Tax Flashcards
State the duties of a trustee
duty to the terms - know and adhere to the terms of the tryst deed
duty of loyalty - must administer the trust solely in the interest of the beneficiaries. trustees should not profit personally from their role
Duty to manage the trust efficiently - keep proper accurate records and provide to beneficiaries on request. Be familiar with the terms of the trust, assets, liabilities and circumstances and ppurpose of the trust. Make sure decisions are made in a timely manner. Invest prudently and diversify investment in the interests of the beneficiaries
duty to act personally - be involved in decision making and make decisions
unanimously
Duty to consider the beneficiaries - act impartially and consider all beneficiaries
Duty to account - keep accounts and records and provide to beneficiaries on request
What tax liabilities does a self assessment show
Income tax on all forms of income
Class 2 and 4 NIC
Cgt
What are the self assessment deadlines
31st January following the tax year relating to for online
31st October following the tax year that income relates to for paper based
What are the payment dates for self assessment
31st January isn’t he tax year half of previous years liability
31st July after end of tax year half of previous years liability
Payments on account include income tax and class 4 NIC
Balancing payment 31/01 after end of tax year (adjusted to reflect actual liability compared with amount paid on account)
Balancing payment also includes Cgt class 2 NIC student loan repayments
Reducing payments on account is possible but reductions need to be forecast
What are the penalties for non compliance with self assessment
Interest and surcharges on late and under payments
What is the penalty for being more than 30 days late with a balancing payment
5% surcharge
Does HNRC pay interest on overpaid tax
Yes
What is the penalty for a self assessment being up to 3 months late
£100
How much are the fines if you have not submitted a tax return after 90 days
£10 per day up to £900 (90 days)
What is the penalty for not filing a tax return after 6 months
£300 fine or 5% of the tax owed whichever is greater
What is the penalty for being more than 12 months late filing a tax return
£300 or 5% of the tax owing whichever is greater
What is the penalty for being more than 6 months late to pay tax liabilities
5% surcharge of the tax owed on that day
What is the penalty for being more than 12 months late paying a tax liability
5% charge on the tax owed on that day
What is the interest rate payable on tax owed (plus the amount levied in charges)
3%
What penalties can HMRC impose if you make an incorrect tax return either by being careless or misleading them
30- 70% of the tax owing or if it was deliberately concealed or misled then 100%
When can HMRC start an enquiry into your tax return
Within 12 months of receiving the return
When will you know that your self assessment is final
12 months after sendin
What is the primary function of the PAYE coding
To deduct the correct amount of tax to avoid the need of completing a self assessment
When did real time reporting start
October 2013
What is the employers pay day procedures
Calculate and deduct tax issue payslips
What is the employers month end procedure
Pay HMRC all PAYE and Nic money
What is the employers year end procedure
Issue P11d or p9d on 6th July
When does the employee have to have received their p60 by
31st May
What penalties are imposed on employers for PAYE discrepancies
Penalties on a monthly basis for late submissions
Penalties for inaccurate submissions or late payment
Interest on late payments
What is the penalty for an employer if they have been late with payment of PAYE 1-3 times in a tax year
1%
What is the penalty for an employer who has been late with PAYE payments 4-6 times in a tax year
2%
What is the penalty for an employer who has been late for PAYE payments 7-9 times in a tax year
3%
What is the penalty for an employer who has been late for PAYE payment 10+ times in a tax year
4%
What is the penalty of an employer hasn’t paid PAYE payment for 6 months
5% on top of normal charges
What is the penalty for an employer who hasn’t paid PAYE obligations after 12 months
Another 5% charge
When is the first penalty charge for being late paying NIC class 1A and class 1B
30 days 5%
When is the 2nd penalty for non payment of class 1A class 1B nic
6 months 5%
What is the penalty for being 12 months late paying class 1 A and 1B NIC
5%
What dates of payment can be used for directors
Earliest of Date payment made Date director was entitled to be paid Date amount is credited in company books Date remuneration is fixed or agreed
What is the trading allowance
If trading income is less than £1k before expenses then its exempt from tax and does not to be declared
If income is greater than £1k you can claim the allowance rather than expenses
For a newly set up sole trader whose accounting period does not coincide with the tax year end dates how is the tax calculated
Year 1 = profit for the tax year
Year 2 = profit for the accounting period that ends in that tax year, if not a full year then first 12 months profit
Year 3 = profit for accounting period ending that tax year
Relief is given for overlap periods
When is overseas property income taxable
If the income is received by a property business based in the UK
Is income from UK property taxable for non resident
Yes
What is the accounting period for property letting
Up to 05/04 or 31/03
What are allowable expenses for property income
Expenses incurred wholly and exclusively for that property
What is the tax relief for finance costs in respect of property income
25% deductions as an expense and 75% basic rate reduction in 2019/2020
What is the property allowance
If property income is less than £1000 before expenses then it is tax exempt and doesn’t need to be declared. If great than £1k you can claim the allowance instead of deducting actual expenses
Can you claim home improvements as a deductible expense against property income
No
What kind of income comes from purchased life annuities and gains from life assurance contracts
Savings and investment income
Is savings and investment income taxable for non UK residents
Only if income source is in the UK
What deductions are allowable for savings and investment income
None
What are tests used to determine whether someone is employed or self employed
Control over workers or high control indicates employed
Set hours or holiday pay indicates employed
Ability to take business risks or benefit from increased efficiency indicates self employed
Working wholly or mainly for 1 employer indicates employed
If any doubts employer needs to apply PAYE
What kind of savings income is paid gross
Bank, building society, NS&I, interest distributions from UT/OEIC and corporate bonds
Is the interest element income from a purchased life annuity paid gross
No taxed at basic rate of 20%
Can basic rate tax be reclaimed by a taxpayer
Non tax payers and starting rate tax payers can reclaim and basic rate tax paid
How do you gross up savings income for a tax return
Multiply the amount received by 1.25
How are UK dividends paid
Gross
What is total income
Sum of amounts of income the taxpayer is charged income tax for that tax year
How to calculate taxable income
Total income
Minus amounts for which tax relief is given by deductions from income
Deduct the personal allowance
What are the qualifying rules for interest payments on a loan to be deducted from income
Loan must be used for
Purchase of shares in borrowers company - controller by fewer than 5 shareholders or directors
Investment in a partnership
To buy plant or machinery for a partnership to use
Payment of inheritance tax
What rate of relief is given to qualifying loan interest payments
The borrowers top rate of tax
What is the cap for qualifying loan interest payments
The higher of £50,000 or 25% of adjusted total income
How does gift aid work
Charity donation treated as payment which BR tax has been deducted
Charity can recover the tax
Donors basic and higher rate tax limits are increased by the gross amount
No minimum or maximum
Not available for non tax payers and they will be liable for the excess tax deducted
How does payroll giving work
Employer deducts the donation from salary before calculating tax under PAYE
Tex relief is at highest rate
No benefit for non tax payer
No mum or max
How does tax relief work for gift of assets
Benefit from income tax relief on the full market value of the gift
CGT exemption on gifts to charity
What is the maximum pension contribution for someone without relevant earnings
£3600
What is the maximum pension contribution
The greater of £3600 and 100% of UK relevant earnings max £40,000
What is the tapered annual allowance in respect of pension contribution
Annual contribution allowance of £10,000
Where total income including pension contributions exceed £150k
Reduced at a rate of £1 for every £2 over £150k
What is the lifetime allowance
The maximum amount of funds that can be held in a pension
£1.055 m for 2019/2020
How does relief at source work for pension contributions
Pension contribution is made after deducting basic rate income tax
Scheme admin reclaims 20% tax from HMRC
Higher and additional rates of relief given by self assessment
How does the net pay arrangement work
Employee payments to occupational schemes made before calculating tax
How does relief by making a claim work
Payments are made gross
Tax relief is given by deducting the contribution from total income
Method used by pre 1988 RAC
What basis are employee benefits taxed on
The cash equivalent benefit
Usually the cost to the employer unless more specific rules apply
What deductions are allowable in calculating the cash equivalent value of employee benefit
Any employee contribution
How do you calculate the value of an in house benefit provided by an employer
It’s based on the marginal cost to the employer
How do you calculate the annual value of a benefit that is being used
The annual value is 20% of the market value of the asset when first provided to the employer
If the asset is rented by the employer then it is the higher of the annual rent paid or annual value
Plus any expenses incurred by the employer to maintain the asset
What value is used to calculate the benefit of an asset given outright by an employer
Market value at time of gift or if new cost to the employer to provide
If the asset was used before being given then it’s the higher of the market value at time of gift and market value when first available to employee less amounts taxed already
What is the taxable company car benefit
It’s based on a percentage of the list price subject to a maximum of 37%
What is the extra charge for company car benefit where the car is a diesel
4% but still subject to max of 37%
What is the official rate used to calculate the benefit of beneficial loans
2.5%
What is the maximum amount of beneficial loan before tax is payable
£10,000
What is the Basis for the calculation of the benefit for living accommodation provided by an employer
The greater of the rent actually paid or the value of rent that could Be achieved
How is the benefit to the employee calculated for living accommodation owned by the employer
If value is greater than £75k
2.5% charge on the excess cost over £75k
If the property was acquired more than 6 years ago the. It is the market value of the property when provided to the employee
When would living accommodation provided by an employer be exempt from a tax charge
If it is necessary for the employers performance of duties
Helps the employee to perform duties better
There is a special threat to the employees security
What is the additional charge for a furnished accommodation provided by the employer
Additional 20% taxable benefit
What are examples of taxable employee benefit
Cash vouchers - treated as earnings Non cash vouchers - taxed on cost to employer Credit token - taxed on equal cost to employer Employee liabilities - eg rent Medical insurance - Company car Living accommodation Fuel Beneficial loans Mileage in excess of statutory amounts
Which employee benefits are exempt
Group income protection Meal provision Mobile phones Long service award Suggestion schemes Work training Relocation and removal expenses Home working Workplace nursery Liability insurance Trivial benefit Tax exempt £500 of pension advice Workplace charging of electric vehicles
What are the rules for group income protection to be exempt as an employee benefit
Premiums paid by the employer (allowable deduction for them)
Benefit paid to the employer and treated as a trading receipt
Employer deducts tax and ni and pays to employee as sick pay
Premiums are not taxed as a benefit
What are the rules for a long service award to not be taxed as an employee benefit
Employee has worked there for more than 20 years
Maximum of £50 per year of service
What is the maximum for a suggestion scheme benefit to not be taxable
£25 or less
What is the maximum for a relocation and removals to be exempt as an employee benefit
£8000
What is the maximum benefit for home working to not be taxable
£4 per week
What is marriage allowance
Married couples can transfer 10% of their personal allowance to each other
As long as neither pays more than basic rate tax
What is married couples allowance
£8915
Reduced if net income is more than £29,600 but floor is £3450
Tax is reduced by 10%
Only available if either spouse was born before 06/04/1935
What is the personal allowance trap
Where net income is between £100k - £125k
The marginal rate of tax is 60% because of the withdrawal of the personal allowance
What is the starting rate band for personal savings
0% tax where savings income falls within the first £5k of taxable income
What is the method to calculate the tax charge
1. Calculate all pre tax income for the year in order Earnings, pension income, rental income Deposit interest and savings income Dividend income Chargeable gains under life policies
- Deduct reliefs in the same order as step 1
- Deduct personal allowance
- Extend basic & higher rate bands if net pension contribution made and gift aid - extend using gross amounts
- Calculate the tax
- Deduct any tax reducers - married couples allowance, transferable psa, eis etc
What is the limit for income received by a child from an asset gifted by a parent to be taxed as their own
£100 pa
Who is liable for income tax on a bare trust
Beneficiary
What is the capital gains tax position of a bare trust
The gist is a disposal
Holdover relief can be claimed for business assets only
Gains taxed on beneficiary
Full annual exemption available
What is the IHt treatment of a bare trust
Gift is a PET
Asset forms part of beneficiaries estate
What is the income tax position of an interest in possession trust
Trustees have no personal allowance or psa or da
Trustees are liable for basic rate tax
Not entitled to tax relief on expenses
Expenses are deducted before distribution
Expenses set against income in order - UK div, foreign div, savings other
If settlor interested the. Taxed on settlor and can be reclaimed from trustees
What is the cgt treatment of interest in posession trust
Gift in ISA disposal
Taxed on settlor if they have interest can reclaim from trustees
Holdover relief possible unless settlor interested
Half cgt annual exemption available
If more than 1 trust exemption is shared minimum of 1/5th
When can holdover relief be claimed for an interest in posession trust
Pre 22/03/2006 trusts only business assets
Post 22/03/0) trusts any asset
Unless settlor has interest
What is the iht treatment of an interest in posession trust
Pre 22/03/2006 = PET
Change of beneficiary = PET
Life tenant has IIP in estate upon death
Post 22/03/2006 = CLT
No IIP on beneficiary
Periodic and exit charges apply
What is the beneficiary’s tax position on an interest in possession trust
Trustees complete R185 to show net of tax figures
Beneficiary adds trust income to own
Entitled to a tax credit for tax deducted from trust income
Beneficiary reclaims or pays extra at own rates
Of trust income paid direct hmrc assessed individual and psa and da are available
What is the income tax position of a discretionary trust
Trustees have no personal allowance
Standard rate band is £1000 - taxed at basic rates
Then income taxed at trust rates
Distributions subject to a 45% tax credit
No tax liability for beneficiary if accumulated
Trustees expenses allowed in calculating income - still charges at basic rates
What is the CGT position of a discretionary trust
Gift is disposal
Holdover relief on any asset
Higher rates charged
Half cgt annual exemption allowable
What is iht position on a discretionary trust
Gift is CLT
If settlor pays tax gross up
Periodic charge every 10 years
Exit charge
What is beneficiaries of a discretionarty trust tax position
Distributions deemed trust income and carry 44% tax credit
Overpaid tax can be reclaimed
Cannot use da or psa as trust income
Who is deemed a vulnerable person
Disabled person - someone on a state disability benefits
Relevant minor (under 18) with one dead parent
What is the income tax position on a trust for vulnerable beneficiary
Income and gains taxed in beneficiaries position
What is the IhT position of a vulnerable person trust
Gift is a PET
What is the benefit of an a&m trust
Although discretionary no exit and periodic charges
If an a& m trust is amended and beneficiary is absolutely entitled does exit and periodic charges apply
No
If a&m trust is amended to 18-25 trust are exit and periodic charges applied
Exit charged no periodic
When did old A&M rules stop applying
05/04/2008
If the A&M trust remains unchanged and capital goes to beneficiary post age 25 is there periodic and exit charges
Yes
When is an offshore trust liable to Uk income tax
If there is a UK resident trustee
When are beneficiaries of an offshore trust taxed
If a capital distribution is made for a trust accumulating income
Is an offshore trust subject to CGT
Not if trustees are non UK resident but anti avoidance measures apply
When is a trust for bereaved minors created
On death of a parent or under criminal injuries compensation scheme
What age must the beneficiary become absolutely entitled to trust property under trust for bereaved minors
18
When is an 18 -25 trust created
Death of a parent or under criminal injuries compensation scheme
When is income treated as the settlers
When settlor or settlers spouse retains interest in the trust
Trust is for benefit of settlers minor unmarried child (if more than £100)
Capital also treated as income of parent if can be matched against undistributed income
