TAX

Question 1

Between which dates do a corporate tax financial year run?

Answer 1

1st April - 31 March

Question 2

Between which dates does an individual financial tax year?

Answer 2

6 April - 5 April

Question 3

Hos is income tax collected?

Answer 3

1. PAYE (pay as you earn)
2. Self-assessment
3. Budget payment plans

Question 4

Name the non-taxable incomes

Answer 4

1. certain state benefits (disability living allowance, housing benefits)
2. ISA
3. working tax credit
4. premium bond wins
5. first 28 weeks of incapacity benefit
6. maternity allowance
7. war widow’s pension

Question 5

Can you carry over personal allowance to the next tax year?

Answer 5

No

Question 6

What is a qualifying loan for tax relief?

Answer 6

Certain interest payments can be deducted, but the of the loan must be qualifying for the interest payment to be deductible. e.g. Mortgages or loans to buy property for once personal use is not qualifying. However, loans to buy rental property may qualify.

Loans in general that does qualify:

1. loans to buy shares in borrowers company
2. loans to buy share in partnership
3. loan to buy machinery for use in trading
4. loans by personal representative (PA) to pay inheritance tax

Question 7

What is the the limit to all uncapped income tax reliefs?

Answer 7

Those seeking to claim income tax reliefs of more than 50.000 pounds are restricted to 25% of their income for the year in question or 50.000 pounds which ever is the greater.

Reliefs that are already capped e.g relief for pension contributions will not be affected.

Question 8

What is the gift aids scheme?

Answer 8

It is for gifts of money given by tax payers to charities or to community armatures sports clubs (CASC). The tax payer payed with money that he has already paid tax on and can therefore reclaim the “basic tax” from HMRC on its gross equivalent.

The current “basic tax rate” is 20%.

Higher earners can also claim back if they pay 40 or 45 % of income in tax.

Question 9

Tell me more about the National Insurance

Answer 9

You pay national insurance on earnings up to retirement age. Builds rights to social security benefits including state pension. The amount depends on how much you pay and whether you are self employed.

Question 10

How are partnerships taxed?

Answer 10

Unlike a company a partnership is not a separate legal person, but a group of individuals each of whom is taxed on his own share of the partnership profits or losses. Each partner should include his share in profits in his own tax return and is liable for tax on his share only. However, the partnership should submit tax return on the total partnership profits which is later divided between the members.

Note that a true salary to a partner is deductible as an expense, with tax being deducted at sours under the PAYE procedure.

While a mere employee of the partnership who receives a salary will not be a legitimate delectable expense.

Similarly, where a loan is extended by a partner to the partnership the interest payable on the loan is a deductible expense. While interest payable to a partner regarding a partners contribution to capital to the firm is not a a deductible expense. Such payment being regarded as part of the agreed method of allocating profits among the partners.

Question 11

Can you set off loss from e.g. an ISA to gains on other accounts?

Answer 11

No you cannot. ISA’s, National Savings and investments, child trust funds, tax-free bank and building Society accounts and tax relief on pension savings are tax free, but you cannot set-up losses to other investments.

Question 12

Which entities pay corporation tax?

Answer 12

Companies and unincorporated associations such as members clubs.

Partnerships no not pay corporation tax. Instead each partner payed income tax on this share of the profits of the partnership.

Question 13

How are companies taxed?

Answer 13

Companies pay corporation tax, but not income tax or capital gains tax.

Corporation tax is payable on profits from UK resident companies, even it the profit was made outside the UK. If the company is not based in the UK, but operates here e.g. through a branch (permanent establishment) it will only pay corporation tax on any taxable profits arising from its UK activities.

Question 14

What is the the tax year called for a company paying corporation tax and between which dates does it run?

Answer 14

For corporation tax purposes the tax year is called the financial year.

The UK government’s own financial year runs from 1st April to 31 March.

Companies pay corporation tax on taxable profits for each corporation tax accounting period.

A corporation tax accounting period is different from e.g. VAT accounting period and Companies House accounting reference period.

The companies corporation tax accounting period is normally 12 moths long. This period, normally (but not always) matches the companies 12 month’s financial year. The companies financial year begins and ends with the dates covered by its annual reports and accounts as submitted to companies house (statutory accounts or audited accounts).

Om with more than 12 months if e.g newly formed or changed its financial year end.

However, the accounts tax period cannot be more than 12 months. In such event, you must file two company tax returns because you will have two corporation tax accounting periods.

Question 15

What are taxable profits for companies paying corporation tax?

Answer 15

1. profits from taxable income such as trading profits and investment profit (except dividend income which is taxed differently)
2. Capital gains (known as chargeable gains for corporation tax purposes.

Question 16

What is chargeable gains for corporation tax purposes?

Answer 16

Its the same as “capital gains”, but companies do not pay capital gains tax

Question 17

Between which dates does a companies financial year run?

Answer 17

Limited companies are required to submit annual accounts to Companies House including a profits and loss account. When you start a new company the financial year automatically runs to the end of the month a year after the company is incorporated. e.g company incorporated on 10 June, the financial year ends 30 June the following year. Can chose a different financial year end if you wish.

Question 18

When should a company file the return and pay the tax due?

Answer 18

Deadline to pay the corporation tax is before the deadline to file the company tax return.

1. Pay within 9 moths and 1 day after the end of its corporation tax accounting
2. file by 12 months after the end of its corporation tax accounting period.

Question 19

Do companies always pay corporation tax once a year?

Answer 19

No, if a company’s profits for an accounting period are at an annual rate of more than 1,5 million pounds it must normally pay corporation tax for that period in quarterly installments in the 7th, 10th, 13th and 16th months after a full accounting period starts all of which is due before the deadline to file the company tax return. Company tax returns must be submitted to HMRC online and pay electronically.

Question 20

How do you calculate corporation tax?

Answer 20

Corporation tax is charges on both all of the taxable income and the chargeable capital gains of a company, which together makes up its profits.

Exceptions and reliefs, lessen the company’s tax burden.

Income profits are thus defined as trading receipts and/or chargeable receipts less deductible or allowable expenses less capital allowances.

Question 21

Define “Charge on income”

Answer 21

Payments that a company makes that can be deducted from profits or capital gains chargeable to corporation tax which have accrued during an accounting period.

Main example = charity (gift aid). Non trade charges on income and can therefore be deducted from total profits and capital gains. Paid from the companies gross profits.

Note that compared to individuals- not reclaim tax on the gift or submit gift aid declaration.

Question 22

How can a corporation deduct from trades, income from Land in the UK and capital?

Answer 22

No deductions allowed against profits from trades or income from land in the UK for expenses not incurred wholly and exclusively for the trade or rental business.

No deductions are available for capital (i.e deductions are only available for revenue items).

Since no capital deductions are allowed, depreciation of capital assets is not tax deductible, although tax depreciation (know as capital allowances) is available instead for expenditures on some capital assets. There are various kinds of capital allowances i.e. plants and machinery.

Plants - no statutory definition - but the legislation designate integral features (electrics, water, heating etc), expenditures on safely and personal security assets. Buildings and structures cannot be plants.

Plants defined by 100 years of case law. It is in essence business apparatus which can in practice include may fixtures and fittings in buildings.

Question 23

Are dividends and transfer to reserves allowable deductions from corporate tax?

Answer 23

Capital allowances may also be deducted when calculating taxable profits; however appropriations of profit, such as dividends and transfers to reserves are not allowable as deductions.

Question 24

When can you deduct business expenses?

Answer 24

A business expense can only be offset against Corporation Tax if it is judged to have been incurred solely for business purposed.

Office machinery, equipment and furniture and motor is entitled to a “writing down allowance”.

Raw materials, stock and trade and buildings are excluded.

Question 25

Can a company set of losses or gains from capital against other incomes or expenses?

Answer 25

No, but they can carry forward. Capital losses can be carried forward indefinitely.

Question 26

What is trading loss relief?

Answer 26

If a company is liable for Corporation Tax and makes a loss from trading, the sale or disposal of a capital asses, or on property income, then it may be able to claim relief from Corporate tax.

If a company has a loss of 6.000 in the accounting period from the 1 st January to the 31st December and profits of 25.000 in the preceding 12 months, then it can carry back the 6.000 loss to be set off against the profit for the previous accounting period. They can also carry to loss forward.

Question 27

What is a capital loss relief?

Answer 27

Capital losses can not be set off against trading income. Any capital losses which accrued to a company in an accounting period are to be set against chargeable gains arising in the same accounting period. Can be carried forward to next accounting period.

Question 28

What is Roll-over relief?

Answer 28

Definition of business asset rollover relief. Business asset rollover relief allows for the deferral of capital gains tax due on the disposal of certain qualifying assets used in a trade, as long as the proceeds of the disposal are fully reinvested in new qualifying assets for the trade. = uppskov!

Question 29

What is “income limited” in regards to income tax?

Answer 29

It related to a taxpayers personal allowance.

The amount of an individual’s personal allowance depends on their adjusted net income in the tax year, which is total annual income adjusted to take account of certain deductible allowances and reliefs such as trading losses, gift aid and some pension contributions.

If the taxpayers adjusted net income is over 100.000 pounds, the personal allowance is reduced by half of the amount.

e.g. Mark’s adjusted net income is £105.000 and therefore exceeds the net come limit by £5.000. This is divided in half = $2.500

Personal allowance for 17/18: 11.500
Less income based reduction: 2.500
Mark’s personal allowance for the year = 9.000

Question 30

Whats the personal allowance for 17/18

Answer 30

11.500

less possible income based reduction which is 100.000 £

Question 31

Whats the personal allowance for 18/19

Answer 31

11.850

less possible income based reduction which set high at 100.000 £

Question 32

What are the approx income tax bands?

What is the personal savings allowance on these bands?

Answer 32

up to 34.500 = 20% (up to 1.000£ in savings income tax free)
up to 150.000 = 40% (up to 500£ in savings income is tax free)
above 150.000 = 45% (no personal savings allowance)

Note that ISA does not fall in this allowance since it’s already tax free.

Question 33

Can personal allowance be nill?

Answer 33

Yes, since its adjusted depending on how much you earn.

Margret’s adjusted net income is 163.750. THIs exceeds the income limit by 63.750. This is divided by 2 to give a reduction to her personal allowance of 31.873. Allowance cannot be reduced to zero, so she has no personal allowance for the year.

Question 34

How much tax do you pay on dividend and how high is the dividend allowance for income tax?

Answer 34

up to £33.500 on taxable income = 7.5%
up to 150.000 on taxable income = 32.5%
over 150.000 on taxable income = 38%

Allowance is £5000 on dividend income received. Available to everyone notwithstanding income band. Note that It has been reduced to £2000 in 2018/19 tax year.

You can use personal allowance for income to deduct against dividend.

Question 35

IS there a cap on income relief in income tax?

Answer 35

Yes, there is a limit to all uncapped income tax reliefs. More than 50.000£ are restricted to 25% of their income for the year in question or 50.000£ which ever is greatest.

Question 36

What is the income trading allowance for income tax?

Answer 36

You can as an individual sell goods and services up to 1.000£ tax free. If below this, not required to declare.

Earning more than that, you can either take the earnings and deduct actual expenses, or take the earnings and deduct 1.000£

Question 37

What are distributions or deemed distributions from a corporate tax perspective?

Answer 37

“Every description of distribution of a company’s assets to its members, whether in cash or otherwise is deemed a distribution. Most commonly, we are talking about dividend.

Question 38

What is output VAT?

Answer 38

Goods and services going out from the business

Question 39

What is input tax?

Answer 39

Goods and services going into the business

Question 40

What goods and services are subject to the reduced VAT rate?

Answer 40

1. domestic fuel and power
2. installation of energy saving materials
3. sanitary hygiene products
4. children’s car seats.

Taxed at 5 %

Question 41

What goods and services are subject to zero rated VAT?

Answer 41

1. food (not in restaurants or take away)
2. books and newspapers
3. children’s clothing and shoes
4. public transport

Question 42

What items are excluded from VAT?

Answer 42

1. insurance
2. providing credit
3. education and training, if certain conditions are met
4. fundraising events by charities, if certain conditions are met
5. membership subscriptions, if certain conditions are met
6. most services provided by doctors and dentists

Question 43

Which services are out of scope for VAT?

Answer 43

Non business activities such as hobbies and fees that are fixed in law - known as “statutory fees” e.g. congestion charge or vehicle MoT tests.

Question 44

What is the difference between exempt and zero rated items in regards to VAT?

Answer 44

The exempt trader will not charge VAT. However, he cannot reclaim input VAT on expenses. He becomes the ultimate consumer.

Selling, leasing and letting commercial land and buildings are exempt from VAT. However, they can choose to opt in and give up the right of exemption and then claim back VAT for expenses.

Zero rated in the best position, since they don’t have any output VAT, but they can claim back VAT for expenses.

Question 45

When is VAT chargeable?

Answer 45

1. supply of goods and services
2. supply takes place in the UK
3. made by taxable person (any physical or legal person which supplies taxable goods and services in the course of business. Registration required over certain thresholds)
4. is made in the course or furtherance of any business carries on or to be carried on by that person.

Question 46

When must a trader register for VAT?

Answer 46

If turnover of more than 85.000 in a year or if the trader suspects he will go over that amount within 30 days.

Question 47

What are the penalties related to VAT?

Answer 47

Failure to meet VAT payment deadlines can result in a civil penalty of up to 15% surcharge to the tax return, where the failure lasts for over 18 months.

A person who is knowingly involved in the fraudulent evasion of tax may be liable to an unlimited fine and imprisonment for up to 7 years.