Tax Compliance Flashcards
1
Q
The five principles for professional accountants are…
A
Integrity, objectivity, professional competence and due care, confidentiality, professional behavior.
2
Q
Client information may be disclosed when…
A
Authorised by client, required by law, professional duty (quality review, response to member/ regulatory body enquiry)
3
Q
When an accountant prepared a tax return he act as…
A
Agent. Client is still responsible
4
Q
When an accountant gives tax advice he acts as…
A
Principal. The accountant takes full responsibility, more risky for client.
5
Q
For professional indemnity insurance the indemnity amount is…
A
If gross fee income of firm less than 600,000 then 2.5 times gross. Minimum 100,000. Otherwise 1.5 mill
6
Q
If ceasing practice, indemnity should remain for…
A
2 years
7
Q
Summarise data protection act.
A
All organisations processing data must notify information commissioner. Aim to keep data accurate, up to date, secure, lawfully and specifically used.
8
Q
What are some money laundering offences
A
Privelidged information, unknown money laundering, duress or safety, believed outside of UK
9
Q
Tax exempt income
A
National savings certificate interest, New individual savings accounts, betting, lottery, premium bond winnings, housing benefit, most child benefit, first 4250 of gross annual rent, scholarships, income tax repayment, universal credit.
10
Q
What can you do to the tax bands after personal pensions contributions and gift aid?
A
Increase them by gross donation amounts.
11
Q
In pension calculations are contributions made gross?
A
You need to gross up personal contributions, but not company contributions.
12
Q
How is pension income taxed when drawn?
A
Apart from tax free lump sums, all other income taken from a pension is taxed as non-savings income.
13
Q
How much of your pension can you take out tax free as a lump sum?
A
25% subject to maximum of 25% of lifetime allowance. More than this is 55% taxed.
14
Q
If you vest large pension amounts in following years and there are different life time allowances, how do you find how much allowance is left?
A
must be worked out by scaling the amount vested previously (x new allowance / old allowance) and deducting that from the current allowance.
15
Q
What is the maximum pension contribution you can make?
A
Higher of your earnings and the basic amount.
16
Q
When someone pays pension into a pension scheme what do you do in their liability calculation?
A
Only increase the bands by the grossed up value… don’t deduct the pension amount or anything like that. (You only do that for working out adjusted net income).
17
Q
When is an expense, incurred by an employee, deductible from his income in tax workings?
A
When employee is obliged to incur and pay the expense and the amount is wholly and necessarily in the performance duties of the employment.
18
Q
What is a dispensation, or notice of nil liability.
A
Employer tells HMRC which expenses are covered by allowable deductions, revenue and customs agrees there is no tax liability arising.
19
Q
Is a dispensation (tax deduction) allowable for round sum expenses?
A
No
20
Q
What are the mileage rate allowances?
A
Car: 45p for first 10,000 miles, 25p thereafter. Motorcycle, 24p. Cycle 20p. Passenger is 5p per mile.
21
Q
What is the opposite of a taxable benefit?
A
Allowable deduction.
22
Q
P9D employees (earning less than 8500p/a who are not directors) have these alone as their taxable benefits:
A
Benefits convertible into cash, vouchers, living accommodation (but not living expenses).
23
Q
What is the taxable benefit for vans? What if they are zero emission?
A
£3150 less any contributions paid in the year by the employee. £630 for zero emission vans (20% of ordinary amount).
24
Q
Provision of furniture to employee is taxable benefit at…
A
20% of market value of asset when first provided.
25
If accommodation not job related, taxable benefit of expenses is limited to…
10% employee net earnings.
26
Your taxable benefit of a car depends on…
The fuel emissions. Then deduct the employee contributions. If car not available for whole year then time apportion. (unless less than 30 day period e.g. repairs)
27
What is the deal with fuel benefit?
Same percentage made by emissions, of 22,100 in 2015/16. No reduction in benefit from contributions unless employer fully reimburses. Time apportioned.
28
How are benefits of loans to employees taxed?
No taxable benefit if less than 10,600, either take average outstanding amount over year multiplied by official interest. On strict method rate calculated on outstanding amount, pro rated with payments. You can deduct interest paid.
29
If an asset is sold to employee after use, what is the benefit?
Greater of current market value or original cost of provision less taxed amounts so far less price paid.
30
What childcare benefits are exempt?
55 on basic band, 28 on higher, 25 on additional
31
What benefits are exempt from tax?
Pension, (and advice up to £150), childcare, mobile, subsidised meals, loans less than 10,000, social events (150p/a), non-cash gifts, parking, awards, incidental expenses, overseas medical when abroad, travel expenses when disrupted, bicycles, own vehicle use, relocation, eye tests, health screening, officially recommended medical treatment.
32
If you are at a client, how long must you be there for work expenses to not be deductible?
24 months.
33
What are the badges of trade?
Profit seeking, number of transactions, nature of assets, similar transactions, changes to asset, method of sale, source of finance, time between purchase and sale, method of acquisition.
34
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Capital Expenditure
Yes, add it back, but repairs are ok.
35
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Depreciation
Yes add it back
36
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Appropriation of profit.
Yes add it back, including payment of salary to sole trader etc.
37
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Provisions.
Specific provisions are ok. General ones no.
38
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Debts
Non-trade bad debts, specific provisions or written off ones are disallowable. Trade bad debts are ok.
39
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Entertaining?
Only for staff is allowable
40
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Gifts.
Only gifts to employees, trade samples, gifts to customers that include advert for business, not food, drink or tobacco or exchangeable for goods, total cost less than £50. These are all allowable
41
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Donations and Subscriptions?
Only small donations to local charities, or plant gifted to charities or UK education or subscriptions to trade associations are allowable.
42
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Fines
Disallowable, add back, except for employee parking fines.
43
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Legal and professional fees.
Only allowable if Relating to renewal of short lease (50 yrs), registration of patent or copyright, costs of raising long term finance.
44
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Irrecoverable VAT
Only allowed if it relates to allowable expense.
45
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Employment payments and pensions?
Allowable, but on cessation of trade only payments in addition to redundancy that are up to 3 x statutory pay.
46
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Leased cars?
If less than 130g/km then allowable, if more then 15% of hire charge is disallowance.
47
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Trading income, e.g. goods taken by owner for personal use.
Add back selling price of goods. (If cost price used then add back the profit that would have been made).
48
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Non-trading income.
Disallowable, deduct it, only trade related stuff.
49
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Royalties
It is allowable deduction: The gross amount.
50
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? Lease premium paid by trader on grant of short lease.
Whole premium is not allowable but can get allowable deduction on income portion = premium taxed on landlord as property income divided by number of years of lease.
51
Is the following a disallowable expenditure that must be added back onto the accounting profit when calculating tax? National Insurance Contributions.
I think they are deductible.
52
When is pre-trading expenditure deductible?
If incurred within 7 years of starting date of trade and it would have been deductible if it had been incurred in the trade. Generally not allowable.
53
What deductions can a sole trader make in using a vehicle?
The same as for an employee income using his own vehicle. 45p for first 10,000 miles, then 25p. 24p for motorcycle. Can't be claimed if trader previously claimed capital allowances. If a fixed rate is used then that must be use throughout and in future calculations.
54
If the trader works at home, what are the deductible costs in tax calculation.
25-50 hours £10. 51-100 = £18. 101+ = £26. (Monthly adjustment)
55
If you are living in your business premises (e.g. hotel) what are the monthly adjustments?
£350 for 1 occupant, 500 for 2. 650 for more.
56
What is the basis for the last tax year when the business closes?
From the end of the last basis period to closing time. If closes within a year, just take period of trade. If closed within second year take from April 6th to date of cessation.
57
What do you do with overlap profits in tax calculation?
Deduct them in the last year of trade. (Reducing tax).
58
If you change your accounting period and have a long period account as a sole trader, what extra thing can you do?
Overlap profits from earlier can also be deducted now.
59
If you are restructuring your accounting dates and you have a time when there is no period of account in the tax year…
You must make a notional one that ends 12 months before your new year end.
60
If you restructure basis periods and end up with two periods ending in the same tax year…
Stick them together, you can deduct overlap profits.
61
When can you change your period of accounting?
Within first 3 years always. Otherwise must be notified by 31st Jan, can't be period greater than 18 months, no previous change of account in last 5 years.
62
If a patent royalty has been deducted from trading income and you are working out taxable income, what must you do…
Only the net will be deducted and you can deduct the gross amount so do 20/80 and deduct that to give new trading income. Use this in working out taxable income.
63
After deducting the 20/80 (because this is patent tax and the patent royalty was already deducted) what must you remember in working out tax payable?
Add the tax of the patent royalty into the tax payable otherwise you get double relief.
64
What can the AIA be used for?
Plant and machinery, integral features, long life assets, private use assets, not cars. 500,000. (200,000 in Jan 2016). Straddling periods are pro rated. Max expenditure post Jan 2016 must be limited to that amount for the section.
65
What happens to AIA in periods of accounts not 12 months?
Pro rated
66
What things are in the special rate pool?
Long life assets, integral features, thermal insulation, solar panels, cars with emissions over 130g/km after April 2013, before is 160.
67
What is the WDA rate on special rate items?
8%
68
When is an asset classed as "long life"?
25 years economic life, expenditure on asset is over £100,000 for 12 month period. (pro rate for shorter). Not including cars, retail shop stuff or showroom, office, hotel, dwelling houses. Or Ships. (Crane is a good example of a long life asset).
69
If a second hand asset was originally classed as long life, will it be classed as such by new owner?
Yes
70
If expenditure on integral features is more than 50% of full replacement cost…
Can't be revenue deduction.
71
Is expenditure on thermal insulation of existing buildings an allowable expense?
Yes, it is a capital allowance.
72
The small pool limit (can claim full amount) is
1000
73
What assets aren't brought into the main pool and have a separate pool for each asset?
Assets with some private use (by sole trader or partner only)(only business element claimed), short life assets.
74
What happens if a short life asset isn't disposed of by 4 years from prior April 2011 or 8 years from post April 2011?
Transferred to main pool and written down as normal.
75
Is capital expenditure incurred before business starts eligible?
Yes (deemed to occur on first day)
76
If an asset is sold for more than tax written down value what happens?
Balancing charge taxed to reduce capital allowances or added to adjusted trading income.
77
If the asset is sold for less than tax written down value…
Then a balancing allowance may arise. (only in main pool or special rate pool if business ceases). (single pool whenever).
78
In cessation of trade, what happens to assets with regards to TWDV
All items in final period added to TWDV b.f, no WDA FYA or AIA given, Disposal value of assets in each pool is deducted giving balancing allowances or charges. (Taken by owner - treated as sold for market value).
79
Using a cash basis a business is taxed on its….
Cash receipts less cash payments of allowable expenses. (unincorporated)
80
A trader must leave the cash basis if…
His receipts in the previous tax year exceed twice the VAT registration threshold for the previous year. (proportionally reduced for less than 12 months).
81
Is plant and machinery deductible in calculating taxable trading profits?
Only in cash basis (cars excepted) - then capital allowances not available. (same with capital receipts).
82
If in the cash basis a trader takes out stock without paying an arm's length price what should happen?
a just an reasonable amount (cost of stock) should be added to taxable profit. (In accrual basis the goods are treated as sold for their market value).
83
Which capital receipts should you deduct in the cash basis?
Sale of assets that aren't plant and machinery (cars, land and buildings).
84
Where a trader in the cash basis ceases to use a capital asset for the trade purpose…
the market value of the asset at that date is treated as a taxable receipt.
85
When a cash basis trader ceases to trade, the value of the stock and WIP is…
treated as a taxable receipt in the final period.
86
Are business expenses including capital expenditure on plant and machinery deductible in the cash basis?
Yes but not for cars.
87
Are bad debts an allowable deduction for the cash basis?
No as income is only taxed when received.
88
What is the deal with lease cars and the cash basis accounting?
The 15% restriction does not apply such that the amounts paid are allowable in full. (I think the 15% thing is about emissions?)
89
Is interest paid on a loan a deductible cash basis expense?
Yes (even if not wholly for trade) £500 maximum for 12 months. (Not applicable on interest on leased assets, hiring, credit cards)
90
Can you claim your receipts of cash from sale of a car in the cash basis?
If you are using the fixed rate mileage allowance then no. (so service expenditure is disallowed too).
91
Can you deduct expenditure in purchase of a car (not car trade) in cash basis?
No as it's capital expenditure.
92
In the cash basis, if the trader takes goods out, what do you do?
Add them on to the profits (in tax calculation) at the cost bought at.
93
Can a cash basis trader offset losses against other gains?
No, And a net cash deficit can only be relieved against future gains.
94
The eligibility limit for the cash basis (2016) is…
82,000
95
What happens to any unrelieved expenditure on Plant and Machinery when a trader leaves the cash basis?
Allocated to a capital allowances pool.
96
How is an income dealt with when the trader moves out of the cash basis?
An income adjustment is spread over 6 years equally. (But can be accelerated).
97
If plant and machinery is sold in the cash basis…
That is a taxable receipt. (Excluded from the charge to capital gains tax)
98
What is a discretionary trust?
A trust where no beneficiary is entitled to any income or capital, left up to discretion of trustees. (Trustee looks after the stuff).
99
What is a CLT (in trusts)?
A chargeable lifetime transfer
100
If the cumulative total of the settlers CLT's in any 7 year period does not exceed the nil rate band…
There will be no lifetime tax to pay on creation of the trust.
101
How is income taxed to trustees?
Taxed on first instance, trustees do not have a personal allowance or different bands to be taxed in, all taxed at basic rate of tax applicable to the type of income.
102
Is there a deduction for trust management expenses in trust income?
No
103
What are the rates of tax for trust income?
Non savings (Property) 20%. Savings (interest) 20%, Dividends 10%. (interest and dividends usually received with this deduction as a tax credit).
104
What is an annuity?
The trustees make a fixed income payment each year to the annuitant net of 20% tax credit.
105
Once expenses (i.e. rental expenses deducted from rent, trust admin from dividends) are deducted, Interest in posession and discretionary trusts have a basic rate band of …
1000, first 1000 is taxed at basic rates (20, 20, 10). Further income is taxed at the 45% and 37.5% rate.
106
Income used to pay expenses in discretionary trusts is taxed at rate of…
basic rate (whichever bracket - savings, non savings, dividend).
107
When the beneficiary receives payment from trust, how should it be treated?
Grossed up by 100/55. Payment net of 45% tax credit (even if dividend). A non-savings income.
108
If the trustees have paid more tax then they need to cover the tax credits then…
This is carried forward in a tax pool. (if the reverse then the balance must be paid over). (10% tax credit on dividends cannot enter the tax pool as not real tax paid by trustees).
109
The rate of capital gains tax for all trusts (except bare trusts and disabled persons) is…
28%
110
In a bare trust, the assets aren't treated as settled property, they're treated as…
belonging to the beneficiary personally so any gain or loss is assessed on the beneficiary.
111
When can a capital gains tax be paid by instalments?
Gift of land or shares in a company out of a controlling holding. Or any number of shares in an unquoted company.
112
Disposal of capital between married couples…
is on a no gain/loss basis.
113
What is a connected person?
Spouse, relative, business partners, trustee of a settlement and the trust settler. (relative only means, brothers, sisters and direct ancestors/descendants).
114
A disposal to a connected person for capital gains taxed is judged at…
market value at date of disposal.
115
A loss incurred in disposal to a connected person can only be set off against…
Gains in disposals to same person.
116
A wasting chattel is…
Something with useful life less than 50 years, or with moving parts. Exempt from CGT unless it has been used solely in business. Then it is "non wasting".
117
If a non-wasting chattel is disposed of for 6,000 or less and there is a gain…
Gain is exempt
118
If a non-wasting chattel is disposed of for more than 6000…
There is marginal relief for gain which cannot exceed 5/3 x (proceeds less 6000.)
119
If a non-wasting chattel is sold for less than 6000 and there is loss…
The loss is restricted by assuming the proceeds were 6000.
120
If capital allowances have been claimed on non-wasting chattel and a loss would arise on disposal…
Allowable cost for chargeable gains purposes must be reduced by lower of the loss and net amount of capital allowances. (rule also applies to non-chattels).
121
If two or more assets from a set are disposed of to the same or connected persons…
Treated as one disposal for the 6000 exemption and marginal relief. If in different tax years an apportionment of the total gain will be required. (Split according to market value on selling).
122
Disposals of shares are matched against acquisition of the same class of shares in the same company in the following order…
Any acquisitions made on the same day as the date of disposal, any acquisitions within the following 30 days on a FIFO basis, Any shares in the s.104 pool (all acquisitions prior to date of disposal).
123
For taxation, how are bonus shares deemed to have ben acquired?
On the same date as the acquisition of the other shares and attached pro rata.
124
How is a rights issue treated for taxation purposes?
New rights shares deemed to be acquired on same date as original shares, attached pro rata, costs of right shares increases cost of pool holdings.
125
When quoted shares are gifted, how are they treated for tax purposes?
Lower quote plus 0.5 x (higher quoted price - lower quoted price). (Ignore "Marked bargains")
126
What is entrepreneurs relief?
On disposal of certain business assets by individuals - 10%. Available if individual is part of trading business (at least one year), assets disposed in cessation, shares in personal trading company. Qualifying period is year of cessation, assets disposed of within 3 years.
127
A personal trading company is one where…
The individual making the disposal owns at least 5% of the ordinary share capital with 5% of voting rights.
128
Will gains on disposals of shares/assets held as investments by sole traders/partners qualify for entrepreneurs relief?
No (Only for trading stuff)
129
How is entrepreneurs relief calculated?
Netting off gains and losses in business disposal. Taxing gain at 10% (after deduction of losses and annual exempt amount).
130
What is the lifetime limit for entrepreneurs relief?
£10 million. Gains in excess charge normal CGT at 28%.
131
Would you put the annual exempt amount against the entrepreneurs relief or the non entrepreneurs relief?
Non entrepreneurs. Save move money over all with 10%, 28% tax difference.
132
If you claim gift relief and entrepreneurs relief, which one do you claim first?
Gift. Then you can charge 10% as entrepreneurs relief.
133
What is the gift relief (eg of shares given) as a value?
Take the difference from a market value sale and the gift sale. (remember, if necessary, proportion it to the business assets to give amount eligible for relief). This should then be deducted from the gain that would have been made if they were sold at market value. So essentially deduct the amount you lost in doing it as a gift from your gains. Gift relief is amount you would have made if MV sale.
134
What is PPR?
Principal Private Residence. Basically your main residence. If you get married and then have two you should decide which is your within 2 years.
135
An accommodation is job related if…
Provided for better performance of employees.
136
What is PPR relief?
You look at the total number of months owned a house, and the total number of months it was PPR. Reduce the gain by this proportion.
137
What months are considered PPR.
The time lived in the house as PPR plus last 18 months of ownership if it was at sometime the PPR. For disabled with long term residence in care homes, last 36 months are treated as period of occupation.
138
Periods of occupation are deemed as…
Periods (inc. added together) of up to three years of temporary absence. Period in which employment required individual to live abroad. Counted as deemed occupation if the individual does not have another PPR. Also if he couldn't live there because it was being altered. (Renting it out doesn't affect deemed occupation). Up to 4 years working away in UK.
139
If part of the property is used for business, will the gain on this part get PPR relief?
No. If the business part has been used for business throughout the period then the last 18 month exemption cannot apply to that part.
140
If a marriage breaks down and someone leaves the PPR, what happens to the occupation?
Still considered in occupation if other member continues to live there, and the one who has left hasn't found another PPR.
141
Times of note when letting relief on PPR can apply…
The entire property is let out during the period of absence which would otherwise be chargeable, or part is let out and the owner lives in the remainder. (In the last case the 18 month exemption will apply to the let part if it has been used by the owner are PPR).
142
Letting relief is (as value)…
The lowest of: Capital gain made for the apportioned let period (non PPR period) , PPR relief, £40,000.
143
If you let out part of the house (say one storey out of 3)… what do you do in the PPR calculation?
The chargeable months are 1/3 of the month in question.
144
What is the deal with PPR relief for trusts?
If beneficiary has lived in it for whole of residence then gain is exempt. Otherwise trustee and beneficiary can make joint claim for relief… Proportion of exempt gain is then: total gain x (period of beneficiary occupation / total period of trustees ownership). Again last 18 months exempt if the beneficiary used it as main residence at some point.
145
Personal allowances may only be claimed by non-uk residents if they are…
Citizens of EEA, resident of Isle of Man or channel islands, Current or former crown servants, residents in a country with a UK tax double agreement, former resident left UK for health reasons.
146
What happens if a double tax treaty relief exists?
Income will be exempt in one country.
147
What is unilateral relief?
If double tax treaty doesn’t exist, allows double taxation relief as a credit against the UK corporation tax liability on the foreign income. (for companies - use this one in the exam)
148
How do you work out Unilateral credit? (This includes the book's explanation of DTR)
Overseas income included in UK income tax computation gross of overseas taxes suffered. Double tax relief on a source by source basis is given as lower of Overseas tax suffered and UK tax on overseas income.
149
How does Jason Explain double tax relief workings?
Include overseas income and work out how much you should be taxed as normal (include personal allowance). Then deduct the relief. To work out the relief subtract the amount of tax you would have paid without the overseas income from your tax liability... It seems that in the end, you are just saying your tax liability is what it would have been ignoring overseas income???? Lower of this and overseas tax paid.
150
If the overseas tax rate is much lower than the UK tax rate then the DTR would be the…
Overseas tax suffered. (Can state this without doing workings in exam)
151
When doing the Double tax rate calculation, what do you do if there are several overseas incomes?
Work out the amount that would have been taxed if each one had been excluded one by one, then deduct this tax liability from the full tax liability you worked out. This is DTR1. Do this for all the foreign incomes and add them together to get the full DTR.
152
Is a non-uk resident subject to capital gains tax on a residential property disposal in UK?
Yes, the part of the gain arising after 5th April 2015. PPR will be considered for periods after April 2015 (taxpayer or spouse must have lived in the UK in the tax year or stayed overnight a least 90 times). (PPR for last 18 months will always be available, count the months from 5th April 2015... do the proportional fraction as always).
153
If doing AEA and the Double tax relief, which order should you do it?
Set the 11,100 AEA against the UK gains first. Then tax at 18% for remaining Uk amount and 28% for remaining foreign amount (I think) and deduct the double tax relief. (Do this all in two columns and add together at last moment - UK gains and foreign gains). Check this? pg 323. SM
154
If you make a claim to reduce your POA (payment on account) for NIC (class 4) how will interest be charged if your actual liability is higher?
You pay half of your liability (I think). So interest charged on lower of: reduced POA plus the half of the balancing payment, and the original POA that would have been paid had no claim or adjustment been made. The interest is then on the excessive reduction… so the lower of these two less the amount actually paid.
155
When are the payments on account due POA? On class 4 NIC?
31st Jan and 31st July - two half payments,
156
What is the maximum penalty for excessive POA reduction?
The difference between the amount that would have been paid but for the incorrect statement and the payments on account actually made.
157
What is freehold interest?
If you have the absolute right to occupy, use and dispose of the property.
158
What is leasehold interest?
Owner of leasehold has right to occupy and use property for a specified period.
159
What is a lease premium?
Lump sum paid at start of lease?
160
What is a reverse premium?
Landlord pays leaseholder a sum as an incentive.
161
When a short lease is granted, the lease premium is treated as…
partly capital, partly property income (this part taxable on lessor in year of gain as property income.).
162
Will a disposal of a lease qualify for PPR?
Yes as disposal of property interest.
163
If a lease is disposed of, is it treated as an outright disposal for capital tax purposes?
Yes… but if short lease then treated as wasting asset disposal. Look at the percentage tables in Hardmans pg. 103. (%left at end/ % left at begining) x cost. This is disposal proceeds.
164
On the grant of a long lease… how do you work out the chargeable gain?
Take the consideration received… then deduct the deemed cost of the lease (consideration received/ consideration plus revisionary interest) x cost. Then deduct the indexation allowance.
165
When working out the chargeable gain for grant of a short lease how do you work out "disposal"?
(capital proceeds i.e. capital element of lease premium / total lease premium plus market value of revisionary interest) x cost.
166
In a short term lease, how do you compute the amount of premium to see as property income.
(51 - lease length)/50
167
How do you work out chargeable gain on grant of a short lease?
Find the consideration (so deducting the amount seen as property income: the portion of premium and rent) then deduct the deemed cost calculation, then deduct the indexation allowance.
168
In a marriage transfer, it is IHT exempt if…
it is in consideration for the marriage and, £5000 if a parent, £2500 if a remoter ancestor, £1000 in another case.
169
What is the small gift exemption?
Can only be used for a small gift against IHT. (Not part of a bigger gift) £250pa
170
What are the rules on IHT with transfers out of income?
If a transfer is made out of income it is exempt and the transferor is left with enough to maintain normal standard of living.
171
What is a PET (in terms of inheritance tax)?
Potentially exempt transfer, if the transferor lives for 7 years from making the transfer then exempt, otherwise it is a CLT (chargeable lifetime transfer).
172
In what order do you use the annual exemption amount for inheritance tax?
Chronological.
173
If a transferor dies more than 7 years after making a PET (potentially exempt transfer), what happens?
It is an exempt transfer. When looking back at the 7 year accumulation period, the PET will only use up the nil band rate if it became chargeable. If dies within 7 years then it is chargeable.
174
What is the difference between how IHT is calculated on PET and how it is calculated on CLT?
No lifetime tax to deduct.
175
For the additional taxes if the donator survived a number of years between 3 and 7, what is that amount of tax charge on?
The percentage is placed on the inheritance tax charged so far… I think.
176
If the transferor dies within 7 years of property transfer and the market value, or the sale of property is less than value at original transfer then…
You can claim IHT payable on the lower value. (So deduct the fall in value from the gross transfer amount in working out remaining band). For CLT no alteration is made to the value of the original computation, claim cannot result in tax repayment. For both PET and CLT, the claim doesn't alter the value of the transfer in the cumulative total used for calculating the nil band for subsequent transfers or the death estate. Relief doesn't apply to plant and machinery or chattels with life less than 50 years.
177
Who pays tax on settled property (property that is the subject of qualifying interest in possession in which the deceased was a life tenant?)
The trustees
178
Who pays tax on free estate on death (everything except the settled property less any debts and funeral expenses)
The personal representatives.
179
What is the death estate?
All the items the deceased was entitled to at death less debts and funeral expenses.
180
How would you work out the amount paid on death estate?
Deduct allowable debts and funeral expenses, deduct the exemptions (like spouse exemptions, charity exemptions…), deduct what is remaining of the nil rate band for lifetime transfers, charge the rest at 40%.
181
What is the chargeable free estate?
Gross assets, less the trust assets of qualifying interest, less exemptions (charity and spouse etc.).
182
How do you divide up the amounts to be paid on death estate?
Work out the amount to be paid first, then divided it into the ratios of the free estate (for the personal representatives) and the trust assets (for the trustees).
183
If the transferor (of a BPR or APR asset) dies within 7 years of transfer and BPR or APR was made…
BPR or APR no longer apply to lifetime transfer if the transferee doesn't still own the property in the same means. If lifetime transfer is CLT, add back BPR and APR on death (but value of transfer retains the original value on which lifetime tax was chargeable). If it was PET then BPR/APR not available on transfer. Death tax calculated on unreduced value (which enters into the cumulating).
184
What are the only kind of assets exempt from liability for inheritance tax?
Overseas assets of a Non-UK domiciled person.
185
Deemed UK domicile for IHT purposes if…
Resident in UK for 17 of last 20 tax years or for the 36 months after ceasing to be UK domiciled under general law.
186
For transfers from a UK domiciled person to a non-UK domiciled spouse, what transfers are exempt?
Only those up to the value of the nil rate. (Although can make election to be treated as UK domiciled for IHT purposes only but then the non-UK spouse assets would be fully within charge to UK IHT).
187
What happens if the assets included in the death estate are situated abroad, any deductible expenses?
Up to 5% of value of asset.
188
If relief isn't given for double taxation (because of overseas assets)… (in terms of IHT)
Double taxation relief is given as a tax credit against the IHT payable on the overseas asset. Amount available is lower of foreign tax liability and the IHT at the average rate on the asset (what fraction of death estate was paid in IHT, put that fraction on asset value).
189
When and by who should CLT - lifetime IHT deliver account?
By transferor, by 12 months after end of month of gift.
190
When and by who should PET deliver account?
Transferee - 12 months after end of month in which death occurred.
191
When and by who should Death Estate deliver account?
Personal representatives appointed in Will, or administrators. 12 months after end of month of death.
192
Who should pay CLT lifetime IHT and by when?
Transferor, later of 6 months after end of CLT month and 30 April in tax year following CLT year.
193
Who should pay CLT death IHT and by when?
Transferee - by 6 months after death month.
194
Who should pay PET IHT and by when?
Transferee - by 6 months after end of month in which death occurred.
195
Who should pay Death Estate IHT and by when?
Personal Representatives on delivery of IHT account.
196
When can you pay IHT in ten instalments? (Unpaid amounts subject to interest)
Lifetime IHT on a CLT where transferee pays the IHT, Additional IHT on death on a CLT and IHT on death on a PET (if property still owned), IHT on death estate. For Land and buildings, most unquoted shares and securities, business or business interest. If instalment sold, immediately all payable.
197
What are the penalties for late IHT account submissions to HMRC?
£100 regardless of amount or if paid or not. Up to £10 per day for 90 days if 3 months late. From 6 to 12 months then 5% of due tax. /gt 12 months then 100%, 75% and 5% of tax due dependent on if deliberate concealed, not concealed, neither. (reduced to 50% and 35% if prompted disclosure, 30% and 20% with unprompted disclosure)
198
Is capital gains tax payable on a death estate?
No, receive at market value so receive free capital gains tax uplift. (IHT may be payable)
199
When may a gift be a CLT?
Chargeable lifetime transfer. If made to a relevant property trust. May also be CGT.
200
When may a gift be a PET?
Potentially exempt transfer. If made to another individual or bare/disabled person's trust. May also be CGT.
201
When may a gift be completely exempt from IHT?
To a spouse or partner or charity or political party. May also be CGT.
202
Do PET's have any immediate IHT charge?
No. Capital gains position is calculated with market value if chargeable. If to spouse then exempt.
203
What are the taxable total profits of trading income? (How are they made up)
Trading income, property income, non-trading loan relationships, miscellaneous income, chargeable gains, less qualifying donations.
204
What is a large company?
Augmented profits exceed £1.5 mill. This is the limit for a single company (I think you have to divide this by the number of 51% members (Inc. yourself) to see if one entity qualifies). With 12 month accounting period.
205
What are augmented profits?
Taxable total profits plus franked investment income (FII). FII is exempt dividends and tax credits. Other than those which are 51% subsidiaries of the receiving company or company which is your brother to a parent (51%).
206
Are dividends from a company exempt from corporation tax?
Usually. Apparently for the exam assume all dividends from companies are exempt. I think it's just the 51% members…
207
What is a 51% group company?
Both at least 51% members of same parent or of each other, even if at different times in same accounting period. If haven’t carried on trade while it was 51% member.
208
What are the exceptions for a being a large company?
Tax liability less than £10,000. Or wasn't large company in proceeding 12 months and has augmented profits less than £10mill (divided between 51% companies - end of previous acc period) in current accounting period.
209
When a company is paying corporation tax by instalments, what do they pay and when due?
First instalment is lower of 3 x CT/(n months). And corp tax liability for accounting period. Continued until paid liability. Due on 14th day of 7th month following start of acc period, then 3 month intervals.
210
When could a spreading provision apply (a pension contribution for example treated as paid in a later period by a company)
Amount of the pension contribution exceeds 210% of that paid in the previous period. Amount exceeding 110% of that paid in previous period is at least 500,000 (the excess).
211
How does spreading work (e.g. for company pension contributions) for different values of excess contributions (The amount exceeding 110% of the previous period).
Contribution must be over 210% of previous year. Less than £500,000 - no spreading. 0.5mil to 1mil then split fairly between this period and next. £1mil to £2mil, spread over 3 periods. /gt £2mil spread over 4..
212
If a company issues loan stock, is this a trading or non-trading loan relationship?
Trading
213
What are intangible fixed assets?
Intellectual property, patents, copyright, goodwill, agricultural quotas - As they are trade related their activities are part of trading income, related expenses are allowable.
214
Is expenditure on RandD allowed as a trading expense?
Yes (including relevant capital expenditure).
215
What is a small or medium sized enterprises (SME) for RandD?
Less than 500 employees, annual balance sheet less than 86 mill EUR.
216
How much additional deduction may an SME (small medium enterprise) make for RandD expenditure incurred after March 2015? And large?
Additional 130% (so 230 total), unless subcontracted, then 30%. Relief on expenditure capped at 7.5 mill EUR for a project. Large company may take additional 30% against trading income (so 130 total).
217
What is the charge on lifetime transfers (made on the creation of relevant property trust, I.e.. Discretionary trust or non qualifying interest in possession after 22 March 2006)
Nil rate Band (to 325000 fee 16) 0%. 20% after that. Remember to deduct 3000 allowances. Cumulative 7 years
218
Who pays inheritance tax?
Transferor unless stated otherwise
219
How do you work out the gross chargeable transfer of value?
Take the net transfer of value (deducting the 3000 allowances) and add the inheritance tax paid. This is what you would deduct from the lifetime allowance to work out how much is left.
220
What is expense relief for double taxation in companies?
If the company has a very small UK tax liability, it can treat the overseas tax as an expense and include the income in corporation tax computation net of overseas tax.
221
Are dividends exempt from corporation tax?
If they fall into a prescribed list, this is so big so usually the answer is yes. (Included in franked investment income - gross up 100.90).
222
Overseas company income is received net of foreign tax, how will the UK assess it?
Gross of tax in the corporation tax computation.
223
How are foreign taxes on companies classified?
WHT (Withholding tax) - direct tax on income, always recoverable on any source of income, tax withheld on remittances of income to UK. UT - overseas tax suffered on profits out of which foreign dividends are paid. (Largely irrelevant as most dividends exempt).
224
Why would you calculate Augmented profits for a company?
(I.e. deducting exempt dividends…) If they are more than £1.5 mill then must pay corp tax by instalments.
225
How is Double Taxation relief calculated for companies?
For each item, lower of UK tax on overseas income (usually gross overseas income x 20% then change with qualifying donations) and overseas tax suffered in respect of each separate source.
226
When working out tax liability for a company when there are non exempt foreign dividends what do you do?
Add back on the tax paid so you can see it gross. Add back on your share of the companies tax (what fraction is your dividend of whole profit? Multiply this by tax paid). This then gives the taxable profits. Then for corporation tax, do lower of UK 20% tax and overseas mark up to get to the current figure.
227
How is a company's property loss dealt with?
First set off against total profits for the accounting period, then carried forward to next one. Also group relief is available.
228
Can a capital loss made by a trading company be set against income?
No. But it can be set against other gains for the accounting period, remaining loss carried forward to available gain.
229
How is company trading loss relieved?
Set against current profits, then earlier period profits, then carried forward to future periods.
230
How does s.45 relief work for companies?
Trading losses carried forward to first available income. (No claims necessary). (Can only be set against trading income, not property or other chargeable income).
231
How does s.37 relief work for companies with trading losses?
Can be set against total profits (all income and net chargeable gains before qualifying donations) in same accounting period, remaining losses then carried back and set against previous 12 months.
232
If there is more than one account falling in the last 12 months, how is the company trading loss relieved?
LIFO basis. Applied to later periods first.
233
A claim for S.37 and s.459 loss relief must be made…
within 2 years of the end of the accounting period.
234
If there is a company loss in the twelve months before the trade ceases then…
The loss may be carried back against the company's total profits for the proceeding 36 months.
235
s.459 A company that has a non-trading loan relationship deficit may set off…
...the whole or part of that deficit against any profits of the same accounting period.
236
Within an accounting period for a company, current period losses are set against total profits in the following order…
Deficits in non-trading loan relationships, property business losses, trading losses of the current period.
237
When might there be restrictions in use of loss relief for a company?
When there is change of ownership (more than half of shares acquired by 1 or 2 people at least 5% each) and then nature of company in 3 years either side, or a massive revival of the company.
238
What are the restrictions on company loss relief on change of ownership?
s.45 - pre change losses can't be used post change. S.37 post change losses can't be used pre change. Also applying to property business losses. Doesn't apply to capital losses.
239
What is a group (for tax loss relief)?
A company's with 75% subsidiary connections. If there is a chain of group "children" - all of 80% for example, then multiply the percentages together to find if connected enough to the parent to be included.
240
Can you surrender losses to a group member that is non-UK resident?
No (not in this exam) - but having them as a link in the group is fine.
241
Group relief can be surrendered for the current year in respect of…
Trading losses, deficit on non-trading loan relationships, excess qualifying charitable donations, excess property business losses. (Brought forward losses and losses carried back - no) (if you can set a charitable donation against chargeable gains then do that).
242
What are a claimants (receiving loss relief from a group surrendered) available profits?
Taxable total profits after deducting trading losses brought forward (s.45), current trading losses, non-trading loan deficit brought forward, non trading loan deficit for current period (claim under s.459) but before deducting trading losses carried back (s.37) and non0trading loan deficits carried back.
243
If the members in a group have different accounting periods, how does loss relief work?
The amount of loss relief available to give, and amount of profit available for it to be set against is worked out by taking the proportional amount of profit/ loss in relation to the amount of overlap period.
244
What is a chargeable gains group?
There is a principal company, and its 75% subsidiaries, and their 75% subsidiaries…each must be an effective 51% subsidiary, through multiplication, of the parent. If this separates a group, a subsidiary cannot be in more than one part.
245
What is a nil gain/loss transfer?
One group company transfers chargeable asset to another, deemed to have taken place at such price that no gain or loss to the transfer company. Deemed proceeds = allowable expenditure (original cost) plus indexation. Chargeable gain arises when asset disposed outside of company (or receiver leaves the group)
246
What is a degrouping charge?
The gain which would have arisen if the assets transferred in the six years prior to disposal of the departing group member had been taxable rather than nil rate. Chargeable if departing group still owns asset or a replacement)
247
How are the degrouping gains/losses charges added?
If a gain, then added to sales proceeds received on disposal of the shares. If a loss, then added to allowable cost on disposal of the shares. If share disposal is exempt then so is degrouping charge.
248
If a trading company disposes of shares in another trading company out of a substantial shareholding…
Capital gain is exempt from corporation tax, capital loss is allowable.
249
If a company transfers assets between chargeable gains group members, and the recipient uses it as trading stock…
The first transfer is at nil gain price (cost including indexation), the receiving realises gain due to current value, and then further gain on sale. If election made then it has neither chargeable gain or allowable loss but realised trading profit of total profit.
250
What are the VAT tax rates?
Zero rated - 0%, Exempt - Nil, Reduced rate - 5%, Standard rated - 20%.
251
Is food zero rated for VAT?
Yes but food in the course of catering isn't. (If something isn't in a specific list then it is standard rated).
252
If you make exempt supplies, can you recover input VAT?
No. But if you make zero-rated supplies then you can.
253
Is the temporary use of a business asset for non-business use a supply of services when without consideration? (for VAT purposes).
Yes. Similarly with services that have been supplied to a trader on which input tax has been claimed, but the service is then used for non-business purposes (like a building an office that was then used as a bedroom).
254
For VAT purposes, how do you determine if a supply is single or multiple?
Look at it from receiver's perspective, shouldn't be artificially split, shouldn't be separated if ancillary (helping customer enjoy goods). E.g. issue of BA giving meals and including it in zero-rated supply of a "flight".
255
Would a company in a net VAT repayment position (like zero rated supply) be included in a group that makes standard rated supplies?
Probably not, better to reclaim cash flow from HMRC than net off repayment with other group liabilities
256
What are the advantages and disadvantages of group registration for VAT?
A: No VAT on intragroup supplies, only one VAT return needed, if a small exempt company is included - may be able to recover input tax under de minimis partial exemption rules. D: All companies in group jointly liable, may be difficult admin, bringing exempt or partially exempt company in may restrict input tax.
257
If a supplies are partly taxable, partly exempt (i.e. "non-attributable), how do you work out what is recoverable?
Use the figures for the value of supplies created to proportion out the input VAT to work out the recoverable amount. (Ratio rounded up to nearest whole percentage)
258
What are the de minimis VAT limits, and what are they for?
£625 per month on average and 50% of all input VAT for the period. If total amount of VAT on exempt supplies for the quarter exceeds neither of the limits then all VAT can be provisionally recovered.
259
What is the simpler de minimis VAT calculation businesses can do?
Test 1: If total input tax less than £625 p/month on average and value of exempt no more than 50% of all supplies, Test 2: Total input tax less input tax directly attributable to taxable supplies less than £625 p/month average and the 50% rule.
260
At the end of each year, an annual calculation is required if VAT de minimis. What happens?
Limits are applied to year as a whole, then annual adjustment may be necessary, if the annual recoverable amount exceeds the quartered amount then difference is recoverable, otherwise payable to HMRC.
261
How does the partial exemption de minimis VAT test work?
If passed the test for its previous partial exemption year, applied test through any given partial exemption year, have grounds for not expecting more than £1 mil input in current partial exemption year then it can do the partial exemption calculations once a year, and provisionally recover input tax during year. If conditions aren't met then it must do the testing in each VAT period.
262
In general, how is the lease of land taxed in VAT?
As an exempt supply.
263
How are residential buildings taxed for VAT?
Construction of new, sale of new, sale of conversion into residential is zero rated. Sale and lease of existing residential is exempt. Work on existing residential is standard rated. Reduced 5% rate for renovation of 2 year empty dwellings, conversion into numerous dwellings.
264
How are commercial buildings taxed for VAT?
Construction and sale of new is standard rated along with work on existing. Sale of old (3 yrs.) and lease is exempt.
265
What are the terms (words) used for purchase of goods in and out of the EU.
Within the EU: Dispatch and Acquisition. From out of the EU: Import, Export.
266
When must an exempt trader register for VAT?
If acquisitions from EU member states exceed £82,000 or will do in next 30 days.
267
A dispatch (sale to EU) is zero rated for VAT if…
Made to registered VAT trader, he quotes his VAT number on invoice, holds evidence the goods were delivered to another member state.
268
If goods have been exported out of the EU, how are they VAT taxed?
zero rated.
269
Where services are received by a UK VAT registered trader from another country for business, how is the supply taxed?
Deemed to be made in the UK. VAT is charged in the UK under the reverse charge system… (seems to be charged as input and output…
270
What is the difference between B2B (business to business services in EU - I think) and B2C - business to customer in terms of VAT taxation?
B2B supplies taxed on location of customer, the receiver must account for VAT on his own return, the UK deliverer will not add it. B2C is based on supplier. So UK VAT charged.
271
What is the rate of stamp duty?
0.5% of the consideration, payable by the person acquiring shares, rounded up to nearest £5. (Not chargeable if consideration is £1,000 or less - then stock transfer form sent straight to registrar, not HMRC.
272
What securities are exempt from stamp duty?
With no consideration - gifts, divorce arrangements, variation of wills.
273
When is intra-group stamp duty relief given?
Effect of instrument is to transfer the beneficial interest in the shares, and once company is parent of other, or they have common parent. (75% of ordinary share capital/ 75% chain and interest in dividends and wound up assets).
274
When must the stock transfer form be presented to HMRC? Late interest?
30 days within execution. Interest from end of 30 days, rounded down to nearest 5, not charged if less than 25.
275
What are the penalties for late presentation for stamp duty?
Late by up to 12 months - 10% of duty cap of £300. Late up to 24 months - 20% stamp duty. More than 24 months - 30% of duty.
276
What is SDRT?
Stamp duty reserve tax. For when there is no paper form. Done on CREST system. Paperless. 0.5% of consideration. No rounding. Payable on 7th day of month following agreement confirmation month. 14 calendar days if CREST.
277
For acquisitions of residential property of more than 500,000 for companies, partnerships with corporate members, collective investment schemes… the stamp duty rate is usually…
15%
278
What is the difference between the band widths used for SDLT on residential and non-residential?
Residential - charge the band widths for the portion that lies in each one. For non-residential, all charged at given rate.
279
What relief is there for SDLT if you buy multiple dwellings via linked transactions?
Take mean consideration, then use rates, minimum of 1%.
280
Is stamp duty land tax payable on leases?
On the premium, yes, within the normal bands. On the Net present value of lease: If over 125,000 for residential and 150,000 for non-residential then 1% (only excess over 1% paid).
281
When might there be exemptions from SDLT?
For gifts, divorce, will variation (no chargeable consideration).
282
When is SDLT form due?
Within 30 days of transfer.
283
What penalties are there for late SDLT?
If form filled up to 3 months late, £100. Over 3 months, £200. Over 1 year, 100% of SDLT.
284
Steps to calculating income tax liability...
Get total income, deduct reliefs (gift assets to charities), deduct personal allowance, calculate tax at rates. Deduct tax reductions like married couples allowance. Add pensions annual allowance charge, child benefit charge.
285
What is the cap for relief in calculating income tax?
Higher of 50,000 and 25%. I.e. you can't offset your profits by more than this for tax relief as a trader.
286
The effective tax rate on 100,000 to 121,200 is...
60% but then for above 100,000 national insurance is 2% so marginal tax rate 62%
287
Adjusted net income is,.,
Net income after deducting grossed amounts of any gift aid donations and personal pension contributions.
288
In married couples, how much of your personal income allowance can you transfer..?
10% (in special cases)
289
If you have made gift aid donations and are working out adjusted net income...
Remove the gift aid donations.
290
If your income is between 50,000 and 60,000 what is the child benefit tax charge?
1% of the child benefit total for every £100 between 50,000 and 60,000.
291
What's the deal with gift aid?
Basic and higher band rate extended by gross up donation (100/80)
292
When is interest deductible for total income In tax calculations?
To buy plant or property for partnership or employment purposes (3yrs), buy interest in close company, buy shares in employee controlled company, invest in partnership, buy shares or lend money to co-operative, pay inheritance tax.
293
What is a close company ?
U.K. Resident company, controlled by shareholder directors or by five or fewer shareholders.
294
What is an employee controlled company?
Unquoted trading company, 50% voting shares held by employee.
295
If a house is owned 60:40, then the property income...
Can be taxed in the same ratio
296
When deducting pension contributions to work out adjusted net income you should remember to...
Gross up 100/80
297
Allowable expense son property income include...
Legal, professional, admin, interest on loans or overdraft, landlord tax (council), ancillary services (gardening), insurance for property, furnishings, repairs and maintenance. Include only for period of tenancy if relevant.
298
Is there bad debt relief for tax on property income?
Yes
299
What capital expenditure is allowably deducted on tax on property income?
Only on cost of plant and machinery used for repair and maintenance.
300
What is wear and tear allowance?
10% of rents accrued less amounts paid by landlord which are legally responsibility of tenant.
301
What is rent a room relief?
If your rental income for the furnished room is below this then expenses ignored.
302
If room rental income is more than 4250 per year you can elect to...
Have no relief for expenses but are relieved by the rent a room limit.
303
Amounts paid out of a real estate investment trust are taxable as...
Normal dividends, same method. Gains in disposal of shares are subject to capital gains tax.
304
Property authorised investment funds are taxable...
Like normal dividends if paid out as dividends. Or if property or interest distribution then taxable as property income, paid net of tax rate at 20%
305
Commercial lettings of Holiday Homes can be taxed as trading income if...
Available 210 days in tax year, let for 105 days minimum (on average over multiple properties), individual stays 31 days or less, total of longer term occupation must be less than 155.
306
If there is a short lease and the landlord has a premium from the tenant, some is capital payment, the amount that is taxable property income is...
P multiplied by (50 -Y+1) / 50
307
If you are paid a premium as a landlord, what relief do you get later on for tax?
You can divide the taxable property amount from the premium by the number of years leased and remove it from trading profits.
308
If there is subletting, what can you do on your taxable property income as the middle man?
From your taxable property income, you can deduct the relevant share (for the sublet period) of the taxable property income of the big boss.
309
The maximum amount of contributions (pension scheme) attracting tax relief ...
Higher of individuals earnings chargeable to income tax and the basic amount (3,600 in FY16)
310
If someone makes personal pension contributions, what tax relief is there?
Tax relief is given at source. (20% - HMRC contributes this)
311
The pension annual allowance is ...
The overriding limit for total pension Input for the tax year (varies per year), unused allowance can be carried forward for 3 years.
312
When are tax bands extended (basic, higher...)
Gift aid or pension contribution.
313
What is the value of a capital asset for tax purposes?
VAT exclusive or inclusive depending on if VAT registered (cars aren't). Price paid or trade or market value.
314
What is the disposal price of an asset for VAT purposes?
Usually sale proceeds (less than original price), if sold for less than market value then it is at market value. If scrapped then scrap value or compensation received.
315
How are cars written down in capital allowances?
Less than 75g/km is 100% FYA (for non second hand cars only), less than 130g/km is 18% main pool, more than 130 is special rate pool at 8%
316
What happens to WDA if period is not 12 months?
It is 18% but pro rated accordingly
317
If there is a trading loss in the opening periods what do you do?
Work out the loss for each trading basis, but in the second period remove the loss already used. (Total loss must be the same)
318
What is loss relief? Trading loss carrying forward? S.83
You can carry forward losses to next year to reduce trading income. Sole Trader
319
What are the loss relief rules for s.64?
I think a loss can be set against a traders general income for the same tax year and/or or the previous tax year. Remainder carried forward.
320
Is s.64 relief allowed if the business is not continuing?
No, only s.83
321
How are s.64 and s.83 claims made?
Automatic for s.83, but claim made to carry forward. S.64 claim to be made within 12 months from 31 January following end of tax year of loss. No claim means losses carried forward under s.83. Can't restrict claim to preserve personal allowance.
322
What is s.72 relief?
For opening four years. Loss can be set off any of previous 3 years under a FIFO basis. Claim made within 12 months from 31st Jan following end of tax year of loss. Claim applied to all 3 years.
323
What is s.89 relief?
Relief can be carried back in the final four tax years. Look at terminal loss of last 12 months, look at each tax year falling in last 12 month period, if the results of either produces a profit, ignore profit in terminal loss calculation. Must be made within four years of last tax year.
324
Relief is given against trading income in the last tax year and the previous three tax years on a (FIFO/LIFO)...
LIFO basis.
325
What do you do to overlap profits in s.89 calculations...
Add them to your total losses to get relief
326
What are some restrictions on s.89 reliefs?
If by an individual, must have spent at least 10 hours per week in business trying to profit., otherwise restricted to 25,000.
327
What are the restrictions on income tax relief against total income?
Higher of 50,000 and 25% of adjusted total income (work pension schemes not included here, but other profits can't be offset by losses more than this,)
328
What kind of relief is s.64 for?
Trading, no restrictions against income of the same trade.
329
Are partners salaries and interest on capital deductible when computing partnership profits?
No, they are drawings. Capital allowances are deductible.
330
What happens if a partner makes a loss but there was a profit in the partnership?
The profit made by partnership is reshared between those partners who profited. The ratio of resharing is the ratio without the loss maker. (Similar if partnership made a loss but one partner profited, reallocate loss made in new ratio)
331
What happens when capital is disposed in a partnership?
Fractional share on gains in capital profit sharing ratio.
332
What is a limited liability partnership?
Liability limited to capital invested.
333
If a partner is salaried and doesn't receive profits...
They are treated like an employee for tax purposes.
334
The loss relief a LLP partner can receive can't exceed...
The capital he contributed. The remaining relief available as future relief.
335
Things exempt from capital gains (persons)...
Registered charities, friendly societies, local authorities, registered pension schemes, investment trusts, approved science research.
336
Exempt capital disposals include:
Gifts to charities, art galleries, museums. Death is not a disposal for capital gains purposes and there is a tax free uplift of value of assets passed on death.
337
Exempt assets from capital gains tax include...
Legal tender ??? Motor cars, medals not acquired for money, wasting chattels less than 50 years, gilt edged securities, qualifying corporate bonds (sterling, non-convertible), national savings certificates, premium bonds, shares and investments held in NISA.
338
Allowable deductible costs in disposal are...
Acquisition costs, legal costs, surveyor fees, stamp duty, stamp duty land tax, enhancement expenditure (extensions, planning permission included in cost of asset)
339
The annual exempt amount for 2016 for capital gains tax for individuals is
11,100. For trustees it is half of what is given to individuals. (Full amount for bare trust or disabled persons trust).
340
If an individual has a total capital gains loss, or below the exempt amount...
It is carried forward and set against future years. But cannot take future gains below exempt amount.
341
An individual can make a claim to set trading loss relief against
General income in the tax year and previous one. Within 12 months of 31 January following end of tax year. Amount of loss is lower of unrelieved trading loss and current year gains less current losses and capital losses brought forward.
342
What is the capital gains tax?
18% if basic rate tax payer, 28% otherwise. Entrepreneurs relief takes it to 10%. Deduct capital losses in the order of most relief to reduce owings.
343
What assets qualify for rollover relief? (Relief given on purchase of replacement assets)
Land and buildings, plant and machinery (fixed), ships, aircraft, hovercraft, satellites, space stations, spacecraft, goodwill (sole traders and partners only).
344
What is the qualifying time period for rollover relief to acquire new asset?
1 year before, 3 years after. Claim to be made within 4 years of end of tax year in which gain is realised or new asset acquired.
345
Using rollover relief, to work out the base cost on the sale of a factory and acquisition of a new one...
Find gain on sale of old factory, and chargeable gain (disposal proceeds less cost of new factory). Then base cost is cost of new factory less (gain sale less chargeable gain)
346
Gain on rollover relief is equal to...
Lower of gain on disposal and the amount not reinvested.
347
In rollover relief, if the replacement is depreciating...
Gain not rolled over to reduce cost of replacement... Deferred until earliest of disposal of replacement or 10 years after acquisition of replacement, or date replacement ceases to be used.
348
An asset is depreciating if...
Within the next 10 years it will become a wasting asset, so 60 years or less.
349
If gain on disposal of asset 1 is deferred against depreciating asset replacement 2...
You can transfer the deferred gain to a non-depreciating asset 3 provided it was bought before defended gain on 2 has crystallised.
350
How does gift relief work?
Within four years after end of the tax year of gift. No gain on disposal (chargeable). Donees cost of acquisition (market value) is reduced by amount of gain which would have been chargeable without gift relief. This causes higher future gain for donee.
351
If the gift is shares that were from personal company in last 12 months, then gift relief...
Is limited by gain times fraction: chargeable business assets of company / chargeable assets of company.
352
What happens with gift relief when the donor sells at less than market value?
Gain calculated using market value of asset, not actual consideration. Excess of actual consideration over base cost is chargeable, remaining gain gets gift relief.
353
Your domicile is usually your ...
Domicile of the father. Unless no father at birth then mother. Retained until different domicile of choice. Must be evidence you will live there forever, even buried there.
354
Do NIC apply if uk domicile is working abroad in European Union?
Yes, for the first 12 months at least.
355
If an employee abroad returns home to uk at the expense of the employer, will the costs be taxed benefits?
No. If employer provides lodging, this is also a tax free benefit. For 60 day+ absences travelling expense for spouse and minor children also tax free benefit.
356
Disregarded income is...
For non uk residents living here, tax charge limited to tax at source (Inc. savings, dividends, investment, pension, social security) doesn't include trading, employment, rental income.
357
When is the remittance basis for non uk domicile residents automatically applied?
Unremitting foreign income and gains of less than £2000, or... One with no uk income apart from taxed uk investment income less than £100, and no foreign gains remitted and has been uk resident for 6 out of last 9 years, or is under 18 for whole year
358
If you have to claim remittance you lose...
Entitlement to uk personal allowances and capital gains exempt amount, may have to pay remittance base charge, claim within 4 years of end of relevant tax year.
359
If you don't make a remittance claim as a uk resident but not domicile, but you have foreign income...
You will be taxed on it all as it arises.
360
What are class 1 NIC? Who pays them and what for?
Paid by employees and their employers on earnings (mostly cash)
361
What are class 1A NIC? Who pays them and what for?
Paid by employers on most taxable benefits provided to employees
362
What are class 1b NIC? Who pays them and what for?
Paid by employers on the grossed up value of earnings in a PAYE settlement agreement.
363
What are class 2 and 4 NIC? Who pays them and what for?
Paid self employed individuals on their earnings.
364
The secondary class 1 contributions are reduced for each employer by
2000
365
Employers are liable to pay class 1A / 1Bcontributions on taxable benefits provided at the rate of...
13.8%
366
Class 1 And 2 maximum contributions. If an individual has two employments, and the earnings from one exceed the upper earnings limit (42,385)...
HMRC may agree to defer payment of NICs on the other employment, these contributions will only be payable at 2%.
367
Main dispositions outside of scope of inheritance tax are...
Dispositions without gratuitous intent (eg commercial transactions with loss), dispositions made for maintenance of transferors family, gratuitous dispositions which are allowable expenditure for income tax and corporation tax (e.g. Employer pension contributions)
368
Name some exempt IHT transfers of value...
To spouse, to an interest in possession trust for spouse (if before March 2006 or. Qualifying trust), death transfer to interest in possession to spouse, to charity if the charity uses it, to qualifying political party.
369
What is a qualifying political party for IHT exempt transfer?
Two members of parliament, or one elected and at least 150,000 votes to candidates who were members of that party.
370
What is the annual exemption amount for IHT?
3000 pa, used in chronological order of items, excess can be carried forward one year.
371
If the transferor dies within 7 years, how does the inheritance get taxed?
On the nil rate band on the year of death (not year of transfer) Then the upper limit is 40% taxed! (Additional tax, if death tax is equal to or less than lifetime tax then no tax due)
372
If after transferral, the survivor lives for less than 7 but more than 3 years, what is the tax rate?
3-4 = 80%, 4-5 = 60%, 5-6 = 40%, 6-7 = 20% (not inclusive of the upper bounds)
373
When might the transfer be a PET? (Potentially exempt transfer)
Individual other than spouse, trust where individual has interest before 22 March 06, trust after this date but is qualifying (rare), bare trust, Accumulation and Maintenance trust before 22 March 06.
374
Is there a lifetime charge on a PET?
No, but remember the annual exemption and marriage exemption are deducted from gift to find the amounts of PET which may become chargeable in the future.
375
What debts and expenses can be deducted from free estate in computation of death estate?
Debts incurred for full consideration, eg credit card bills for goods bought prior to death, rent accrued to death. (Not gaming debts as not for consideration?), taxes imposed by law, funeral expenses, tombstone, unpaid commercial debts.
376
Is a debt deductible on death estate for a loan for a property outside of uk and the individual is domiciled out of uk?
No, this is excluded property.
377
What is quick succession relief?
If property acquired in five years before death (even if also disposed - if two IHT charges within 5 years). Tax paid on first transfer X (net transfer/gross transfer) X relevant %.
378
What is net transfer and gross transfer?
Amount received by transferee (so deduct the IHT from the chargeable amount) vs. Gross transfer amount chargeable to IHT.
379
What is the relevant percentage used on the quick succession relief?
Relates to period of time between first transfer and date of death.
380
If the question doesn't say the amount of tax paid in relation to the specific legacy, what happens to the QSR?
Formula is now (tax paid on first estate) / (gross value of estate) X net transfer X relevant %
381
How does transferring to a spouse of your lifetime limit work?
Take the proportion you haven't used, they can then have that proportion extra of their nil rate. P.s. Work out remaining portion by deducting transfers and value of chargeable death estate.
382
If trustees pay inheritance tax but because of a spouse transfer, it wasn't due, do they get it back?
No - it get's rolled over to the next year.
383
Can multiple spouses transfer their nil rate band to you?
Yes but your limit is on having 100% extra.
384
Claims for nil rate spouse band transfers must be made by ...
Later of 2 years from end of death month and 3 months from date the personal representatives first act for the survivor.
385
What advantages are there if an individual leaves at least 10% of net chargeable estate to charity?
36% (rather than 40%) inheritance tax.
386
What is the net chargeable estate on death?
Estate after deducting all reliefs, exemptions, remaining. niIl rate band, but not the charity legacy.
387
If the individuals free estate includes jointly owned property or settled property, what happens to the 10% charity advantage?
10% test for reduced IHT tested on each individual component.
388
What is the transfer of value? (I.e. Of shares)
Value you have before - value you have after. (Different to value of shares transferred). This only applies for inheritance tax diminution of value. For capital gains use the value of amount transferred.
389
How might shares be valued?
If you have a large percentage, then valued on assets of company. If you have a small percentage them valued on income expected to receive. (Because of level of control)
390
Shares listed on stock exchange in inheritance tax calculations are valued at lower of...
Quarter up rule (lower quoted price + 1/4 step to higher price), and average of highest and lowest marked bargains on day of transfer.
391
How are units in an authorised trust valued for inheritance tax purposes?
Bid price (amount units will be bought for by trust manager), (not offer price, amount sold for)
392
If an individual dies owning a life assurance policy, how is it valued in his estate for IHT?
If it is his own, valued by proceeds. (In this case, usually held on terms of trust for beneficiaries, not on own estate, so no IHT paid on proceeds. If it is someone else's, valued by market value.
393
What is related property?
Property related to property in the transferors estate which is in the estate of spouse, or has been held in previous 5 years by charity or political party, as the result of transfer made by transferor or spouse (to do with avoiding IHT by splitting property).
394
Related property is valued at higher of...
Value of transferors interest as if there were no related property, and proportion held by transferor of the value of the whole of the transferors interest plus related property.
395
If Trevor and Mary have 40% (15,000) and 60% (42,000) ownership of land (together 80,000) how is Trevor's share valued when he transfers to son at death?
Interest of olive taken into account as together they own the whole land. Do: (15,000/(15,000+42,000)) X 80,000. Trevor's unrelated proportion of the full value. (For shares, calculated with number of shares, not value of holding - this is for the first fraction, then multiply by full value)
396
To qualify for business property relief consider...
ROSE, Relevant property transferred, Ownership period of transferor, Sale contract in place already would deny relief, Excepted assets reduce amount of relief.
397
For what relevant business property transfers do you get 100% relief?
Unincorporated business, furnished holiday incorporation, shares in unquoted company, securities in unquoted (AIM is ok) company that gave transferor control.
398
For what relevant business property transfers do you get 50% relief?
Share's transferred from a controlling holding company, PPE owned by transferor and used in partnership if he was a partner or in a company if he had control.
399
What are some exceptions to the "had it for 2 year rule" needed to qualify for business property relief?
If it replaced another business asset which together were owned for 2 years in last 5 years (inc shares). On death, ownership by spouse seen as ownership by dead spouse. If successive transfers of same property, one on death, and first transfer qualified for relief, 2 year rule deemed to have worked.
400
What are exceptions to the disallowal of business property relief when there are already sale contracts?
Sale of an unincorporated business to a company mainly in consideration for shares/ securities in the company. Sale is of shares/ securities for the purpose of reconstruction or amalgamation. (If in partnership agreement interest said to sell to other partners on death, no BPR).
401
What is an excepted asset?
Not used mainly for business in the prior two years, not required at time of transfer for future use by the business. (E.g. Large cash, land or shares held as investments.
402
In business property relief calculations, if you are transferring shares, and the net assets of business include excepted assets, what do you do?
Times the business relief given by the proportional fraction to use the proportion that doesn't relate to excepted assets.
403
What are the rates for agricultural transfer relief?
Vacant possession or right to obtain vacancy in 12 months - 100%. Property letted out after Sep 1995 - 100%. Let out before Sep 1995 with more than 12 months left - 50%
404
What are usual conditions to apply for agricultural transfer relief?
Occupied by transferor in 2 years prior to transfer or owned by him through the 7 years prior for agriculture.
405
What are the required time conditions for agricultural relief (in terms of replacement assets)?
Where property transferred replaced another property which together were owned for at least 2 out of last 5 years if its the 2 year rule. 7 years out of past 10 if it's the 7 year rule. Ownership by spouse is counted as ownership to self.
406
APR isn't available when there is a...
Contract in place already where the sale is in consideration for shares/securities that would give control.
407
Give a condition for APR and BPR related to attributable liabilities.
If transfer takes place after 16 July 2013, asset qualifies, and transferor has liability taken after 5 April 2013... BPR and APR only applies to net value of asset, deduct attributable liability. (Or relevant part)
408
When is a company resident in UK?
Incorporated or has central control and management in UK. So must pay corporation tax.
409
A company accounting period starts...
When it commences trade or receives chargeable income. Or the previous accounting period ends.
410
A company accounting period ends...
Earlier of 12 months after start, or date company begins/ ceases trade, or date ceases to be uk resident, or date period of account ends.
411
When is the filing date for corporation tax return?
Latest of: 12 months after period of account (if not a longer than 18 month period), if longer then 30 months from start of period, 3 months from notice requiring return to be made is issued.
412
How do you work out the chargeable gain on disposal for a company?
Disposal consideration - allowable costs - indexation allowance
413
How does indexation allowance work?
(RD - RI) / RI where RD is the disposal indexation, RI is the acquiring. If negative result then it is nil. Rounded to 3dp and multiplied by cost.
414
Can a capital loss incurred by a company be set against income?
No but it can be set against other gains for the accounting period, remaining loss carried forward to first gains.
415
In what order are disposed shares in a company matched against acquired ones in the same class?
Shares bought on the same day, in previous 9 days (on FIFO basis), shares in s.104 pool (after 1 April 1982), shares bought before 31 March 1982.
416
What is special about using the indexation factor when acquiring and disposing of shares?
Indexation factor that is assigned on each purchase and disposal is not rounded to 3dp. Work out the increase in indexed cost and add it each time there is addition or disposal. Use this when working out chargeable gain. Work out the normal gain, then deduct indexation (indexed value of disposed share less original cost of shares).
417
If you have shares, and there is a bonus issue, do you include indexation increase when calculating profits on disposal?
Don't include indexation at the bonus issue, this increase the number of your shares but not the total value. Use indexation on the sale to work out increase.
418
If you have shares, and there is a rights issue, do you include indexation increase when calculating profits on disposal?
Yes, do a indexation revaluation at, each rights issue as the value of what you have changes. Deduct the indexed gain to get chargeable gain in your calculation (increased cost with indexation).
419
What is a substantial shareholding?
One where the investing company owns at least 10% of the ordinary share capital and is entitled to at least 10% of the distributable profits and assets on winding up.
420
If a trading company disposes of shares out of a substantial shareholding, what tax is charged?
Capital gains are exempt from corporation tax and capital loss is not allowable. (Investing company must have been trading from start of latest period where it had substantial holding until the disposal).
421
If you have a balancing allowance and there is part private use... what do you do in the TWDV calculation?
Use the full balancing amount, but in the allowances column only take the business use part.
422
What is a non qualifying IIP?
Interest in possession trust, created after 22 March 2006 then it is a CLT.
423
What is a PET (with examples)
Potentially exempt transfers, gifts made in non CLT gifts made in lifetime, transfers to non spouse, transfers to IIP before March 2006 or to qualifying IIP after 22 March. IHT chargeable on PETs made 7 years prior to death.
424
On inheritance tax, what are the rates for transferor and transferee?
20% for trustees paying, or 25% if transferor pays (assume this)
425
What are the 3 stages to remember in calculating inheritance tax?
1) deduct exemptions (marriage, cy, py), 2) deduct nil rate band and do 20%, 25% tax, 3) calculate any death tax.
426
What is the gross chargeable transfer value?
If trust pays tax, it is number at end of stage 1. If donor pays tax, number at end of stage 1 plus lifetime tax.
427
How are shares valued (inheritance purposes?)
Lower of: Quarter up rule (quarter of way up between low and high price) and average of highest and lowest marked bargains on day. For CGT valued at half up (average).
428
For inheritance tax and valuations, and related transfers... When is someone related?
The same for when there would be an inheritance tax charge. E.g. Spouse related, son isn't
429
What debts can't you deduct when calculating inheritance tax?
Casino winnings, dodgy things. Outstanding IT and CGT fine.
430
When is inheritance tax charged at 36% rather than 40%?
When more than 10% of your net chargeable estate is left to charity. (Charity amount/(taxable estate + charity))
431
When might transfers to a spouse not be exempt from IHT?
When you are uk domiciled and your spouse isn't. Up to 325,000 (lifetime limit) exempt.
432
How do you work out the net cost of a gift aid gift to a tax payer?
Work out how much tax he saved in increasing his bands by the gross amount, now deduct this from his paid amount.
433
Julius owns 55,000 units in a Trust. At the time of his death they are quoted at 125p-133p. What is the value of the units for IHT purposes? (How would you work it out).
55,000 x £1.25 = £60,750
434
If in your business you make lease payments on a car, when would the cost be fully allowable in adjusted trading profits?
If it is less than or equal to 130g/km
435
On gifting shares, how do you calculate the transfer of value for IHT purposes?
Lower of Quarter up method and average of highest and lowest marked bargains.
436
Can a third party (not necessarily employer) make contributions to your pension scheme?
Yes
437
What is the most you can contribute to your pension in a year?
Gross it is higher of 3600 (for 2015/16) and the individuals relevant earnings (not including investment income - just employment income).
438
This is part of the chattel rules: If an asset is bought for under 6000 and sold for over 6000 (like a diamond), how do you work out the chargeable gain?
Consideration, less fees, less cost. This gives the gain but it cannot exceed 5/3 of difference from 6000.
439
How are benefits taxed in NICs?
Benefits given to employees are taxed on Class 1A contributions.
440
How do you work out an individuals CGT liability?
Remember to expand band widths if necessary after gift aid donations, Tag the CG on after the taxable income. The remaining amount in the Basic band is charged at 18%, rest is at 28%.
441
Would an employee pay NIC on his benefits?
Only pay NIC on cash convertible earnings, the employer pays NIC on employee benefits.
442
Is your grandmother's spouse connected to you for Chargeable gains purposes?
Yes
443
Who pays Class 4 NIC?
Self employed
444
Who pays class 2 NIC?
Self employed
445
Who pays Class 1B NIC?
Paid by employers on grossed up value of earnings in a PAYE settlement agreement.
446
Who pays Class 1A NIC?
Payed by employers on most taxable benefits provided to employees.
447
Who pays Class 1 NIC?
Paid by employers and their employees on earnings (monthly cash earnings).
448
Is there a restriction on the amount of loss in a partnership a partner can set off against income not related to the partnership with s.64 and s.72?
Yes, the loss is restricted to the amount of capital they contributed.
449
If you sell a car for less than the TWDV what happens in terms of allowances?
B/F the TWDV. Then deduct the price sold at. The remaining amount is the balancing adjustment (an allowance for the year). Remember to pro rate if there is private use.
450
How is the grant of a short sub-lease from a short lease treated?
As a disposal of a wasting asset (less than 50 years).
451
How do you work out the amount assessable to income tax on the grant of a short sub-lease from a short lease?
Income element of sublease premium: (51-sublease length/50. Then deduct the allowance from premium paid on main lease: (main premium x (51 - main lease length)/50) but this should be proportioned to the length of sub lease.
452
How do you work out the capital gains on sale of a short sublease on a short lease?
Premium received less income taxable amount (from prior slide) less allowable expenditure (like depreciation). (for this use pg.103 tables. (%of remaining main lease days on granting sublease, - % of remaining days on expiration)/%full amount of days of main lease - multiply this by main lease amount.
453
When a short lease is granted on a short lease (wasting asset) how is excluded expenditure calculated?
Use p3. 103 tables (Change in % amount remaining in main lease at start and end of short one) / % amount for full longer one. Multiply this by full lease premium.
454
If paying corporation tax by instalments, when are they due?
First on on 14th day of 7th month following start of accounting period, then at 3 month intervals. Last one on 14th day of 4th month following end of accounting period.
455
If you bought a lease for £10,000 with 15 years left to run and sold it when there was 10 years left, how do you work out the cost (value) of the lease on sale?
Look up the percentage value on purchase and sale. Do the relevant proportion of purchase price: %at sale/% at purchase x purchase price.
456
What are the key things to remember about remittance basis claims for CGT vs. non remittance?
In remittance basis: No CGT allowance, No personal allowance when working out remaining band widths.
457
When doing the DTR, what do you do again?
Remove the lower of the foreign tax suffered and the UK tax (take at highest band width) on foreign gains.
458
When using occupational pension schemes, do you get tax relief?
Yes, employer deducts gross pension contributions from income before operating PAYE.
459
What is a money purchase scheme? (Pensions)
Where the value of pension benefits depend on the value of investments in the pension scheme at the date that you set aside (vest) funds to produce those benefits.
460
What is a defined benefits scheme? (Pensions)
Benefits are defined from the outset. Private schemes are likely to be money purchase.
461
Why might it be advantageous to pay into a pension scheme over the tax relief limits?
There is no income tax nor capital gains tax payable by a pension scheme.
462
If you (or employer) pays into your pension scheme an amount less than your income but more than annual allowance (40,000 for 15/16) what happens?
The relief is clawed back. Annual allowance charge payable by you. (Remember annual allowance b/f) 45%, 40% or 20% depending on taxable income of individual. Treat excess pension amount as taxpayer's top slice of income.
463
If your pension contains more than the lifetime allowance what happens?
Tested when you vest benefits. 55% charged on excess to provide a lump sum, 25% on excess to provide pension income.
464
At what amount does the Personal Age Allowance start getting reduced to the normal amount on 2015/16?
27,700
465
What is the penalty on late stock transfer form if up to 12 months late for stamp duty?
Lower of £300 and 10% of stamp duty owed.
466
When organising your basis periods, do you proportion out your capital gains?
No, leave that in the period it comes from.
467
Do you exclude supplies of capital goods when calculating partial VAT exemptions?
Yes
468
How is the partial exemption ratio calculated for VAT products?
Computed as a percentage and then rounded up to the next whole number.
469
What is s.72 loss relief?
Losses in the first 4 years can be carried back and set against the general income in the 3 tax years before the loss on a FIFO basis.
470
What profit can you set losses against in s.83?
Losses can only be set against profits of the same trade.
471
What is an important mistake to remember not to repeat when calculating loss relief in opening years??
You may have to work out the tax basis periods.
472
How do you work out the RPI index allowance?
(new index - old)/old then multiply this by old cost. (deduct this) (It's like deducting the natural percentage increase).
473
How do you work out the rollover relief?
Well do all your calculations, then work out what has not been reinvested, this is your chargeable gain, the rollover relief is the balancing payment.
474
How do you work out gift relief when there are shares as consideration and business (and non-business) assets?
Find the gain (MV compared to cost), amount of gain eligible for relief is proportion of shares relating to chargeable business assets, the chargeable gain is the amount left over.
475
What is the base cost after gift relief?
Take the MC and reduce it by the amount that was eligible for gift relief. (The amount of original MV to cost gain that related to chargeable business assets).
476
How do you know If you need an annual adjustment when looking at de minimis limits?
If exempt supplies tax amount per month is less than £625 and full value of exempt supplies is under 50% of full value of all supplied items then test is passed on input tax for the quarter is recoverable, adjustment made,
477
If you have two employments, one of them has earnings over the UEL for NIC, what happens to the NIC of the other?
Taxed at the UEL (2%).
478
Can a company be in two chargeable gains groups?
No. So if it is already in one from the main parent then it can't be another.
479
If a married couple own a house in different proportions which they rent out, how will it be taxed?
It will be usually taxed equally, but it can be decided to be taxed in accordance with their proportional ownership.
480
Which one of the following is not a deemed supply for VAT purposes: Sale of goods on hire purposes, Gifts of business assets worth £100 each to a customer, Gifts of services worth £100 to each customer, Drawings of by the proprietor of a business?
Gifts of services worth £100 to each customer
481
What is covered by the capital goods scheme?
Purchases of land and buildings costing at least £250k or ships, aircraft and computing systems costing at least £50k.
482
If sometimes there are related companies and sometimes no longer, how do you know how much to divide the small/large profit limits by?
Use the number of companies at the end of the accounting period. Also remember to adjust for timings.
483
What is the thing you have to remember about usable loss with s.89 in the last 12 months.
Look at the last 12 months of trade, splitting up by tax year around the Aprils. Ignore any split period that is profit in total.
484
What is wear and tear allowance?
If you have property income, you can deduct it when calculating taxable income. It is 10% of rent income less anything the tenant should pay for (like water rates).
485
In calculating income tax, what must you do after working out the tax liability?
Deduct the tax deducted at source. Like the notional dividend and savings taxed.
486
Do rental properties and net current assets qualify for entrepreneurs relief on sale?
No as it is not a "relevant business asset" for the rental property. The net current assets are not chargeable assets.
487
At what income does the age-increased personal allowance begin getting decreased?
Income (less charity donations) over 27.700. Deduct half of the excess.
488
Who gets the marriage allowance?
The married man if one of them is eligible and they were married before April 05.
489
How do you calculate the married couples allowance?
Find it in the tables. Reduce it by the "remainder of the excess" you got when reducing your extra aged persons allowance because it was over 27,700. Then take 10%.
490
What happens in your income tax computation if you gave quoted shares to charity?
Deduct it from your non-savings income column.
491
When working out capital allowances and taxable trading income for a sole trader, what order should you do it in?
Deduct the capital allowances from each accounting period from the taxable trading income, then pro rate the answers into the basis periods.
492
If you are part exchanging an old car for a new one, what do you do in the Capital allowances table?
Make an addition of the (part exchange allowance plus cash paid) then make a deduction of the part exchange allowance.
493
If you have trading income over 100,000, would pension contributions affect the reduction in personal allowance?
If employer contributions then no. If personal contributions then yes. Reductions start when adjusted net income (total income less gross gift aid less gross personal contributions (100/80)) exceed £121,200.
494
How do you calculate the annual allowance charge on excess pension contributions?
Work out how much extra was vested (by subtracting, 40,000). Increase your band rates by gross pension payment. Excess is charged at 20%, 40%, 45% depending on which bands it lies in. (As if continuing on from income tax, and using leftover grossed bands). Remember to carry forward allowance by 3 years.
495
Are personal pension contributions deductible in working out class 4 NICs?
No
496
Complete the sentence: For corporation tax, where the period of account is more than 12 months long but doesn't exceed 18 months, the returns for both accounting periods in the period of account are due…
12 months after the end of the period of account.
497
If you are a sole trader, and you have deducted private phone and car expenses in calculating trading income, what should you do?
Add back the private part. It doesn't relate to business, should be taxed.
498
If you have deducted a written off loan to a customer to get sole trader trading income, what should you do?
Add it back. Disallowable.
499
Which of these count as "non-trading income" for a sole trader and should be deducted if they are included in trading income? Sales, Bank interest receivable, Rents receivable, Profit on sale of fixed assets.
All of them apart from sales.
500
If you are a sole trader making a longer period of account in the middle, how do you deal with that in terms of tax trading basis periods?
Don't do much, just deduct the relevant proportion of overlap profits you have for the extra months you are including.
501
If you finish with a short accounting period that is only a little bit longer, not going past April, what should you do in the trading basis (sole trader)?
Add the two periods together and deduct overlap relief.
502
If you make a longer period of account as a sole trader, and no accounting period ends in a tax year…
You create a notional one ending 12 months before new accounting date. Overlap profits may be created.
503
If a wife disposes of a painting her husband gave her, what is the cost when you are working out gains?
NOT market value at time of transfer, it is original cost. NGNL transfer.
504
If you have made a personal pension contribution, do you gross up the pension value when increasing your taxable band limits?
Yes
505
If you have a change in taxable usage in the capital goods scheme, how do you calculate additional input tax to reclaim?
(Full input tax/ intervals) x (taxable % now - taxable % on first purchase)
506
What are the intervals used when making adjustments in reclaimable amount of input tax in the capital goods scheme?
10 for buildings and 5 for aircraft, ships and computers.
507
What is the difference between opting to tax and not opting to tax in the capital goods scheme?
I think, at the end, the VAT recoverable is {(original VAT charged/interval) x (100% - original use %)} for opt to tax and 0% instead of the 100% for not opting to tax.
508
What are the consequences of "Opting to tax"?
Charge and recover VAT: Standard VAT charged on sale or lease of property - (may be a problem if purchaser makes some exempt supplies as his recovery options are limited). And, any input relating to the supply may be recovered (e.g. cleaning, heating, repairs etc.)
509
If you sell a patent in a company, is the gain included in adjusted trading income?
Yes
510
How long can you carry losses back for with s.37?
12 months, but when it is a terminal loss then 36 months.
511
When setting off losses in s,37 relief. Would you include charitable donations, interest receivable and UK dividends received in your Total profits?
No, Just the interest (NTLR) received out of these would get included with Trading income.
512
If you got 20,000 from a premium for a 10 year property this year. How much of it is income this year?
(51-10)/50 and then multiply this all by 20,000.
513
When do you apply the married couples allowance?
You deduct it from the tax liability.
514
How would a gift aid donation affect the married couples allowance?
For the purposes of calculating the personal age and married couples allowance, net income reduced by the gross Gift Aid payment.
515
Using the average method, how do you work out the taxable loan benefit?
Use average balance outstanding at start and end of year. Multiply this by the official interest rate (or official amount less company amount (pg. 59 TCQB). If it is made/repaid in year only months of outstanding loan used.
516
What is the strict method for working out the taxable loan benefit?
Official rate in force on outstanding balance, done per month.
517
How would you calculate the benefit of a photocopier that has been installed in your home by work, used by you, and then given to you after you made a contribution?
Benefit is 20% of full amount of photocopier (this is the benefit of usage for the year). When sold, benefit Is full price of photocopier less benefited amounts taxed so far less contribution made.
518
How do you work out the deductible expenses relating to car mileage when working out taxable income for an individual?
Take the income received (i.e. 35p per mile received from company for driving) then deduct the allowable expense (45p for first 10,000 miles, then 25p etc).
519
If you get a pension contribution from a company you used to work for, does this fall into your taxable income?
Yep, Once you've done your benefits and deductible expenses to get general earnings, put it in the next line before net income.
520
If you pay 275,000 into your pension fund, how much pension tax relief will you be entitled to if your salary is 350,000. Also, what is the actual amount paid into the pension?
You will get full relief as it's below your salary. Amount paid in will be 20% less (tax).
521
What are the limits for not paying tax charges into pension schemes?
40,000 from 2014/2015 and 50,000 before (basically).
522
If you pay more than 40,000 into your pension scheme, what are the charges?
40% for the remaining amount in the basic band and 45% for the amount in the higher band. (As if it is income, continuing on from taxable income in the recalculated bands).
523
What happens to unused yearly pension allowances?
Can be carried forward 3 tax years.
524
If you pay money into your personal pension contributions, what do you do to your band widths (talk about grossing).
Gross up the contribution 100/80 and increase bandwidth unless it says it was paid in gross.
525
What do you have to do before you use s.37(b) carry back loss relief?
Set it against current year gains first. (a). Claim must be made for whole loss.
526
If there is opportunity to use s.37 and s.46, what would be the steps in employing them?
Cancel any current losses with s.37(a) - ignore dividends (exempt) and qualifying charitable donations (put them in a row at bottom "unrelieved QCD"). Then cancel any prior year losses. Then remainder cancels next year losses but only trading income.
527
When deciding if a company should pay tax in instalments, and looking at the augmented profits figure, what figure would you use to make augmented profits?
Well in Qu 56 QB they used current year profits (inc. loss reliefs made) and then added grossed up exempt dividends.
528
In basis periods for sole traders, if you open with a loss, what happens?
First period: Take proportion of loss till April. For next period take relevant proportion of loss but deduct loss already considered.
529
What are the types of loss relief (for companies and sole traders - how do they pair up in terms of similarity?)
s.37 (comp) is like s.64 for sole traders. s.45 (comp) is like s.83 for s.t. Then also s.72 for opening four years of trading and s.89 for closing 4 years against trading income (for both).
530
Can you relieve a trading loss (from commencement in trading this year) against net income in prior years not related to that trading?
Yes. Under s.64. Doesn't have to be same trade.
531
If you start trading, and you make a loss, under s.72 you can set losses in the first 4 years against previous 3 tax years, does this include tax years prior to trading?
Yes. Loss in first year of trading can be set against non trading income prior to that.
532
How do you calculate the c/f of a discretionary trust tax pool?
Take the b/f add 20% tax paid in year, add 45% tax paid in year, add 37.5% dividend tax paid (less the 10% credit), Then deduct the 45/55 of payment to beneficiary (to cover tax payment).
533
What happens if the c/f on a tax pool to discretionary trust is positive or negative?
If positive then that's fine, sufficient tax credit to cover payment to beneficiary. If negative then include "additional tax payable to HMRC". And c/f will be NIL.
534
What would be in an R185 form given to a beneficiary of a discretionary trust?
Net amount of non-savings income and tax credit.
535
Does the indexation allowance apply to sole traders?
No, only companies.
536
In working out adjusted trading profits, and there is a bit about stock at cost value and market value, what should it be valued at?
Lower of the two. So if it isn't deduct the amount to get down to this value (deducting as you are losing out).
537
What is the income amount and capital amount of a short lease premium?
Income amount is total x (51 - number of years)/50… This is then divided over the number of years. Capital is rest.
538
What can s.83 losses be set off against?
Profits of the same trade.
539
What can s.89 and s.72 losses be set off against?
Only trading income.
540
What profits can s.64 losses be set off against?
General income of this year and then preceding year.
541
Hello Maria
I love you.
542
If you sell treasury stock, how will it be dealt with in CGT?
It is exempt.
543
What would be your capital losses c/f?
Any capital losses b/f plus extra less amount used.
544
How are capital losses used? Set off in full? How must they be used?
Must be set off in current year gains to bring utilised gains down to annual exempt amount.
545
If you get a loss in disposal of shares to your brother (i.e. valued at M.V.) what restrictions are on the loss as relief?
As it is from a connected person, not available until another disposal made to brother.
546
What is the differences in groups for loss relief and gains group:
Gains groups have 75% direct and 51% effective interests. Groups for loss relief have 75% effective interest. (Sharing losses more common).
547
If you have your house for 10 years and are travelling for 4 years, how many years of PPR relief do you get?
9. Because you are allowed 3 years of travelling for no reason.
548
If you are working out your PPR relief… but actually on the sale of your house you make a loss, what are you going to do with your PPR calculation?
Find the proportion that relates to not being lived in. This is an allowable loss that can be set against future capital gains.
549
If legal services were used before registering for VAT, can the VAT be recovered?
Service VAT only recoverable if less than 6 months prior to registration.
550
Can VAT be reclaimed on goods purchased prior to registration for VAT?
Only on those bought within 4 years before registration and goods are still on hand.
551
Can input VAT on entertaining suppliers prior to registration for VAT be recovered?
No.
552
If you sell boat cruises that come with a Buffet, what are the two ways they could be taxed? (Cruises is 0 rated and buffet is standard rated).
HMRC could either tax it all at main supply rate (so 0% in this case). Or it could treat it as a multiple supply by splitting elements in a reasonable manner.
553
If looking up SDLT and it falls in the 0% band for non-residential… when might it still get more than 0%?
If the rent is more than £1000. Then the zero-rate band isn't available. In this case I think take 1% of the lease premium and 1% of the total rent payable less 150,000 threshold. (1% of amount it exceeds threshold).
554
In cash basis, would legal fees be an allowable expense?
If they relate to capital items that aren't plant and machinery then No. (I.e. to acquire another property).
555
When can a cash basis trader not use a fixed rate mileage system?
If capital allowances (like AIA) were used against it. In which case you can only claim the business related expenses.
556
What happens if you want to use the fixed rate mileage system as a cash basis trader?
Remove any other motor expenses and just add the £3,150.
557
When is an adjustment expense deductible relating to the cash basis?
Only in the first year of cash basis, you can deduct it if it is related.
558
In company loan relationship, do you gross up the interest received?
No, it's received gross.
559
Is interest on loans to buy other companies or investments trading expenditure for companies?
No, only daily operations stuff is trading.
560
When do you not round to 3dp in your indexation factors?
Things in the s104 share pool.
561
Are repairs an allowable deduction in company tax?
Yes
562
What should you think about if you make a PSA? PAYE settlement agreement?
Think about income tax and NICs
563
Do you put things into capital allowances VAT exclusive or inclusive?
Exclusive, unless it is a car, then inclusive because you can't recover the VAT.
564
What treatment do RnD capital expenditures get in terms of capital allowances?
FYA
565
Where do you put capital allowances in your tax calculations?
Deduct it from trading income.
566
For companies, is interest received an paid net or gross?
Gross
567
How long must you have shares for the Substantial Shareholding Exemption to apply?
10% holding required for 12 months of the 24 months prior to sale.
568
How is private use treated in capital allowances if you are a company or sole trader?
In a company there is no private use calculation, everyone is an employee. If sole trader, only get business use proportion.
569
What are the remittance basis charges?
£30k p/a if UK resident for 7 out of past 9 years, £60k if Uk resident for 12 of past 14. £90k if 17 out of past 20.
570
When do you deduct the QSR?
It is a tax reducer, deduct it right right right at the end. After doing your percentages.
571
What is the maximum contribution an individual can make to an employer given benefit that will be recognised in NIC calculations? (E.g. car)
5000
572
What are the car emission tax rate things?
From 0-50 (5%). From 51-75 (9%). From 76-94 (13%). For 95 (14%). And then 1% for every 5 over (rounded down) up to 37%.
573
How do you charge NIC for a staff party on an additional rate tax payer? (Employer NIC)
Party cost plus gross up by adding 45% (add 45/55). Then charge at 13.8%.
574
General earnings (including bonuses) are taxable when?
On earliest of when payment is received and when entitled to payment.
575
What can you deduct from total income to get net income in the income tax calculation?
Gifts to charity and qualifying loan interest and then personal allowance.
576
Rent and premium on a short lease, the SDLT is payable on…
The full value of all rents and premium to be received.
577
If you have overseas income that has withholding tax and available losses to use what can you do?
Make a claim to expense the overseas tax lost so losses only used on net amount of overseas income.
578
What happens if something gets full FYA and is later sold?
You deduct it from the main pool still (so less main pool to get FYA on).
579
How is REIT income treated in the income tax calculation?
Grossed up by 100/80 and put in the NSI column.
580
Loan benefit in employment income is valued at?
The benefit of the reduced interest rate.
581
Gift of a previously borrowed tv has an employment benefit of…
Higher of MV when gifted and MV when first provided less benefits to date.
582
Do you gross up band rates by the occupational or personal pension scheme contribution?
Personal pensions scheme contribution. Occupational contribution doesn't increase band rates.
583
What is the additional charge on living accommodation?
(Value of house when purchased less 75,000) x 3% x time apportion. (3% is the ROI thing).
584
In income tax calculation, what is the difference in treatment with occupational pension donation and personal pension donations?
Occupational pensions are deducted straight from salary before tax. Personal contributions used to expand bands.
585
If you are a non UK resident, are you charged on UK CGT?
Only on residential property.
586
A business can only recover VAT on a purchased car if…
It is 100% for business use.
587
VAT can only be reclaimed on bad debt if…
VAT paid over on supply, debt written off, debt at least 6 months overdue.
588
When does a trader need to register for VAT? And what will be payable?
When the taxable supplies reach 82,000. Need to notify HMRC by end of next month. VAT due after this month. If unprompted disclosure perhaps no fine.
589
In what order of pools would you assign the AIA in capital allowances?
8% pool first as least allowance. Then 18%. Then special rate as this ends with a balancing allowance.
590
Can s.37 loss relief be carried back by a period (perhaps less than 12 months) or by 12 months regardless of how many periods?
Can be used for this year and 12 months prior.
591
If you are in the childcare voucher scheme prior to 6 April 2011, what happens to the allowable benefit?
Capped at £55 per week.
592
If you get BPR do you also get 3000 annual exemption?
No need
593
Do you get annual 3000 exemption on death estate?
No, only for lifetime transfers.
594
At what rate is commercial property rental?
It is an exempt supply - unless opted to tax.
595
In life you make a house transfer, at death it fell in value… What is the death tax due (explain calculation).
In life, deduct the 3,000 allowances. And the year Nil rate band. Charge IHT on this. Gross chargeable transfer then the amount less annual allowances plus the charged amount (if you paid, not if trustee paid). On death, take gross chargeable amount, reduce by the fall in value figure and death year NRB, then death tax on this.
596
So what do you do if the de minimus tests were not met but all exempt VAT was recovered?
Do a table of supplies with columns "taxable" and "exempt". Input the stuff you know. Then use this again to work out the exempt and taxable amount. Do the tests again, is 1/12th of yearly exempt less than £625? And VAT proportion on exempt less than 50%? If not then repay the exempt VAT recovered.
597
How do you deal with non-attributable input tax when working out the taxable and exempt input VAT?
Divide it into the proportions of taxable and exempt supplies made by the business and put it in the taxable and exempt columns of your working?
598
If a car, purchased for an employee has some private use can you recover the VAT?
No
599
How long must the company have the shares for, for the SSE to apply?
12 out of the last 24 months at least.
600
Is income from national savings and investments direct saver accounts taxed or exempt?
It is taxed but remember it is received gross.
601
If your company gives you a holiday voucher, in your income tax calculation is it valued at the market value or cost to employer?
Cost to employer.
602
If an employer contributes to your occupational pension scheme would you include the contribution in your income tax calculations?
No
603
What is the petrol benefit?
22,100 x the CO2 rate.
604
If in your trade you got VAT advice, is this allowable expenditure?
Yes, deduct it but remember to gross up by 120/100
605
You get a car for 13,500 in your personal trading business. Emissions of 73g/km. You use it 60% for business use. What capital allowances do you get.
Gross it up by 120/100 and then get 100% FYA, but then you only get the 60% of this as allowance.
606
Can you get capital allowances on paintings?
Nope, it's not related to the trade.
607
If an EU customer receives your goods, how are they VATed?
Zero-rated if he is registered. Rated normally for goods if not registered.
608
What is the destination system in VAT?
Goods coming in from Vat registered company taxed at normal rate so no different from other UK goods.
609
If goods are exported out of the EU, how are they VATed?
Zero rated.
610
If goods are imported out of the EU, how are they VATed?
Chargeable if they would have been chargeable when coming from an EU person.
611
Who gets the marriage allowance?
Before Dec 5th 2005 then the man, after then the highest earner.
