R03 Recap Week 1 Flashcards
What is the definition of income tax?
Income tax is an ‘annual tax on income’
Income tax is direct and progressive, what does this mean?
Income tax being direct and progressive means that higher earners will pay more tax both in absolute monetary terms and as a percentage of income
How is VAT regressive tax?
VAT is a regressive tax as the amount is exact the same regardless of how much the individual earns, which means someone who earns less will be paying a higher % of their income in VAT.
What is the order of income type that income tax is calculated in
ESDC
- Earned Income
- Savings Income
- Dividend Income
- Chargeable gains from life assurance contracts
Who’s responsibility is it to pay take on income from employment or pension via PAYE?
It is the responsibility of the employer of pension provider to deduct and pay the tax to HMRC.
Who’s responsibility is it to ensure that the right amount of tax has been paid to HMRC?
It is the individuals own responsibility to ensure that the right amount has been paid.
When are the self-employed tax on their earnings?
The self-employed are taxed on their earning they received in the tax year, regardless of their accounting period.
Which type of income takes the first call on the personal allowance?
Earned Income takes the first call on the personal allowance
Most types of savings and dividend income are paid gross, which are the two types which are not?
- Interest from Purchased Life Annuities
- Property Income Distributions from REITs and PAIFs
How would you ‘gross-up’?
By dividing the net figure by 0.8
How would you calculate the Adjusted Net Income? And when is it important to need this?
It is important to know this when you need the adjusted net income after making allowable deductions
ANI = Total Gross Income - Allowable Deductions
What are the three types of allowable deductions?
- Interest Payments on Qualifying Loans
- Payroll giving contributions
- Net Pay and Relief by claim pension contributions
In which scenario would mean that interest payments on qualifying loans are valid?
- To purchase shares in own company/partnership
- To pay an IHT liability
- To invest in or buy plant and machinery
What are interest payments on qualifying loans capped to?
They are capped to 25% of the individuals adjusted total income, or £50,000
When may you need to know the individual adjusted total income and how do you calculate this?
Knowing an individuals adjusted total income is needed for when looking at interest payments on qualifying loans.
ATI = Total Income + Payroll giving - Individual pension contributions
