Reliefs, charges and exemptions Flashcards
When does the degrouping charge apply?
A company leaves a gains group less than or equal to 6 years of receiving an asset in a no gain, no loss transfer
And
It still owns the asset at the date it leaves the group
How is a degrouping charge applied?
The charge is added to the share proceeds
How is the degrouping charge calculated?
It is equal to the gain that would have been made if the asset was sold to a third party not transferred within the group
When does the substantial shareholding exemption apply?
When there is a disposal of shares, where the seller has more than 10% shares for 12 months of the last 6 years
And the shares are in a trading company, or the holding company of a trading group
What does the substantial shareholding exemption mean for proceeds of shares?
They are exempt
What does SSE mean for the degrouping charge?
If SSE applies, proceeds are exempt and therefore so is the degrouping charge.
When is roll over relief applicable?
When an asset is sold and the proceeds are used to buy an asset 12 months before or 36 months after.
How many gains groups can you be in?
1
How many losses groups can you be in?
As many as you want.
Who can be in a VAT group?
Anyone with more than 50% control. Direct or indirect.
Can extend from an individual, partnership or company
Capital gains for individuals
What is the formula for quoted share valuation?
Higher quoted price+lower quoted price
/
2
How much is AEA? When is it used?
Individuals capital gains returns
£6000
Can the AEA be carried forward each year?
No you get one a year and can only use one a year
When is the basic tax point?
When the goods are delivered
When is the basic tax point overridden?
The invoice or cash received prior to the goods.
Unless invoice is received within 14 days of the delivery.
Cash takes priority
When working out the VAT recoverable of the overheads in partial exemption do you round up or down?
Up
When does rent a room relief apply?
When the person lives in their home with someone paying rent
How much is rent a room relief?
£7,500
Half where more than one share the home
Does rent a room relief prevent other reliefs?
Yes cannot use property allowance on this property
When can you ask to join the pension scheme?
Between £6,240 and £10,000
How are occupational scheme pension contributions dealt with?
Net pay arrangement so deduct from employment income
How are personal scheme pension contributions dealt with?
HMRC pay in an extra 20% so extend the income bands by the grossed up amount
What is the maximum amount of annual tax-relievable pension contributions?
Higher of £3600 and (employment income and trading profits)
What does annual allowance do for pension contributions?
Caps them at 60k - can be carried forward for three years
What is the tax free amount when drawing a pension?
25% of lower of fund and lifetime allowance £1,073,100
How is a specific entertaining allowance taxed?
Specific allowance - actual expenses = tax on net amount
How is a round sum allowance taxed?
Tax on amount - any expenses that would be allowable
What rate is used for mileage on NIC calcs?
45p per mile for all miles
Mileage rate for motorcycle
24p
Mileage rate for bicycle
20p
How are cash vouchers taxed under employment income?
Taxed at the amount that can be claimed
How are credit tokens taxed under employment income?
Taxable amount is the cost to the employer
How are vouchers exchangeable for goods and services taxed under employment income?
Taxable amount is the cost to the employer less anything paid by the employee
How is non job related accommodation taxed?
If owned
Annual value + (Cost - 75k)*2.25% - employee contributions
If rented
Higher of annual value or rent paid
- employee contributions
Living expenses are taxable income but what is job related accomodation
Limited to 10% of employees earnings and other non-accommodation benefits
Cars for private use tax
List price - capital contribution capped at 5k * CO2% - running cost
What is private fuel benefit?
27800 * co2
Do not take into consideration employee contributions
Tax on company vans
Taxable benefit = £3,960 or £0 if zero-emission
Additional private fuel benefit = £757
Assets available for private use tax?
Taxable benefit = 20% of the market value (MV) when first provided
If the employee subsequently acquires the asset, the additional taxable benefit is the greater of
- Market value at the time of employee acquisition, OR
– The original market value less the cumulative taxable benefit to date for the employee
Tax on cheap loans for employees
Taxable benefit = loan value × 2.25% – actual interest paid
Tax on loan write offs
Taxed on amount written off
Salary sacrifice - The taxable value of benefits where cash has been sacrificed is the higher of:
– the taxable value (using the benefits code); and
– the value of the cash sacrificed.
The taxable amount is treated as a benefit and subject to Class 1A NICs
When are the badges of trade used?
To determine if something is a capital gain or trading income
What are the badges of trade? 9
Intention to make a profit
Number of similar transactions
Nature of the asset
Connection with existing trade
Changes to the asset
Reasons for sale
Source of finance
Period of ownership
Method of acquisition
What is the trading allowance?
£1000 allowable but then cannot use expenses
Are donations allowable in adjusting profits?
No only small donations to local charities and stock/plant gifted to charities/schools
What fines and penalties are allowed?
Only parking fines incurred by employees in the course of the business
What legal and professional fees relating to CAPEX are allowable?
Legal costs on renewing short leases (<50yrs)
Costs of registering patents / copyright
Incidental costs of raising debt finance
What employment payments are disallowed?
Redundancy payments on cessation of trade in excess of 4 x statutory redundancy
What is disallowed for car leasing?
Any element relating to private use
15% of the lease cost if over 50kg CO2
The trader is taxed on the —– price of goods taken for own use
Selling price
How many years of expenditure can you claim pre commencement of trade?
7 years
What are the business use of home expenses?
Numbers of hours worked Monthly adjustment
25-50 £10
51-100 £18
101 or more per month £26
How is use of business premises as a home dealt with?
Reduce the allowable costs of the business premises by the figures in the following table
Number of occupants Monthly adjustment
1 £350
2 £500
3 or more £650
What is the 6 step process for calculating 23/24 trading income when moving from basis to tax period?
Step 1: Calculate the profit/loss of the standard part of the basis period
Step 2: Calculate the profit/loss of the transition part of the basis period
Step 3: Deduct overlap profits from Step 2 (the transition part)
Step 4: Add together the results from Steps 1 and 3
– If Step 3 and/or 4 results in nil, or a loss, this is the total profit/loss for the basis period
– Otherwise continue to Step 5
Step 5: Calculate the total transition profit, which is the lower of:
– The Step 3 amount
– The Step 4 amount
Usually 20% of the total transition profit will be assessable as it is spread equally over five tax years starting with 2023/24 (unless an election is made to accelerate the charge)
Step 6: 2023/24 taxable profit is:
– Step 5, if Step 1 gave nil or a loss
– Step 1 + 5, if Step 1 gave a profit
4 steps to tax transitional profits
Calculate the income tax liability on the individual’s net income excluding the transition profits (Amount A)
Calculate the income tax liability on their income including the transition profits (Amount B)
Amount B less Amount A = income tax liability relating to the transition profits (Amount C)
Total income tax liability = Amount A + Amount C
What is structures and buildings allowance?
Relief on commercial buildings and structures built after 29/10/18
Doesn’t include the cost of the land
3% straight line allowance
What goes into the main pool?
All machinery, F & F, and equipment
Vans, forklifts, lorries, motorcycles
Cars with emissions between 1-50g/km
2nd hand zero emission cars
What goes into special rate pool?
Long life assets (over 25 year useful life and over 100k spend)
Thermal insulation and solar panels
Integral features
Cars with emissions over 50g/km
What is the max AIA and what can it be used on?
£1mil
Use on plant and machinery but not cars
What qualifies for FYA?
New electric cars
New zero emission goods vehicles
R & D capital expenditure
Electric charge points
P & M to use in a designated enterprise zone
What counts as a small pool?
Less than £1000 after transfers but before WDA.
Can be scaled up or down for long or short periods.
How are capital allowances different for sole trade and ltd?
Private use is not taken into account in Ltd BUT it is in sole trade (they have there own column and only get business % of allowance.
What is the benefit of depooling a short life asset?
Could get a balancing allowance at sale
What do you do if a short life asset is held for more than 8 years?
Transfer the remaining amount to the main pool
Pre trading capital expenditure is allowed but…
It gets the rate of the allowances at the date of purchase not the date they are included in the trade ie day 1.
What is different for capital allowances on cessation?
Any items acquired are added to bf
NO WDA, FYA or AIA
Disposal value of assets is entered and then balancing charges applied
Assets taken by owner are treated at market rate
What happens with the structures and buildings allowance on sale of the asset?
Seller
The seller will time apportion their relief up to the date of disposal there are no balancing adjustments on disposal.
The seller will need to increase their proceeds on disposal by the SBA claimed to date for the purposes of calculating the chargeable gain on disposal.
Buyer
The new owner takes over the remaining allowances over the remainder of 331
/3-year period.
[] Their relief continues to be based on 3% of the original cost of the asset and there is no uplift for any increase in value.
Unincorporated trading loss arising in a tax year may be set against…
General income in the same year before personal allowance
General income in prior year before personal allowance
Trading profits in future years
Current year capital gains after general income
What are opening year loss relief?
Losses made in the first 4 years of trade can be set against total income in the 3 years prior.
Before personal allowance so all or nothing
Loss relief against trading income reduces
Income tax and NI
Loss relief against non-trading income reduces
income tax , set against future NIC
How does terminal loss work?
Losses in the final tax year can be set against the prior 3 years
Non-active traders restrictions
If individual doesn’t spend 10 hours on the trade then loss restricted to £25k per tax year.
Remaining loss is carried forward to use against future profits.
How do you calculate the limit on level of trading losses able to be set against non-trading income?
Higher of £50k or 25% of adjusted total income
How to calculated adjusted total income?
Income plus Give As You Earn charitable donations, less gross personal pension
contributions
4 steps to allocate the partnership profits
1 Adjust profit
2 Deduct capital allowances
3 Allocate the salaries and interest on capital
4 Split the rest between partners and periods if required
When allocating profit in partnerships you must check for?
Notional loss/profit that needs reallocating to other partners
Salaried members of an LLP are treated as
Employees
Is there restrictions to loss relief in limited liability partnerships?
Yes, total lifetime loss relief is restricted to amount of capital invested
Can be used against trade profits
When can a business use cash basis?
When: unincorporated business
Receipts are less then £150,000
Must leave if £300k in previous tax year
Differences between cash and accruals basis
Capital allowances not a thing
Just tax and expense as the asset is sold/purchased
Goods taken for own use at cost price not sales
Bad debts is not a thing
No restriction on car lease payments
Interest payments are allowed
Ceasing to use an asset is treated as taxable receipt
Ceasing to trade - stock and WIP treated as a taxable receipt
How do you elect to use cash basis?
Tick the box on the tax return
Cash basis is default for …Can you elect to use acrruals?
Property income for unincorporated property business with cash receipts not exceeding £150,000
You can elect but has to be done every year
When ceasing to use cash basis what do you do with plant and machinery not fully paid for?
The remaining amount goes under capital allowances
How does the cash basis effect income tax?
No qualifying interest relief on a loan to invest in a partnerships if the partnership is taxed on cash basis
How does the cash basis effect VAT?
If trader uses cash basis for income tax they must do the same for VAT
What £ is the AEA and who gets it?
6000
Individual people
Capital losses can be used against …
Current year losses but lose AEA
Excess carried forward and used after AEA
An individual is connect with their
Spouse
Direct relatives and their spouses
Direct relatives of their spouse
Business partners and their spouses/relatives
Companies they control
Disposals made with connected persons are always at ______
Market value except souse which is made at NGNL
Losses arising on disposal to a connected personal can only be used against
future gains from that person
Share matching rules for individuals
Same day
Next 30
Share pool
For capital gains of quoted shares for individual
Use middle of quoted prices
When is CGT due?
31st Jan after tax year of disposal
Payment by 10 instalments are available for gains on
gift of land
shares in a company you control
When is cgt due for disposal of UK residential property?
60 days of the disposal
