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Principles of Tax > Summary Notes > Flashcards

Summary Notes Flashcards

1
Q

What income is exempt from the income tax computation?

A
  • NSC
  • ISA (interest and dividends)
  • Lottery winnings/betting winnings/premium bond prizes
  • Statutory redundancy pay
  • Scholarships
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2
Q

What do you deduct from the income tax liability to find the income tax payable/(repayable)?

A

PAYE

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3
Q

How do you calculate a reduced personal allowance?

A

Reduced if adjusted net income (same as net income, or will be given) exceeds £100,000

(Adjusted net income - £100,000) / 2 = abatement

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4
Q

When can a spouse/civil partner transfer 10% of their allowance?

A
  • 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

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5
Q

How do you account for Gift Aid?

A
  • 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

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6
Q

What is the working for employment income?

A

Salary/bonus/commission
Taxable benefits

= employment income

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7
Q

What are the exempt benefits to employment income in regard to childcare payments or vouchers?

A
  • 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
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8
Q

What are the taxable benefits in the employment income computation?

A
  • Vouchers for goods or services
  • Use of assets - 20% x market value
  • New asset gifted - less cost to employer
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9
Q

How do you calculate the taxable benefit for living accomodation?

A 
Annual Charge 
Expensive charge (Value - 75,000) x official rate of interest (given in question)

= living accomodation

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10
Q

What do you add (disallowable expenditure) to net profit per accounts? (Loss, D, CE, Priv. E, Unr, Increase, Write-off, Client, G)

A

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)
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11
Q

What do you add (disallowable expenditure) to net profit per accounts? (Gift A, N-TS, F, LF, 15%, I, APC, Taxable TI)

A

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
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12
Q

What do you deduct from the net profit per accounts?

A

Less:

  • Profit on disposal of NCA
  • Decrease in general provision
  • Rental income
  • Interest received
  • Exempt income
  • Deductible expenditure not charged in accounts
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13
Q

How do you treat disposals from the main pool?

A
  • 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
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14
Q

How do you treat disposals of private use assets?

A
  • 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
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15
Q

What are the other points regarding capital allowances?

A
  • If main pool/TWDV before WDA is , 1000, write down to nil

- If VAT registered, include all assets except cars net of VAT

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16
Q

How do you account for the basis period in the first tax year?

A
  • First tax year (year in which trade commences) - tax from commencement of trade to following 5 April
17
Q

What do you do if there is no period of account ending in 2nd tax year?

A

Tax actual tax year i.e. 6 April to following 5 April

18
Q

What do you do if there IS a period of account ending in 2nd tax year and the POA is EXACTLY 12 months?

A

Tax that period of account: CYB

19
Q

What do you do if there IS a period of account ending in 2nd tax year and the POA is LESS THAN 12 months?

A

Tax FIRST 12 months of trading i.e. from date of commencement

20
Q

What do you do if there IS a period of account ending in 2nd tax year and the POA is MORE THAN 12 months?

A

Tax LAST 12 months of long POA

21
Q

How do you treat the basis of assessment during the cessation of trade?

A

Tax everything not yet taxed less overlap profits

22
Q

How do you treat the basis of assessment for an ongoing business?

A

CYB - tax accounting period ending in tax year

23
Q

How do you tax a partnership?

A
  • Same approach as a sole trade except for before basis period rules:
  • Allocate ‘salary’, Allocate interest on capital, share residual profit as PSR
24
Q

How do you treat the basis of assessment if the trader operates on a cash basis?

A
  • 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)
25
Q

What are Class 1 contributions due on?

A

Due on cash earnings: salary, bonus, commissions, not taxable benefits

26
Q

What should you consider when calculating the total class 1 secondary NIC for the year?

A

Whether the employment allowance applies

27
Q

What are Class 1A contributions?

A

Employer pays on benefits in kind at a flat rate (tax tables)

28
Q

What are the self-employed NICs?

A

Class 2:
- Weekly rate (if over small profits threshold) but paid with balance of IT/Class 4

Class 4:
- Paid via POA

29
Q

Are Class 1 Secondary and Class 1A allowable deductions from trading income?

A

Yes

30
Q

What should you look out for in NIC questions?

A

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

Principles of Tax (16 decks)

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