Personal Tax Flashcards
Equitable System Meaning
Fair system
Earn more - pay more tax
What Makes A Good Tax System?
Fair
Absolute
Convenient
Efficient
What Is Direct Tax?
Tax paid to HMRC directly (PAYE on wages)
You know you are paying it
What is Indirect Tax?
Tax paid by yourself, but paid to HMRC by someone else
e.g VAT
Don’t think about it happening
What Is The Regressive Tax Rate Structure?
The more you earn, the less tax you pay
e.g. National Insurance
What Are The Tax Rate Structures?
Progressive
Proportional
Regressive
What Is The Progressive Tax Rate Structure?
Tax increases as income increases
e.g. income tax
What Is The Proportional Tax Rate Structure?
Same proportion of tax regardless of income
e.g. VAT at 20%
What Is The Regressive Tax Rate Structure?
Opposite to progressive
The more you earn, the less tax you pay
e.g. National Insurance
What Are The Ethical Principles?
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
When Can Confidentiality Be Overridden?
Authority given by client
Legal or professional duty - e.g. money laundering suspicion
What To Do If There Is An Error In A Clients Return?
Recommend that the client informs HMRC
If the client refuses - Do not act for them in connection with that return
What Are The Tax Traffic Lights?
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)
When Does The Tax Year (Fiscal Year) Run From And To?
6th April To 5th April
Types Of Exempt Interest Income
ISA’s
NS&I savings certificates
Delayed income tax repayments (HMRC)
Save as you earn (SAYE) sharesave accounts
Types Of Taxable Interest Income
Bank & building society interest
Gifts
NS&I bank accounts
Quoted loan notes & debentures
What Rate Is The Savings Allowance Taxed At?
0%
What Rate Is The Dividend Allowance Taxed At?
0%
What To Do If Adjusted Net Income Is Over £100,000?
- How much over £100,000?
- Half it
- Subtract from Personal Allowance
What To Do With Private Pension / Charity Contributions?
- Gross up - Multiply by 1.25
- Extend the tax bands by this amount
- Deduct from adjusted net income
At What Date Are Bonuses Taxable?
The earlier of:
the receipt date
the date they are entitled to receive it
At What Date Are Bonuses Taxable For Directors?
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)
What Makes An Expense Allowable?
Wholly
Exclusively
Necessary
Allowable Expenses - Travel
If paid less - claim the difference as an allowable expense
If paid more - the excess is taxable
COMMUTING IS NOT INCLUDED
What To Do With Charity Donations & Pension Contributions Through Payroll?
GAYE (Give as you earn) - charity donations taken from your pay
Workplace pension - company pension scheme
BOTH MAKE EMPLOYMENT INCOME SMALLER
Specific Entertaining Allowance
Receive an allowance each month specifically for entertaining - Allowance is taxable unless all is spent on entertaining
Round Sum Entertaining Allowance
Allowance is taxable - can claim tax deductible expenses on all NON ENTERTAINING allowable expenses
What is A Non-Contributory Occupational Pension Scheme?
The employer pays a percentage of their salary into the pension scheme, but the employee does not
Staff Party - Other Benefits In Kind (Ref Material 11)
If the event is over £150 - none is exempt
If there are 2 events - pick which would be exempt
Relocation - Other Benefits In Kind (Ref Material 11)
Anything over £8,000 is taxable
Vouchers Given To Staff - Other Benefits In Kind (Ref Material 11)
Cash Voucher - The benefit is the cash value
Non Cash Voucher - The benefit is the amount the voucher cost the employer
Company Car Benefit Rules
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
Loan To Employee - Other Benefits In Kind (Ref Material 11)
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
Loans Partly Repaid Method
(Balance at start of year + Balance at end of year) / 2
x % of interest that should be paid
Less: Interest already paid
Gift / Purchase Of An Asset - Other Benefits In Kind (Ref Material 11)
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)
How To Calculate Basic Accommodation Benefit - Other Benefits In Kind (Ref Material 11)
Basic - greater of:
Annual value
Rent paid by employer
Job related accommodation = Exempt
Non job related = taxable (basic & expensive charge)
How To Calculate Expensive/Additional Accommodation Benefit - Other Benefits In Kind (Ref Material 11)
Cost - 75,000 x 2.25%
+ Basic Charge
Expensive = costs over £75,000
EXPENSIVE 6 YEAR RULE
Replace cost with market value IF property was made available to employee 6 years after it was acquired
Job related accommodation = Exempt
Non job related = taxable (basic & expensive charge)
Furniture & Expenses - Other Benefits In Kind (Ref Material 11)
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
When Does A Chargeable Gain/Loss Happen?
When there is a Chargeable Disposal of a Chargeable Asset by a Chargeable Person
Capital Gain/Loss Calculation - Layout
Sales proceeds
(Selling costs)
=
Net sales proceeds
(Cost)
(Enhancement costs)
=
Chargeable gain / Allowable loss
How To Calculate The Cost In A Part Disposal?
Allowable cost of whole asset
X
Gross sales proceeds of disposed part / (Gross sales proceeds of disposed part + Market value of remaining part)
How To Tax A Wasting Chattel?
Exempt
Life under 50 years
e.g. caravan, boats, racehorses, greyhounds
How To Tax A Non Wasting Chattel?
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
Who Are Connected Persons?
Parents, grandparents, brothers, sisters, children, grandchildren & their spouse / civil partner
How To Dispose To A Connected Person?
Proceeds = market value of asset at disposal
Loss on disposal can only offset against gains to the SAME person
How To Dispose To Spouse / Civil Partner?
No gain / no loss on disposal - no tax implication
If the asset is then sold, the original cost is used
Calculating Taxable Gains - Layout
Chargeable gains for the year
(Current tax year capital losses)
=
Net chargeable gains
(AEA)
(Capital losses b/f)
=
Taxable gains
What Are The Share Matching Rules?
- Same day acquisitions
- Acquisitions 30 days AFTER disposal
- Share pool
What Do You Not Put In The Share Pool?
Sales proceeds
What Do Bonus Shares Cost?
Nothing - free
What Do Rights Shares Cost?
Cheaper than normal
Treat as normal
What Are The Three Types Of NI, Who Pays It & What Is It Paid On?
Class 1 EmployEE - Paid by employEE - deducted on wage slip - paid on gross earnings
Class 1 EmployER - Paid by employer - extra cost to having staff - paid on gross earnings
Class 1A - Paid by employer - extra cost to having staff
When Is The Employment Allowance Not Available To Use?
Class 1 EmployER’s NI is over £100,000 in the previous tax year
How To Calculate NI For People With More Than One Job?
Do a separate calculation for each job
What Are The Exempt Periods For Private Residence Relief?
Exempt if lived in throughout
Last 9 months of ownership
Up to 3 years for ANY reason *
Any period spent working abroad *
Up to 4 years working elsewhere in UK *
- Must occupy property before and after period of absence
HMRC will not insist on a return if owner cannot due to work
What Is The Straight Forward Domicile Test?
Domicile of origin - Gain fathers are birth
Domicile of dependence - Mirror fathers changes up to 16
Domicile of choice - Can change after 16
What Are The Residency Ties?
Close family in UK
Accomodation in UK - spend 1 night per year
Work in UK atleast 40 days for 3 hours a day
In UK for more than 90 days during either of 2 previous tax years
Spend more time in UK than any other country (if was UK resident in previous 3 tax years)
What Is A Chargeable Lifetime Transfer? (CLT)
Put items into a trust - Pay tax when alive (lifetime tax)
What Is A Potentially Exempt Transfer? (PET)
No tax paid in lifetime
If alive for 7 years no tax is paid
If alive for 3-7 years - taper relief applies
What Are Exempt Transfers For Inheritance Tax?
Interspouse
charities
political parties
museums & art galleries
Small Gift Allowance - Inheritance Tax
Under £250 is exempt
If it goes over it all gets taxed
Spouse Nil Rate Band Transfer
Transfer your unused NRB to your spouse
Can only be used on death estate - not PET’s
Additional Residence Nil Rate Band
Can leave your home to your child / grandchild
Can transfer unused to your spouse on death
