IT / NIC silly mistakes

Question 1

OPS contributions

Answer 1

Allowable deductions from employment income

IT relief is available on HIGHER of:
£3600
Relevant earnings (Emp income + Trading income)

Question 2

Child benefit charge

Answer 2

See hardmans

Calculation if ANI (50 - 60k)

Deduct from IT liability at base of comp if ANI > £50k

Question 3

Relief for property finance costs / mortgage

Answer 3

20% * LOWER OF:
Finance cost for year + b/f
Rents received
Adjusted total income that exceeds PA

Question 4

ALWAYS TIME APPORTION WDA’s!!!!

Question 5

Employment income exempt benefits

Answer 5

Parking (at or near work)
Employer pension contributions
Job-related accom
Insignificant PU of computer
Loans < £10k
Health check up
Removal / relocation costs (max £8k)
Trivial benefit < £50

Question 6

Property income

Answer 6

CASH BASIS unless receipts > £150k

Allowance = £1k

Finance costs - tax reducer = 20% after IT liability
Lower of:
property income
Interest
NSI - PA (rare)

Rent a room relief (RaR):
Income < 7500 = exempt
Income > 7500 (choose to deduct rental expenses or 7500)

Question 7

Disallowable expenses for trading profit

Answer 7

Depreciation
Cap Ex
Loss on disposal of NCA
Increase in general provision
W/o of non-trade debt
Gift aid donations
Appropriation of profit (salary to ST)
Client entertaining
Gifts (unless < £50, advertise business, not food / drink / tobacco)
Fines (except parking fines by ee’s)
Legal fees re capital items (except payments or renewing short lease)
15% x leased car payments (CO2 > 50 g/km)
Non-trade subscriptions
Accrued pension contributions
Interest on late payment of tax

Question 8

SRP assets for CA’s

Answer 8

Integral features - solar, lfits, ari con, heating
Long life assets
Thermal insulation
Solar panels
Cars > 50 g/km

Question 9

Class 1 NICs

Answer 9

Due on cash earnings
Salary, bonnus, taxable vouchers (cost to er), payments in EXCESS of SMRS (45p)

Calculate based on how salary is given e.g. monthly, weekly
ALWAYS annual for directors

Class 1 S = Employers pay (have an allowance of £5000)

Question 10

Class 1 A

Answer 10

Due on taxable benefits in kind
Paid by er
15.05%

Due 22nd July following end of tax year
Allowable deduction from trading income

Question 11

Class 1B

Answer 11

15.05% on grossed up PSA payments

x2 columns for BRTP / HRTP

Cost to employer
Income tax *20/80 or *40/60
Grossed up amount (subtotal)
Class 1B @15.05%
Total tax + NIC

Amount payable is income tax row + Class 1 B row

Question 12

Calculating AFTER tax cost to sole trader business for employing an individual

Answer 12

Sum salary and benefits for ee
DEDUCT the income tax and NIC due on the total cost to business
e.g. 45% + 3.25%

Question 13

Opening Year rules

Answer 13

1st tax year (Date of start trade > following 5th April

2nd tax year:
- Long POA (not ending in 2nd tax year) > tax full tax year
- Less than 12 mo > tax first 12 mo of trading
- More than 12 mo > tax last 12 months of long POA

Question 14

Current year basis (CYB)

Answer 14

Tax 12 month AP ending in tax year

Question 15

Closing year rules

Answer 15

All profits not yet assessed - overlap profits

Question 16

Pensions - limit on relief claimed

Answer 16

Max amount of gross pension contribution that will attract IT relief is HIGHER OF:

100% * relevant earnings (TTP + Employment income)

PPS contributions = gross up first
OPS contributions = take amount contributed

Also - max amount of total contributions in a year = £40,000

Question 17

Adjusted net income (ANI)

Answer 17

Net income - Gross Gift aid donations - Gross PPS contributions

Question 18

Capital Allowances (Sole Trader)

Answer 18

FYA - Only 0 emission cars
PU asset column (x BU %)

Question 19

Full calculation method for DTR

Answer 19

Recalculate computation without overseas income (This is because tax may cover 2 bands (BRB / HRB)

The difference = UK tax on overseas income

DTR is lower of
Overseas tax
UK tax

Question 20

Pension income

Answer 20

NSI

Question 21

Trading allowance

Answer 21

Any miscellaneous trading receipts < £1000 is exempt

Question 22

Pension contributions

Answer 22

Er OPS contribution = EXEMPT
Ee OPS contribution = DEDUCTIBLE from employment income (think about payslip)

Er PPS contribution = EXEMPT
Ee PPS contribution = EXEMPT (Extends BRB by grossed up amount)

Question 23

Disposable income calculation

Answer 23

ALL CASH EARNINGS less IT / NIC / any expenses paid out
Think about what you can ACTUALLY spend

Question 24

CA’s Short life asset (SLA)

Answer 24

MP assets used < 8 years (intention to sell)
De-pooling election to put asset into separate column (allows BA/BC on disposal)

Question 25

SBAs

Answer 25

Qualifying expenditure (commerical buildings / structures after Oct 2018)

Less land, stamp duty, professional fees etc.

3% allowance from when brought into use

Disposal - NO BA, buyer takes over remainder of SBA

CGT - proceeds received by seller are increased by amount of SBA’s claimed to date

Question 26

Directors - employment income / NICs

Answer 26

Directors = annual basis
Date income is ‘in charge’ is earliest of 5 dates

Question 27

Cash basis for small unincorporated businesses

Answer 27

Trading profits < £150,000. Stop when > £300,000

Any purchases of P&M are FULLY ALLOWABLE (no CAs)
Any reciepts are taxable as trading receipts (e.g. sale of van)
Cars however are not allowable - continue to claim CAs as normal or use FRMA

Question 28

Beneficial loans (average vs strict)

Answer 28

Taxable benefit on loans at favourable interest > £10,000
Average: Average of loan outstanding @ start and end of year *2%

Strict: Loan amount * 2% - amount of interest paid in year = taxable benefit