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Af1 > Tax > Flashcards

Tax Flashcards

1
Q

State the duties of a trustee

A

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

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2
Q

What tax liabilities does a self assessment show

A

Income tax on all forms of income
Class 2 and 4 NIC
Cgt

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3
Q

What are the self assessment deadlines

A

31st January following the tax year relating to for online

31st October following the tax year that income relates to for paper based

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4
Q

What are the payment dates for self assessment

A

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

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5
Q

What are the penalties for non compliance with self assessment

A

Interest and surcharges on late and under payments

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6
Q

What is the penalty for being more than 30 days late with a balancing payment

A

5% surcharge

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7
Q

Does HNRC pay interest on overpaid tax

A

Yes

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8
Q

What is the penalty for a self assessment being up to 3 months late

A

£100

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9
Q

How much are the fines if you have not submitted a tax return after 90 days

A

£10 per day up to £900 (90 days)

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10
Q

What is the penalty for not filing a tax return after 6 months

A

£300 fine or 5% of the tax owed whichever is greater

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11
Q

What is the penalty for being more than 12 months late filing a tax return

A

£300 or 5% of the tax owing whichever is greater

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12
Q

What is the penalty for being more than 6 months late to pay tax liabilities

A

5% surcharge of the tax owed on that day

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13
Q

What is the penalty for being more than 12 months late paying a tax liability

A

5% charge on the tax owed on that day

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14
Q

What is the interest rate payable on tax owed (plus the amount levied in charges)

A

3%

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15
Q

What penalties can HMRC impose if you make an incorrect tax return either by being careless or misleading them

A

30- 70% of the tax owing or if it was deliberately concealed or misled then 100%

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16
Q

When can HMRC start an enquiry into your tax return

A

Within 12 months of receiving the return

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17
Q

When will you know that your self assessment is final

A

12 months after sendin

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18
Q

What is the primary function of the PAYE coding

A

To deduct the correct amount of tax to avoid the need of completing a self assessment

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19
Q

When did real time reporting start

A

October 2013

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20
Q

What is the employers pay day procedures

A

Calculate and deduct tax issue payslips

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21
Q

What is the employers month end procedure

A

Pay HMRC all PAYE and Nic money

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22
Q

What is the employers year end procedure

A

Issue P11d or p9d on 6th July

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23
Q

When does the employee have to have received their p60 by

A

31st May

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24
Q

What penalties are imposed on employers for PAYE discrepancies

A

Penalties on a monthly basis for late submissions
Penalties for inaccurate submissions or late payment
Interest on late payments

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25
Q

What is the penalty for an employer if they have been late with payment of PAYE 1-3 times in a tax year

A

1%

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26
Q

What is the penalty for an employer who has been late with PAYE payments 4-6 times in a tax year

A

2%

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27
Q

What is the penalty for an employer who has been late for PAYE payments 7-9 times in a tax year

A

3%

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28
Q

What is the penalty for an employer who has been late for PAYE payment 10+ times in a tax year

A

4%

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29
Q

What is the penalty of an employer hasn’t paid PAYE payment for 6 months

A

5% on top of normal charges

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30
Q

What is the penalty for an employer who hasn’t paid PAYE obligations after 12 months

A

Another 5% charge

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31
Q

When is the first penalty charge for being late paying NIC class 1A and class 1B

A

30 days 5%

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32
Q

When is the 2nd penalty for non payment of class 1A class 1B nic

A

6 months 5%

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33
Q

What is the penalty for being 12 months late paying class 1 A and 1B NIC

A

5%

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34
Q

What dates of payment can be used for directors

A 
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
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35
Q

What is the trading allowance

A

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

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36
Q

For a newly set up sole trader whose accounting period does not coincide with the tax year end dates how is the tax calculated

A

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

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37
Q

When is overseas property income taxable

A

If the income is received by a property business based in the UK

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38
Q

Is income from UK property taxable for non resident

A

Yes

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39
Q

What is the accounting period for property letting

A

Up to 05/04 or 31/03

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40
Q

What are allowable expenses for property income

A

Expenses incurred wholly and exclusively for that property

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41
Q

What is the tax relief for finance costs in respect of property income

A

25% deductions as an expense and 75% basic rate reduction in 2019/2020

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42
Q

What is the property allowance

A

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

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43
Q

Can you claim home improvements as a deductible expense against property income

A

No

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44
Q

What kind of income comes from purchased life annuities and gains from life assurance contracts

A

Savings and investment income

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45
Q

Is savings and investment income taxable for non UK residents

A

Only if income source is in the UK

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46
Q

What deductions are allowable for savings and investment income

A

None

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47
Q

What are tests used to determine whether someone is employed or self employed

A

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

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48
Q

What kind of savings income is paid gross

A

Bank, building society, NS&I, interest distributions from UT/OEIC and corporate bonds

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49
Q

Is the interest element income from a purchased life annuity paid gross

A

No taxed at basic rate of 20%

50
Q

Can basic rate tax be reclaimed by a taxpayer

A

Non tax payers and starting rate tax payers can reclaim and basic rate tax paid

51
Q

How do you gross up savings income for a tax return

A

Multiply the amount received by 1.25

52
Q

How are UK dividends paid

A

Gross

53
Q

What is total income

A

Sum of amounts of income the taxpayer is charged income tax for that tax year

54
Q

How to calculate taxable income

A

Total income
Minus amounts for which tax relief is given by deductions from income
Deduct the personal allowance

55
Q

What are the qualifying rules for interest payments on a loan to be deducted from income

A

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

56
Q

What rate of relief is given to qualifying loan interest payments

A

The borrowers top rate of tax

57
Q

What is the cap for qualifying loan interest payments

A

The higher of £50,000 or 25% of adjusted total income

58
Q

How does gift aid work

A

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

59
Q

How does payroll giving work

A

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

60
Q

How does tax relief work for gift of assets

A

Benefit from income tax relief on the full market value of the gift
CGT exemption on gifts to charity

61
Q

What is the maximum pension contribution for someone without relevant earnings

A

£3600

62
Q

What is the maximum pension contribution

A

The greater of £3600 and 100% of UK relevant earnings max £40,000

63
Q

What is the tapered annual allowance in respect of pension contribution

A

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

64
Q

What is the lifetime allowance

A

The maximum amount of funds that can be held in a pension

£1.055 m for 2019/2020

65
Q

How does relief at source work for pension contributions

A

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

66
Q

How does the net pay arrangement work

A

Employee payments to occupational schemes made before calculating tax

67
Q

How does relief by making a claim work

A

Payments are made gross
Tax relief is given by deducting the contribution from total income
Method used by pre 1988 RAC

68
Q

What basis are employee benefits taxed on

A

The cash equivalent benefit

Usually the cost to the employer unless more specific rules apply

69
Q

What deductions are allowable in calculating the cash equivalent value of employee benefit

A

Any employee contribution

70
Q

How do you calculate the value of an in house benefit provided by an employer

A

It’s based on the marginal cost to the employer

71
Q

How do you calculate the annual value of a benefit that is being used

A

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

72
Q

What value is used to calculate the benefit of an asset given outright by an employer

A

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

73
Q

What is the taxable company car benefit

A

It’s based on a percentage of the list price subject to a maximum of 37%

74
Q

What is the extra charge for company car benefit where the car is a diesel

A

4% but still subject to max of 37%

75
Q

What is the official rate used to calculate the benefit of beneficial loans

A

2.5%

76
Q

What is the maximum amount of beneficial loan before tax is payable

A

£10,000

77
Q

What is the Basis for the calculation of the benefit for living accommodation provided by an employer

A

The greater of the rent actually paid or the value of rent that could Be achieved

78
Q

How is the benefit to the employee calculated for living accommodation owned by the employer

A

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

79
Q

When would living accommodation provided by an employer be exempt from a tax charge

A

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

80
Q

What is the additional charge for a furnished accommodation provided by the employer

A

Additional 20% taxable benefit

81
Q

What are examples of taxable employee benefit

A 
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
82
Q

Which employee benefits are exempt

A 
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
83
Q

What are the rules for group income protection to be exempt as an employee benefit

A

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

84
Q

What are the rules for a long service award to not be taxed as an employee benefit

A

Employee has worked there for more than 20 years

Maximum of £50 per year of service

85
Q

What is the maximum for a suggestion scheme benefit to not be taxable

A

£25 or less

86
Q

What is the maximum for a relocation and removals to be exempt as an employee benefit

A

£8000

87
Q

What is the maximum benefit for home working to not be taxable

A

£4 per week

88
Q

What is marriage allowance

A

Married couples can transfer 10% of their personal allowance to each other
As long as neither pays more than basic rate tax

89
Q

What is married couples allowance

A

£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

90
Q

What is the personal allowance trap

A

Where net income is between £100k - £125k

The marginal rate of tax is 60% because of the withdrawal of the personal allowance

91
Q

What is the starting rate band for personal savings

A

0% tax where savings income falls within the first £5k of taxable income

92
Q

What is the method to calculate the tax charge

A 
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
  1. Deduct reliefs in the same order as step 1
  2. Deduct personal allowance
  3. Extend basic & higher rate bands if net pension contribution made and gift aid - extend using gross amounts
  4. Calculate the tax
  5. Deduct any tax reducers - married couples allowance, transferable psa, eis etc
93
Q

What is the limit for income received by a child from an asset gifted by a parent to be taxed as their own

A

£100 pa

94
Q

Who is liable for income tax on a bare trust

A

Beneficiary

95
Q

What is the capital gains tax position of a bare trust

A

The gist is a disposal
Holdover relief can be claimed for business assets only
Gains taxed on beneficiary
Full annual exemption available

96
Q

What is the IHt treatment of a bare trust

A

Gift is a PET

Asset forms part of beneficiaries estate

97
Q

What is the income tax position of an interest in possession trust

A

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

98
Q

What is the cgt treatment of interest in posession trust

A

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

99
Q

When can holdover relief be claimed for an interest in posession trust

A

Pre 22/03/2006 trusts only business assets

Post 22/03/0) trusts any asset

Unless settlor has interest

100
Q

What is the iht treatment of an interest in posession trust

A

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

101
Q

What is the beneficiary’s tax position on an interest in possession trust

A

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

102
Q

What is the income tax position of a discretionary trust

A

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

103
Q

What is the CGT position of a discretionary trust

A

Gift is disposal

Holdover relief on any asset

Higher rates charged

Half cgt annual exemption allowable

104
Q

What is iht position on a discretionary trust

A

Gift is CLT

If settlor pays tax gross up

Periodic charge every 10 years

Exit charge

105
Q

What is beneficiaries of a discretionarty trust tax position

A

Distributions deemed trust income and carry 44% tax credit

Overpaid tax can be reclaimed

Cannot use da or psa as trust income

106
Q

Who is deemed a vulnerable person

A

Disabled person - someone on a state disability benefits

Relevant minor (under 18) with one dead parent

107
Q

What is the income tax position on a trust for vulnerable beneficiary

A

Income and gains taxed in beneficiaries position

108
Q

What is the IhT position of a vulnerable person trust

A

Gift is a PET

109
Q

What is the benefit of an a&m trust

A

Although discretionary no exit and periodic charges

110
Q

If an a& m trust is amended and beneficiary is absolutely entitled does exit and periodic charges apply

A

No

111
Q

If a&m trust is amended to 18-25 trust are exit and periodic charges applied

A

Exit charged no periodic

112
Q

When did old A&M rules stop applying

A

05/04/2008

113
Q

If the A&M trust remains unchanged and capital goes to beneficiary post age 25 is there periodic and exit charges

A

Yes

114
Q

When is an offshore trust liable to Uk income tax

A

If there is a UK resident trustee

115
Q

When are beneficiaries of an offshore trust taxed

A

If a capital distribution is made for a trust accumulating income

116
Q

Is an offshore trust subject to CGT

A

Not if trustees are non UK resident but anti avoidance measures apply

117
Q

When is a trust for bereaved minors created

A

On death of a parent or under criminal injuries compensation scheme

118
Q

What age must the beneficiary become absolutely entitled to trust property under trust for bereaved minors

A

18

119
Q

When is an 18 -25 trust created

A

Death of a parent or under criminal injuries compensation scheme

120
Q

When is income treated as the settlers

A

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

Af1 (18 decks)

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