Self Test Questions Flashcards
A self employed person who has been in business for several years prepares annual accounts to 31st August each year. The profits of which period are taxed in 2020/21?
1st September - 31st August 2020
Is the personal allowance deducted in calculating total income?
No
Is the interest paid on a loan to purchase a house a deduction from total income?
Not for residential use, landlords can claim tax relief on interest payments up until the current tax year
Amy has been at ABC plc for 21 years. She has been awarded a cash bonus of £12000 for submitted an idea to her manager that will save the company a substantial amount of money. She has also been given a non cash long service award of £1050.
What would be the income tax treatment of the two awards?
She would be taxed on the cash bonus as it is over £5000, the first £5,000 would be tax free subject to it not being more than 50% of the financial benefit or 10% over 5 years and the idea is implemented
She would not be taxed on the long service award as it falls within £50 per year of service
What special tax allowances do children get?
No special allowances
Has a full personal allowance
Can benefit from the 0% on £5,000 savings
Are interest in possession trustees liable to higher rates and additional rates of tax on income received?
No
How much income is taxed at standard rate for trustees of a discretionary trust, assuming the settlor has only set up one trust?
£1000
The Elliott family discretionary trust receives rental income of 20/21 of £14,000. Property expenses amounted to £2,000 during the year.
There are not trust expenses and the trust has a standard rate band of £500 because the settlor created another similar trust.
Calculate the amount of net income payable to the beneficiary Lucia if the trustees decide to pay the income during 20/21.
£14,000 - £2,000 = £12,000
£500 taxed at 20%
£11500 taxed at 45%
Tax liabilty £5725
Net income £6725
At what rate of tax are discretionary trustees taxed on dividend income for the tax year 20/21?
7.5% for the first £1,000, then 38.1% thereafter
What are the main Acts containing the income tax legislation?
The Income tax Act 2007, the Income tax (earnings and Pensions) Act 2003, and the Income tax (trading and other income) Act 2005
To what date or dates may property income accounts be drawn up for tax purposes?
5th April or 31st March
Under what legislation are a self employed person’s profits taxed?
ITTOIA part 2
What did Pepper vs Hart (1992) decide?
That the taxable benefit for an employee on in-house benefits provided by an employer is based on the marginal cost only.
If an employer provides a beneficial loan to an employee, what is the basic benefit for tax purposes?
The difference between the interest at the official rate and the actual interest paid
An employer purchased a property for £120,000 in 2018 and spent £13,000 on improvements during 2019. From 1 January 2020 onwards, the property was let to a senior employee for an annual rent of £3,000.
The property as an annual value of £5,600.
Calculate the taxable benefit for 20/21
Basic benefit £5,600 - £3,000 = £2,600
Additional benefit £58,000 (£120,000 + £13,000-£75,000) at 2.25% = £1,305
Total benefit £3,905
Can a french national currently claim UK personal allowances?
Yes (France is part of the EEA)
How much of the personal allowance can be transferred to a spouse or civil partner for 20/21?
£1250 (10% of the personal allowance of £12500 for 20/21)
In what way is higher and additional rate tax relief for pension contributions paid net?
By extending the basic and higher rate tax bands by the amount of the gross payment
When is a trust subject to UK income tax?
When it has at least one trustee who is resident in the UK
Are trustees entitled to a personal allowance for trust income?
No
What is the current rate of tax applicable to discretionary trusts for savings interest?
20% within the standard rate band, then 45%
What is the rate of tax applicable to discretionary trusts for savings income in excess of any standard rate band?
45%
If a father sets up a trust for his eight year old son that generates £150 income, who is taxed on this?
The father is taxed on the full £150
Who has to pay class 1 NIC’s?
Employee’s and employers
Simon is both employed and self employed. For 20/21 he will pay class 2 NIC’s of £158.30 class 4 of £2295 and class 1 of £1860. What amount of class 4 NIC’s will actually be due?
£1785 (£3645 - £1860)
On what are class 4 NIC’s charged?
Taxable profits of a self employed individual
Edward is self employed. For the past few years Edward’s profits have been around £6000. However for 20/21 profits will increase to £30,000. How will this profit increase affect Edwards class 2 NIC’s?
Edward will now have to pay class 2 NIC’s because his profit for 20/21 will exceed the small profits threshold
What earnings period is used when calculating NIC’s for company directors?
NIC’s for company directors are calculated using an annual earnings period
What is the maximum NIC’s per year at the main rate for an employee?
£4860 (£50000-£9500 at 12%)
What is the relevance of the UST as regards calculating NIC’s?
The UST establishes the upper level of earnings that can benefit from the 0% rate when calculating employers contributions for employees aged under 21
Is the benefit of having a company car subject to class 1 NICs?
No, since this is not something that can be easily converted to cash. However most fringe benefits are instead subject to employers class 1A NIC’s
An employer pays its Class 1 A NIC’s for 20/21 electronically. What is the due date?
22nd July 2021
Does an employee have to pay NIC’s on vouchers redeemed for cash?
Yes
What are the rates of employees NIC’s?
12% and 2%
What are the weekly primary contribution threshold and upper earnings limit for NIC employees?
£183 and £962
Does an employer have to pay NIC’s on the benefits of a company car?
Yes
Why can directors not reduce NIC’s by paying the whole of their annual fee in one week?
Because they have an annual accounting period
What are the maximum NIC’s per year at the main rate for an employee?
£4860 (£50,000 - £9,500 at 12%)
Which class of NIC’s payable by self employed people confers entitlement to benefits?
Class 2
Why might an individual choose to pay class 2 NIC’s voluntarily?
This may be advisable to maintain the contribution record for State benefits, especially the new State pension
How much is the class 2 contribution?
£3.05 per week, if earnings over £6,475 per year
What are the class 4 contribution rates?
9% on profits to £50,000, 2% on any excess over £50,000
When are class 4 NIC’s payable?
In two payments on account 31st Jan in the tax year of assessment and 31st July following the end of year tax assessment, with a balancing payment or repayment on the following 31st Jan
When someone is both employed and self employed, what is the annual limit on class 4 NIC’s payable at the main rate?
Maximum class 4 NIC’s at the upper earnings limit £3,645 less the main rate class 1 NIC’s paid
Why might someone pay class 3 NIC’s?
To top up contribution record to increase entitlement to benefits
Is CGT charged on death?
No
What is the valuation basis for a gift for CGT purposes?
The market value
Wendy and Walter are married and have both used their annual exempt amounts for 20/21. They now wish to sell a jointly owned antique. What is the maximum disposal value for a chattel for it to be exempt from CGT?
How is the chargeable gain calculated if the proceeds exceed this exempt amount?
What would be the chargeable gain if any, if the antique were sold for £11,500
The maximum disposal value is £6000. Where the disposal proceeds exceed £6000 the chargeable gain cannot exceed five-thirds of the excess over £5000. a sale for £11,500 would be completely exempt as each spouse has a chattel exemption of £6000.
What is the chargeable rate of CGT when a chargeable gain qualifies for business asset disposal relief?
10%
Which shares are included in the share pool?
All acquisitions except those made on the same day or the following 30 days
How many discretionary trusts would have to have been set up by a single settlor since 6 June 1978 if the annual exemption for each trust in the tax 20/21 is £1537.50?
Four
The trustees of the Smith Trust sell one of its rental properties (commercial not residential) on 4th May 2020 for £350,000. The property was bought on the 19th March 2008 for £260,000. Mr Smith has created two other trusts since June 1978.
- Calculate the CGT payable for 20/21
- state when this is payable to HMRC
1. Because of the two other trusts, the exemption is reduced to £2.050 giving a taxable gain as follows: Proceeds £350,000 Less Cost £260,000 Chargeable gain £90,000 Less annual exemption £2,050 Taxable gain £87,950 CGT Due at 20% £17,590
- CGT liability is payable on 31st January following year, i.e. Jan 2022
What is the base date for CGT?
31st March 1982
What is the broad definition of disposal?
Any transfer of ownership or derivation of a capital sum from an asset
Can CGT on a sale of a business be paid in instalments where part of the consideration is payable three years after the sale and the amount depends on the business profits?
No. Only part of the consideration is contingent and so an estimate of this must be included along with the non contingent element.
There will be a separate chargeable gain in three years time is the actual consideration received then is higher than the estimate
Name three assets that are exempt from CGT?
Principle residence
Private motor vehicle
Government bonds
Can a capital loss be carried forward to future years?
Yes
What are the rates of CGT?
10% and 20% with higher rates of 18% and 28% applicable to residential gains. A rate of 10% also applies if business asset disposal or investors relief is available
What is the maximum amount of chargeable gains that can quality for business asset disposal relief in respect of disposals made during 20/21?
£1 million assuming no previous disposals have been made
In holdover relief available on a fathers gift of a house to his 25 year old daughter?
No
Specify for CGT reliefs
Four out of: Business asset disposal Investors Holdover Rollover Rollover on incorporation EIS reinvestment SEIS reinvestment
When is CGT in respect of the disposal of shares due?
31st Jan following the end of the tax year in which the gain is made