of
What is corporation tax payable?
On income profits and chargeable gains
What is the income tax and CGT tax year?
6 April to 5 April
What is the company financial year?
1 April to 31 March
When is tax deducted at source?
PAYE
What is the definition of annual exemption for CGT?
A tax allowance for individuals only
What is the definition of annual investment allowance?
A special type of capital allowance
What is the definition of Business Asset Disposal Relief?
A tax relief available to individuals to reduce chargeable gains
What is the definition of Capital Allowances?
Tax allowances (deductions) for capital expenditure available to businesses
What is the definition of Capital Gains Tax?
A tax paid by individuals on taxable chargeable gains
What is the definition of Corporation tax?
A tax paid by companies on their taxable total profit
What is the definition of current year basis?
Income tax charged on current year basis, meaning income earned in current year (6 April 2024 to 5 April 2024 is 2024/25 tax year)
What is the definition of deduction of tax at source?
Certain sums obliged to deduct tax when making payment
What is the definition of dividend allowance?
A band of tax free dividend income
What is the definition of financial year?
Company financial year 1 April 2024 to 31 March 2025 is 2024/25 financial year
What is the definition of gross sums and net sums?
Gross = total sum before tax, net sum is after tax
What is the definition of HMRC?
HM Revenue & Customs, the body responsible for collection of all UK Taxes
What is the definition of Income Tax?
Tax paid by individuals on taxable income
What is the definition of indexation allowance?
A tax deduction for indexation available to companies in calculating their chargeable gains.
When was indexation allowance frozen?
31 December 2017 – cannot be claimed after that
What is the definition of Investors’ Relief?
Tax relief available to individuals in certain circumstances to reduce chargeable gains
What is the definition of net income?
Total income less available tax relief
What is the definition of non-savings income?
Income which is not savings or dividend (i.e. salary) (income tax only)
What is the definition of personal allowance?
A band of tax-free income for individuals (income tax only)
What is the definition of personal savings allowance?
A band of savings income available for basic and higher rate taxpayers which is taxed at savings nils rate (income tax only)
What is the definition of savings income?
Income from savings, such as interest (income tax only)
What is the definition of taxable income?
Net income less personal allowance (income tax only)
What is the definition of tax year?
6 April to 5 April
What is the definition of total income?
Gross income from all sources pre-deduction
What is the definition of TTP?
Taxable total profits – total of income profits and chargeable gains for a company
What is the definition of Value Added Tax?
Tax collected by registered business chargeable on supply of goods and service
