Principles of Tax Recaps Flashcards
Examples of Exempt Income
Interest on NS Certificates/ income from ISAs/ betting, gambling, lottery & premium bond income/ statutory redundancy pay, income tax repayment interest/ apprenticeship bursaries/ compensation payments.
What figure should you use when calculating chargeable income?
The gross amount
What is the starting rate band?
£5,000 for savings income where the rate of tax is 0%, but only applies if you have savings income falling into the first £5,000 of taxable income (after accounting for NSI).
How does Gift Aid work?
Calculate the gross donation, and increase the rate bands by the gross donation amount.
How does the marriage allowance work?
Spouse may elect to transfer up to £1,250 of their personal allowance to their spouse. Transferor must be a BRTP or have no tax liability, recipient must be a BRTP, and relief must be given by reducing tax liability of recipient at 20%.
General rule for calculating a benefit?
Cost to the employer - any contributions made by the employee.
How do you treat job related/non-job related accommodation for tax purposes?
Job related = tax exempt. Non-job related = 2 potential benefits:
1) Basic Rental Benefit - higher of:
- Annual value
Any rent paid by employer (£0 if owned by employer).
2) Additional Yearly Rent Benefit - must cost >£75,000 and been bought by employer.
- Benefit = (Cost - 75k) x2.25% - any employee contributions.
Then consider MARKET VALUE RULE: if acquired >6 years before first provided to employee, use MV when first provided and not cost.
How do you calculate ‘cost’ for purpose of calculating the benefit of non-job accommodation?
Cost = Original Cost + improvements made before start of tax year which benefit was provided.
How to tax expenses related to provision of living accommodation? (E.g. heat/lighting/water/council tax/cleaning/repairs & maintenance/decoration).
Cost to employer - employee contribution
How to tax a car benefit?
Only available for private use (apportion if needed).
Taxable Benefit = % x list price - employee contributions (max. 5k)
+4% diesels, Maximum 37%.
What is the taxable fuel benefit for a car?
Same % as car benefit x £24,500
DON’T deduct partial contributions to the fuel
What is the taxable benefit on provision of a van for an employee?
Annual benefit = £3,490. Taxable benefit (if for priv. use and has 0 emissions) = £2,792.
What is the taxable benefit for provision of fuel for private use of a van?
Annual amount of £666
What is the taxable benefit on assets for employee’s private use?
Higher of: 1) 20% x MV when first provided 2) Rent paid by employer Apportion for non-business use (if sig.) No taxable benefit for insig. private use.
How do you calculate the taxable benefit of something that is provided in-house by your employer?
Taxable benefit = marginal cost to the employer.
What is the trading allowance?
£1,000 - this means if your trading profits as an INDIVIDUAL for a tax year are less than £1,00 then these are not taxed. If above 1k, then you chose:
1) Normal way (accruals basis)
2) Elect to have deemed expenses of £1,000.
How do you deal with capex for calculating trading profits?
Disallowable.
Genuine repairs = allowable, improvements = disallowable.
How do you deal with appropriation of profit for trading profits?
Sole trader drawings, goods for own use (selling to yourself) and excessive family/friends remuneration is disallowable.
Goods taken for personal use - adjustment made to show what would have happened if sold at market value. (If nothing recorded - add back SP, if cost recorded - add back profit).
How do you deal entertainment costs for trading profits?
Customer entertaining = disallowable
Staff entertaining = allowable
How do you deal with Gift Aid Charitable donations for trading profits purposes?
Disallowable, as treated under IT by extending rate bands.
How do you deal with fines/penalties for trading profits purposes?
All disallowable, except parking fines incurred by employee on a business activity.
How do you deal with legal & professional fees for trading profits purposes?
Related to capex, then is disallowable.
Renewal of a short lease (50 yrs or less) is allowable.
How do you deal with car leasing and rental costs for trading profits purposes?
15% disallowance if emissions exceed 110 g/km.
Further proportion of lease cost is disallowed if there’s private use by sole trader.
What is Capital Allowances allowed on?
Plant & machinery. Not Buildings
What is the capital allowances general rule regarding disposal value?
It is the sales proceeds, but cannot exceed the original cost of the asset.
If given away or sold at less than MV, disposal value is the MV at date of disposal.
What is the Small Pool Limit?
If balance on the main pool is £1,000 OR LESS, then the whole amount can be written off.
£1,000 is apportioned for non-12 month periods.
What are the balancing adjustments for capital allowances purposes?
Balancing Charge - when too many capital allowances have been given over life of an asset - e.g. when asset is sold in excess of the TWDV.
You deduct this amount from other CAs, and so increasing trading profits.
Balancing Adjustment - when too little capital allowances have been given over life of an asset - e.g. sold for less than the TWDV.
You add this amount to the CAs, and so decreasing trading profits.
What are the rules for assessing the trading profits in the second tax year?
Period of account ending in tax year is:
a) <12Ms - First 12 Ms of trading.
b) =12Ms - The 12M period of account ending in the tax year.
c) >12Ms - 12M to end of period of account ending in the tax year.
What is the calculation in the final tax year of trade, when assessing the trading profits?
All profits not yet taxed x
LESS Overlap Profits (x)
Taxable Trading Profit x
Process to allocate & calculate a partner’s trading profits?
1) Adjust partnership profits (consider allowable/disallowable exp.)
2) Calculate CAs
3) Deduct 3) from 2)
4) Allocate partnership’s TTPs according to PSR
5) Treat each partner separately, and assess their trading profits/
What are the classes of NIC and who are they paid by?
Class 1 - Primary paid by employee, Secondary paid by employer.
Class 1A - paid by employer.
Class 2 - paid by self employed individual.
Class 4 - paid by self employed individual.
How is class 1 NICs paid?
Primary - starts age 16 and ends state pension age.
Secondary - paid on employees aged 16 or over, but differs for 16-20, 16-24, 21+ or an apprentice.
Earnings constitute all earnings in monetary form (DON’T include taxable benefits, calc. before allowable deductions like pension contributions).
How is the earnings period determined for NIC purposes?
If paid weekly, NI calculated weekly.
If paid monthly, NI calculated monthly.
If director, NI ALWAYS calculated annually.
What is the employment allowance for employers?
£4,000. Can reduce NIC liability to NIL. Per employer allowance, so regardless of no. employees.
Who is employment allowance not available to?
Co. with single director, and no other employees. Bus. whose total class 1 secondary NIC liability was £100k or more in previous year.
How is Class 1A NIC determined?
13.8% x taxable benefits provided to employees.
Any benefits taxed as earnings under Class 1 are NOT also taxable under Class 1A
How is Class 2 NIC determined?
Flat rate weekly contributions of £3.05/week.
Start on 16th birthday but end on state pension age.
NO class 2 NICs payable if individual’s profits
What is the small profits threshold for Class 2 NIC purposes?
6,475
How is Class 4 NIC determined for individuals?
Based on their taxable trading profit, using the rates from Hardmans.
What assets are exempt from capital gains tax?
Cash, motor cars (inc. vintage/classic), most wasting chattels, non-wasting chattels with cost and disposal consideration <6k, gilt-edged securities, NS Certificates, premium bonds, shares/investments in ISAs.
What is the annual exempt amount for individuals?
£12,300
Deducted from chargeable gains to produce taxable gains.
Unused amount cannot be c/f.
Not an AE for companies.
What is a wasting chattel?
A chattel (tangible moveable property) with predictable life at date of disposal not exceeding 50 years).
E.g. caravans, boats, computers, animals, plant & machinery.
Usually exempt from CGT.
What are the taxation rules of non-wasting chattels?
Price and proceeds 6k or less: exempt.
Price 6k or less, proceeds >6k: 5/3(SP-6k)
Price >6k, proceeds 6k or less: Deemed proceeds of 6k.
Price >6k, proceeds >6k: Normal CGT.
What is the Corporation Tax Proforma? (per accounting period)
Trading Income x Property Income x NTLRs x Miscellaneous Income x Chargeable Gains x Qualifying Donations paid (x) TOTAL = Taxable Trading Profits (TTP) x
What is the indexation allowance?
Deducted when calculating chargeable gain of a company.
((RPI Disposal - RPI Acquisition)/RPI Acquisition) (3.dp) x COST
Separate IA calculated for enhancement.
Cannot create or increase an unindexed loss.
What is the rate of corporation tax and what is it applied to?
Taxable Trading Profit x19% = Corporation Tax Liability
How do you calculate a companies size for determining the due date of their corporation tax liability?
Use Augmented Profits. Augmented profits = TTPs + dividends received other than those within 51Q% group. 0-£1.5m = Not large. £1.5m-£20m = Large £20m+ = V Large
What are the conditions where input VAT can be recovered?
1) The goods or services have been supplied.
2) The input VAT recoverable is supported by a VAT invoice.
3) The goods and services are used for a business purpose (mixed use can be apportioned).
When is input VAT irrecoverable?
Motor cars with any private use at all.
Goods or services for business entertaining which is not allowable when calculating TTPs - relating to staff entertainment and foreign business customers is recoverable.
Items where no VAT receipt held.
Non-business items.
