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AAT Level 4 > Personal Tax > Flashcards

Personal Tax Flashcards

1
Q

Equitable System Meaning

A

Fair system
Earn more - pay more tax

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2
Q

What Makes A Good Tax System?

A

Fair
Absolute
Convenient
Efficient

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3
Q

What Is Direct Tax?

A

Tax paid to HMRC directly (PAYE on wages)
You know you are paying it

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4
Q

What is Indirect Tax?

A

Tax paid by yourself, but paid to HMRC by someone else
e.g VAT
Don’t think about it happening

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5
Q

What Is The Regressive Tax Rate Structure?

A

The more you earn, the less tax you pay
e.g. National Insurance

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5
Q

What Are The Tax Rate Structures?

A

Progressive
Proportional
Regressive

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5
Q

What Is The Progressive Tax Rate Structure?

A

Tax increases as income increases
e.g. income tax

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5
Q

What Is The Proportional Tax Rate Structure?

A

Same proportion of tax regardless of income
e.g. VAT at 20%

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5
Q

What Is The Regressive Tax Rate Structure?

A

Opposite to progressive
The more you earn, the less tax you pay
e.g. National Insurance

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5
Q

What Are The Ethical Principles?

A

Integrity - Honesty
Objectivity - No bias
Confidentiality
Professional Behaviour - Not bringing the profession into disrepute
Professional Competence & Due Care - Got the skills to do the job

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6
Q

When Can Confidentiality Be Overridden?

A

Authority given by client
Legal or professional duty - e.g. money laundering suspicion

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6
Q

What To Do If There Is An Error In A Clients Return?

A

Recommend that the client informs HMRC
If the client refuses - Do not act for them in connection with that return

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6
Q

What Are The Tax Traffic Lights?

A

Tax Planning - legal use of legislation to minimise tax bills - legal & ethical
Tax Avoidance - legal use of legislation but not following intent of the law (using loopholes) - legal & unethical
Tax Evasion - Illegal ways to pay less tax (e.g. hiding income)

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6
Q

When Does The Tax Year (Fiscal Year) Run From And To?

A

6th April To 5th April

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6
Q

Types Of Exempt Interest Income

A

ISA’s
NS&I savings certificates
Delayed income tax repayments (HMRC)
Save as you earn (SAYE) sharesave accounts

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7
Q

Types Of Taxable Interest Income

A

Bank & building society interest
Gifts
NS&I bank accounts
Quoted loan notes & debentures

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8
Q

What Rate Is The Savings Allowance Taxed At?

A

0%

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9
Q

What Rate Is The Dividend Allowance Taxed At?

A

0%

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10
Q

What To Do If Adjusted Net Income Is Over £100,000?

A
  1. How much over £100,000?
  2. Half it
  3. Subtract from Personal Allowance
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11
Q

What To Do With Private Pension / Charity Contributions?

A
  1. Gross up - Multiply by 1.25
  2. Extend the tax bands by this amount
  3. Deduct from adjusted net income
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12
Q

At What Date Are Bonuses Taxable?

A

The earlier of:
the receipt date
the date they are entitled to receive it

13
Q

At What Date Are Bonuses Taxable For Directors?

A

The earlier of:
The receipt date
The date they are entitled to receive it
The date in the accounting records
The date the amount is determined (if after year end date)

14
Q

What Makes An Expense Allowable?

A

Wholly
Exclusively
Necessary

15
Q

Allowable Expenses - Travel

A

If paid less - claim the difference as an allowable expense
If paid more - the excess is taxable
COMMUTING IS NOT INCLUDED

16
Q

What To Do With Charity Donations & Pension Contributions Through Payroll?

A

GAYE (Give as you earn) - charity donations taken from your pay
Workplace pension - company pension scheme

BOTH MAKE EMPLOYMENT INCOME SMALLER

17
Q

Specific Entertaining Allowance

A

Receive an allowance each month specifically for entertaining - Allowance is taxable unless all is spent on entertaining

18
Q

Round Sum Entertaining Allowance

A

Allowance is taxable - can claim tax deductible expenses on all NON ENTERTAINING allowable expenses

19
Q

What is A Non-Contributory Occupational Pension Scheme?

A

The employer pays a percentage of their salary into the pension scheme, but the employee does not

20
Q

Staff Party - Other Benefits In Kind (Ref Material 11)

A

If the event is over £150 - none is exempt
If there are 2 events - pick which would be exempt

21
Q

Relocation - Other Benefits In Kind (Ref Material 11)

A

Anything over £8,000 is taxable

22
Q

Vouchers Given To Staff - Other Benefits In Kind (Ref Material 11)

A

Cash Voucher - The benefit is the cash value
Non Cash Voucher - The benefit is the amount the voucher cost the employer

23
Q

Company Car Benefit Rules

A

Relevant % x LIST PRICE OF CAR
Max is 37%
Max contribution = £5,000 (deduct from list price)
Extras added to car after purchase (over £100) - Add to list price
If employee contributes towards the benefit - reduce the benefit

24
Q

Loan To Employee - Other Benefits In Kind (Ref Material 11)

A

No benefits if:
Total does not exceed £10,000
Interest is being charged at 2.25% or higher

IF WRITTEN OFF - TOTAL OUTSTANDING IS A BENEFIT

25
Q

Loans Partly Repaid Method

A

(Balance at start of year + Balance at end of year) / 2
x % of interest that should be paid

26
Q

Gift / Purchase Of An Asset - Other Benefits In Kind (Ref Material 11)

A

Benefit = higher of:

Current market value
(Price paid by employee)

OR

Original market value
(Benefits already taxed for use of the asset)
(Price paid by employee)

27
Q

Accommodation Benefit - Other Benefits In Kind (Ref Material 11)

A

Job related accommodation = Exempt
Non job related = taxable (basic & expensive charge)

Basic - greater of:
Annual value
Rent paid by employer

Expensive (costs over £75,000):
Cost - 75,000 x 2.25%

EXPENSIVE 6 YEAR RULE
Replace cost with market value IF property was made available to employee 6 years after it was acquired

28
Q

Furniture & Expenses - Other Benefits In Kind (Ref Material 11)

A

For non job related:
20% of cost of the furniture
Cost to the employer of expenses

For job related:
Same as above BUT is restricted to 10% of other employment income

29
Q

When Does A Chargeable Gain/Loss Happen?

A

When there is a Chargeable Disposal of a Chargeable Asset by a Chargeable Person

30
Q

Capital Gain/Loss Calculation - Layout

A

Sales proceeds
(Selling costs)
=
Net sales proceeds
(Cost)
(Enhancement costs)
=
Chargeable gain / Allowable loss

31
Q

How To Calculate The Cost In A Part Disposal?

A

Allowable cost of whole asset
X
Gross sales proceeds of disposed part / (Gross sales proceeds of disposed part + Market value of remaining part)

32
Q

How To Tax A Wasting Chattel?

A

Exempt
Life under 50 years
e.g. caravan, boats, racehorses, greyhounds

33
Q

How To Tax A Non Wasting Chattel?

A

Cost & Proceeds UNDER £6,000 - Exempt
Cost & Proceeds OVER £6,000 - Normal Gain
Cost UNDER £6,000, Proceeds OVER £6,000 - Normal gain VS 5/3 x (Gross proceeds - £6,000)
Cost OVER £6,000, Proceeds UNDER £6,000 - Normal loss but replace proceeds with £6,000

34
Q

Who Are Connected Persons?

A

Parents, grandparents, brothers, sisters, children, grandchildren & their spouse / civil partner

35
Q

How To Dispose To A Connected Person?

A

Proceeds = market value of asset at disposal
Loss on disposal can only offset against gains to the SAME person

36
Q

How To Dispose To Spouse / Civil Partner?

A

No gain / no loss on disposal - no tax implication
If the asset is then sold, the original cost is used

37
Q

Calculating Taxable Gains - Layout

A

Chargeable gains for the year
(Current tax year capital losses)
=
Net chargeable gains
(AEA)
(Capital losses b/f)
=
Taxable gains

38
Q

What Are The Share Matching Rules?

A
  1. Same day acquisitions
  2. Acquisitions 30 days AFTER disposal
  3. Share pool
39
Q

What Do You Not Put In The Share Pool?

A

Sales proceeds

40
Q

What Do Bonus Shares Cost?

A

Nothing - free

41
Q

What Do Rights Shares Cost?

A

Cheaper than normal
Treat as normal

AAT Level 4 (6 decks)

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