Tax Flashcards
(General) What is the difference between income receipts and capital receipts?
Income is a receipt of trade, e.g. money paid for a service;
Capital is a receipt of a one-off transaction unconnected with day-to-day trade, e.g. selling a company car
(General) What is the difference between income expenditure and capital expenditure?
Income expenditure is money spent on the day-to-day business, e.g. wages.
Capital expenditure is a one-off expenditure, e.g. buying a van.
(General) How do deductions work between income and capital?
Income expenditure can be deducted from income receipts for tax purposes.
Capital expenditure can only be deducted from capital receipts, so effectively only when the capital asset is disposed of.
(Income) What is a person’s taxable income?
A person’s net income (total income less available reliefs) less the personal allowance (if applicable).
What are the sources of total income?
Non-savings;
Savings; and
Dividends.
Non-savings and savings are taxed the same, dividends are taxed differently.
What is the:
(i) Savings allowance; and
(ii) Dividends allowance?
(i) Savings allowance - Basic rate taxpayer - £1,000 - Higher rate - £500
(ii) Dividends allowance - No tax paid on the first £1,000 of dividends.
What is the personal allowance? When is it reduced?
Personal allowance is £12,570 It is reduced by £1 for every £2 over £100,000 - so £125,140+ earners get no personal allowance.
What are the two available income tax reliefs?
(i) Interest paid on qualifying loans (money the individual pays) - e.g. loan to buy an interest/contribute to a partnership; loan to buy shares in a close company;
(ii) Pension scheme contributions - money paid into a pension is tax deductible
How do you split the taxable income?
What are their respective tax rates?
Separate the income in order of:
Non-savings; then savings; then dividends.
Basic > 0 – 37,700 > 20% > 20% > 8.75%
Higher > 37,701- 125,000 > 40% > 40% > 33.75%
Additional > +125,001 > 45% > 45% > 39.35%
When is CGT charged?
Where there is:
a chargeable disposal;
of a chargeable asset;
by a chargeable person;
which gives rise to a chargeable gain
What properties are not chargeable assets for CGT purposes?
Principle private residence; cars for private use; investments e.g. government securities and ISAs
What are the tax rates for CGT?
10% - basic rate
20% - additional rate (higher and additional rate tax payers)
What is the annual exemption for CGT?
£6,000 - the first £6,000 of capital gains is tax-free
What CGT reliefs can an individual benefit from?
Business Asset Disposal Relief: First £1m of qualifying gains from business assets are taxed at 10%. Business assets i.e. shares, whole of a business, assets of business that used to trade.
Rollover Relief: The gain of one asset ‘rolls over’ into the gain of the replacement asset, reduces the price paid on the initial asset (but will increase the liability when the replacement asset is sold)
Hold-Over Relief: When a business asset is gifted, the donor will have no liability for CGT, but the donee will incur liability if/when they sell the asset. Property is inherited at its initial purchase value, not the value at the time of transfer.
Under Business Asset Disposal Relief, when can shares benefit from the reduced CGT rate?
When the disposer was an officer or employee of the company and held 5% of the shares for 2 years before sale
What is Business Relief?
On death, for IHT:
- 100% relief is available in respect of transfers of a business or interest in a business or shares in an unquoted company;
- 50% applies to shares in a quoted company (but only if the shareholder had control of the company) and to the land, buildings or machinery used for business purposes.
Who is a taxable person for VAT purposes?
If the value of a person’s taxable supplies totals more than £85,000, they are required to register for VAT.
If under the £85,000 threshold, they can voluntarily register.
What is output and input tax in VAT? How do you calculate the amount of VAT payable?
Output tax: VAT charged when making a supply of goods;
Input tax: VAT paid on goods and services
Amount of VAT payable = Output tax minus input tax.
What is the standard rate of VAT? How is it charged?
20% is the standard rate;
It is deemed included in the total price of something unless stated otherwise.
What are the types of VAT supply?
Standard Rated;
Zero-rated (food, water, books, newspapers etc): Can still claim input tax on these items.
Exempt (insurance, finance, education, healthcare): Cannot claim input tax.
What is the base charge of Corporation Tax?
It is payable on:
all income profits and chargeable gains;
of a body corporate;
that arise in its accounting period.
The sum of profits and gains is ‘TTP’ (Taxable total profits chargeable to corporation tax)
What is the calculation of TTP?
Chargeable gains: Sale proceeds less allowable expenditure, indexation allowance, and capital/trading losses.
Income profits: Income receipts less deductible expenditure, capital allowances, and trading losses.
What is the corporation tax rate?
25%
For corporation tax, what is deductible expenditure for income purposes?
Expenditure that is:
- Wholly and exclusively incurred for the purposes of the trade;
- Not prohibited by statute (e.g. entertaining clients)
- be of an income nature (e.g. rent, wages, interest)
