Tax

Question 1

What three groups of people pay income tax?

Answer 1

1. Individuals
2. Personal representatives on behalf of deceased persons
3. Trustees on behalf of trusts

Question 2

What are the three categories of income in the order they are collected?

Answer 2

1. Non-savings income
2. Savings income
3. Dividend income

Question 3

What are the the three categories of non-savings income?

Answer 3

1. Earnings and pensions
2. Trading income
3. Property income

Question 4

What is the difference between tax exempt and zero-rated?

Answer 4

Tax exempt means the income is fully exempt from tax calculations and does not form part of income for the purposes of determining tax brackets.

Zero-rated means the income is not exempt from tax and still forms part of the income to determine tax bracket, but it is taxed at 0%.

Question 5

What are five examples of income which are exempt from income tax?

Answer 5

1. Interest from National Savings
2. Interest or dividends from an ISA
3. Winnings on Premium Bonds or any gambling
4. Most social security benefits
5. Child benefits and tax credits

Question 6

If an expense is incurred for both personal and business purposes, how is it dealt with in the context of deducting from trading profits?

Answer 6

Proportionate to amount of the expense which was for business purposes

Question 7

What is the annual investment allowance in the context of capital assets?

Answer 7

If a taxpayer buys a capital asset for their business, they may deduct all of the costs if it is plant or machinery, e.g. tools, machines, and computers, but not cars, land, or buildings

Question 8

In what situation is a Writing Down Allowance available, and what are the percentage allowances which can be deducted per year for (1) life-long assets, and (2) other assets?

Answer 8

If the capital asset purchase exceeds the annual investment allowance.

Life-long assets: 6% per year
Other assets: 18% per year

Question 9

In the case of a partnership, how are partnership profits split for income tax purposes where one of the partners also receives either (1) a salary or (2) interest on capital contributions?

Answer 9

The salary and/or interest are allocated to the partner first, and then the net amount is distributed as partnership profits.

Question 10

On what three qualifying loans can a taxpayer offset the interest paid against income?

Answer 10

Loans used to fund:

1. Capital contributions or loans to a partnership
2. Investments in a closed trading company
3. Payments of inheritance tax for personal representatives

Question 11

What topics does the full Tax deck contain, and how do I access it?

Answer 11

The full deck contains over 230 flashcards dealing with the SRA syllabus:

• Income Tax;
• Inheritance Tax;
• Taxation of Estates in Administration;
• Capital Gains Tax;
• Corporation Tax;
• Value Added Tax;
• Stamp Duty Land Tax.

Access is currently £25 per full subject, e.g. Tax, or £250 for access to all 16 SQE1 decks / £200 for 13 SQE2 decks. Visit www.cleverprep.co.uk to arrange full access.