Summary Notes Flashcards
What income is exempt from the income tax computation?
- NSC
- ISA (interest and dividends)
- Lottery winnings/betting winnings/premium bond prizes
- Statutory redundancy pay
- Scholarships
What do you deduct from the income tax liability to find the income tax payable/(repayable)?
PAYE
How do you calculate a reduced personal allowance?
Reduced if adjusted net income (same as net income, or will be given) exceeds £100,000
(Adjusted net income - £100,000) / 2 = abatement
When can a spouse/civil partner transfer 10% of their allowance?
- If the transferor has no tax liability
- The recipient is a basic rate tax payer
The transferor must make an election
The transferred allowance reduces the recipient’s income tax liability at the basic rate
How do you account for Gift Aid?
- Gross up amount paid by 100/80
Basic Rate Band: No adjustment in IT comp
Higher-rate band: extend basic rate band
Additional rate-band: extend basic and higher rate bands
What is the working for employment income?
Salary/bonus/commission
Taxable benefits
= employment income
What are the exempt benefits to employment income in regard to childcare payments or vouchers?
- Where employee joined scheme pre 6 April 2011 = £55 p/wk
- Where employee joined scheme post 5 April 2011:
BRTP: £55 p/wk
HRTP: £28 p/wk
ARTP: £25 p/wk
What are the taxable benefits in the employment income computation?
- Vouchers for goods or services
- Use of assets - 20% x market value
- New asset gifted - less cost to employer
How do you calculate the taxable benefit for living accomodation?
Annual Charge Expensive charge (Value - 75,000) x official rate of interest (given in question)
= living accomodation
What do you add (disallowable expenditure) to net profit per accounts? (Loss, D, CE, Priv. E, Unr, Increase, Write-off, Client, G)
Add:
- Loss on disposal of NCA
- Depreciation
- Capital expenditure
- Private element of expenditure by owner
- Unreasonable payments to family members
- Increase in general provision
- Write-off of non-trade debt
- Client entertaining
- Gifts (unless cost , £50, advertise business, not food/drink/tobacco)
What do you add (disallowable expenditure) to net profit per accounts? (Gift A, N-TS, F, LF, 15%, I, APC, Taxable TI)
Add:
- Gift aid donations
- Non-trade subscriptions
- Fines (unless incurred by employees)
- Legal fees re capital items (unless registering patent/renewing short lease)
- 15% x leased car payments if CO2 emissions > 110g/km
- Interest on late payment of tax
- Accrued pension contributions
- Taxable trading income not credited in accounts
What do you deduct from the net profit per accounts?
Less:
- Profit on disposal of NCA
- Decrease in general provision
- Rental income
- Interest received
- Exempt income
- Deductible expenditure not charged in accounts
How do you treat disposals from the main pool?
- Deduct lower of proceeds and original cost
- If a positive balance remains, carry on giving WDA as normal
- If a negative balance arises, eliminate with balancing charge
How do you treat disposals of private use assets?
- Deduct lower of proceeds and original cost
- If a positive balance remains, eliminate with balancing allowance
- If a negative balance arises, eliminate with balancing charge
What are the other points regarding capital allowances?
- If main pool/TWDV before WDA is , 1000, write down to nil
- If VAT registered, include all assets except cars net of VAT
How do you account for the basis period in the first tax year?
- First tax year (year in which trade commences) - tax from commencement of trade to following 5 April
What do you do if there is no period of account ending in 2nd tax year?
Tax actual tax year i.e. 6 April to following 5 April
What do you do if there IS a period of account ending in 2nd tax year and the POA is EXACTLY 12 months?
Tax that period of account: CYB
What do you do if there IS a period of account ending in 2nd tax year and the POA is LESS THAN 12 months?
Tax FIRST 12 months of trading i.e. from date of commencement
What do you do if there IS a period of account ending in 2nd tax year and the POA is MORE THAN 12 months?
Tax LAST 12 months of long POA
How do you treat the basis of assessment during the cessation of trade?
Tax everything not yet taxed less overlap profits
How do you treat the basis of assessment for an ongoing business?
CYB - tax accounting period ending in tax year
How do you tax a partnership?
- Same approach as a sole trade except for before basis period rules:
- Allocate ‘salary’, Allocate interest on capital, share residual profit as PSR
How do you treat the basis of assessment if the trader operates on a cash basis?
- Calculate the trading profit on cash receipts/payments rather than accruals
- Adjust for tax as normal
- Capital payments are claimed instead of capital allowances for plant and machinery (except cars)
What are Class 1 contributions due on?
Due on cash earnings: salary, bonus, commissions, not taxable benefits
What should you consider when calculating the total class 1 secondary NIC for the year?
Whether the employment allowance applies
What are Class 1A contributions?
Employer pays on benefits in kind at a flat rate (tax tables)
What are the self-employed NICs?
Class 2:
- Weekly rate (if over small profits threshold) but paid with balance of IT/Class 4
Class 4:
- Paid via POA
Are Class 1 Secondary and Class 1A allowable deductions from trading income?
Yes
What should you look out for in NIC questions?
A taxpayer’s age as this could have an impact on the rate of NICs and also whether he or she is liable to NIC
