Tax Revision

Question 1

What is the threshold salary at which an employer must deduct and submit to HMRC employee income tax?

Answer 1

£184

Question 2

In the first year of trade, no payments are required

Question 3

Payments on account are always calculated using 50% of the prior year’s income tax payable figure

Question 4

Additional rate taxpayers are not entitled to any personals savings allowance

Question 5

One-off capital expenses are not deductible as revenue expenses

Question 6

Capital losses can be carried forward indefinitely to offset against future gains

Question 7

All UK taxpayers can use the full capital gains annual exemption – even taxpayers in the higher rate band.

Question 8

An individual does not qualify for the absence due to working elsewhere counting as occupation for up to four years nor for the absence for any reason counting for up to three years, as she did not reoccupy the home when they return

Question 9

People who trade as sole traders, partners, company directors, and people with interest or dividend income higher than the tax-free thresholds are required to register for self-assessment.

Question 10

Everybody is allowed to receive £2,000 of dividends tax free

Question 11

Income derived from an ISA or prizes from Premium Bonds are exempt from tax.

Question 12

The marriage exemption is £1,000 for anyone other than a parent, grandparent, or the other party to the marriage.

Question 13

For leases stamp duty land tax will be calculated based only on both the premium paid and the present value of the lease payments

Question 14

In cases where the payment is made and the invoice is issued before the good or service is supplied, the tax point is the earlier of the payment or invoice date

Question 15

Businesses with turnover above £85,000 must register for VAT. Two tests are used to determine whether a firm must register for VAT: the historic test and the future test. Under the historic test, a firm must register if its turnover over the past 12 months exceeds £85,000. The future test looks to whether the month’s turnover will exceed £85,000.

Question 16

Companies which are not large (generally, companies with profits of less than £1.5 million) must pay their corporation tax 9 months and 1 day from the end of the accounting period

Question 17

Residential properties are exempt from VAT

Question 18

When determining the amount of a chargeable lifetime transfer (such as gifts to most trusts) that is chargeable to tax, we need to take into account other CLTs made by the donor in the previous seven years, because IHT is a cumulative tax.

Question 19

How to calculate the SDLT on the grant of a lease?

Answer 19

SDLT is due on both the premium and the present value of the lease, although these are calculated separately and not as a lump sum. We use the net present value of the lease payments to calculate tax on them (rather than the total actual lease payments).

Question 20

The maximum penalty HMRC could impose for a careless error on a self-assessment tax return is 30% of the lost tax revenue. If the taxpayer is a basic rate taxpayer, the lost tax revenue is 20% of the outstanding tax owed. HMRC would use their discretion and in some instances where it is a genuine mistake this could be lessened to 15% or even 0%. If it is deliberate the penalty could potentially be as much as 100% of the lost tax revenue.

Question 21

A basic rate taxpayer can make use of 10% of their spouse’s personal allowance (£1,250), which would save £250 in taxes

Question 22

The residents nil rate band is applicable only if the recipient of the estate is closely related to the decedent, such as a lineal descendant

Question 23

The basic tax point is the time the goods are made available (that is, the despatch/delivery date). However, if the goods are paid for before that date, the payment date will be used. And if a VAT invoice is issued within 14 days after the basic tax point, that date will be used.

Question 24

Commercial buildings that are less than three years old are a standard-rated supply and therefore VAT of 20% will be suffered on the purchase of these. Commercial buildings that are more than three years old (with no option to tax) and residential properties are exempt supplies and therefore no VAT will be suffered.

Question 25

A partnership is not taxable in its own right; rather it is an amalgamation of individuals effectively taxed as sole traders. Neither are partners taxed jointly. Every individual is liable to capital gains tax independently.

For example, if a partnership disposes of a building, the asset is owned by all the partners and so each partner must declare their share of any gain on their own self-assessment return.

Question 26

Business asset disposal relief can be claimed as to gains of up to £1 million by an individual who holds at least 5% ownership of a company in which they are either an employee or an officer.

Question 27

Payments on account are always calculated using 50% of the prior year’s income tax payable figure

Question 28

Corporation tax returns are always submitted 12 months after the end of the period of account, whereas the corporation tax liability must be paid 9 months and 1 day after the end of the period of account

Question 29

When the lifetime tax already paid in life exceeds the tax on death, the difference is not repaid

Question 30

A close company which makes a loan to a participator (shareholder) must pay 32.5% of the loan over to HMRC 9 months and 1 day after the end of the accounting period. This notional tax charge is refunded to the company 9 months and 1 day after the end of the accounting period in which the loan is repaid or waived

Question 31

Gifts to charity are exempt from inheritance tax.

Question 32

If more than 10% of the net chargeable assets have been left to charity, a reduced inheritance tax rate of 36% applies

Question 33

Current year losses must be set off against the gains for the year before subtracting the annual deduction (£12,300) to reach the total capital gain (or loss) figure

Question 34

To calculate chargeable gain, we start with the proceeds received from the sale. From that we subtract out all costs, which includes: the price paid for the asset, any costs of acquisition, the costs of any enhancements to the asset, and any costs related to selling the asset.

Question 35

Income derived from an ISA or prizes from Premium Bonds are exempt from tax

Question 36

In the first year of trade, no payments are required. If trading started during tax year 2020/21, the client would pay any tax owed on her trade income by 31 January 2022 and submit an online tax return by that same date.

Question 37

Capital allowances are deducted from trading income to arrive at the final tax adjusted trade profit

Question 38

Motor vehicle expenses that are business related are allowable, but only to the extent the motor vehicle is used for business

Question 39

Inheritance tax due on the death estate is paid by the executors but it is suffered/borne by the residual legatee

Question 40

Companies pay corporation tax at 19% on their taxable total profits including chargeable gains

Question 41

Companies do not usually pay tax on dividend income because it usually is exempt.

Question 42

Companies do not pay capital gains tax on their gains or get a deduction for the annual capital gains exemption.

Question 43

Higher rate taxpayers have a tax-free interest allowance of £500

Question 44

The personal allowance is reduced by £1 for every £2 of net income in excess of £100,000. Net income does not include exempt income.

Question 45

Transfers between spouses are exempt from inheritance tax.

For example, if a man transferred his entire estate to his wife and did not use any of his nil rate band, the unused proportion (100%) can be transferred to apply in his wife’s estate, giving the estate an NRB of 200% of the NRB at the time of the woman’s death.

Question 46

Personal allowance is deducted from the non-savings income

Question 47

When a spouse dies and has not used all their nil rate band for inheritance tax purposes, their surviving spouse may add the unused proportion to their NRB. For example, if a man died and used only 25% of his £312,000 NRB (£78,000 / £312,000 = 25%) 75% of the man’s NRB was unused and so the woman can increase her NRB by 75% (essentially, she gets 175% of her NRB)

Question 48

The marriage allowance can be claimed where both spouses are basic rate taxpayers. A spouse who is not fully utilising their personal allowance may effectively transfer £1,250 of their allowance to their spouse. Technically, the recipient spouse does not increase their personal allowance, but instead reduces their tax liability by £250 (20% x £1,250)

Example: if a husband’s income was £7,000, which is less than his personal allowance of £12,500, he will owe nothing. He can transfer £1,250 of the unused allowance to his wife. If her taxable income was £18,000, it is only £5,500 after applying her personal allowance. This amount will be taxed at the 20% base rate (£1,100). However, we then must subtract out the £250 marital allowance, leaving £850 tax owed.

Question 49

Business Asset Disposal Relief (formerly called Entrepreneurs Relief) is available when all or part of a trading business carried on by a sole trader or a partnership for at least two years is disposed of. Under the relief, a 10% rate applies to the taxable capital gain

Question 50

To calculate capital gains tax we apply a 10% rate to the amount of the taxable gain that is still within the taxpayer’s basic rate band above the taxpayer’s other income and apply a 20% rate to amounts in excess of the basic rate band

Question 51

Gains from sales of cars are exempt for capital gains tax purposes

Question 52

Tangible personal property sold for less than £6,000 is exempt from capital gains tax

Question 53

To calculate capital gains tax, we apply the 10% rate to any amount remaining of the taxpayer’s basic rate band. To determine how much of that band is left, we subtract the non-capital gains income from the basic rate band

Question 54

The marriage allowance enables a basic rate taxpayer to transfer £1,250 of unused personal allowance to a spouse if the spouse also is a basic rate taxpayer.

Question 55

To value a gift of unquoted shares, we use the loss to the donor principle i.e. we look at the amount by which the donor’s holding was diminished rather than the value of the gift in the hands of the recipient.

Question 56

An 18% per annum writing down allowance applies to the balance on the main pool of the tax written down value

Question 57

Online tax returns are due on 31 January after the end of the tax year

Question 58

Taxpayers who self-assess (such as sole traders) are required to make two payments on account, each based on 50% of the previous year’s tax liability

Question 59

Net income from trading generally equals gross income from trading less revenue-related expenses (such as salaries and electricity bills) and capital allowances

Question 60

Only revenue-related expenses that are recurring expenses may be deducted against gross income to determine the trading income of a business

Question 61

Expenditures for the purchase of one-off items for a business, such as a machine, may be deducted from trading profit over time in the form of a capital allowance

Question 62

Businesses are entitled to an annual investment allowance which allows them to deduct 100% of their capital expenditures annually, up to the amount of the annual allowance, but excluding cars

Question 63

The unused annual investment allowance portion cannot be carried forward into future years.

Question 64

Writing Down Allowance: any deduction from gross income available if a business purchases capital assets at a cost that exceeds the annual investment allowance - the cost goes into a pool and a percentage of the amount in the pool may be deducted from the pool and the trading profits each year

Question 65

Basic rate taxpayers are entitled to a £1,000 Personal Savings Allowance (PSA), higher rate taxpayers are entitled to a £500 PSA, and additional rate taxpayers are not entitled to any PSA

Question 66

All UK income taxpayers are entitled to a £2,000 Dividend Allowance

Question 67

When a sole trader has claimed current year or prior year loss relief for a trade loss against net income, any excess loss can then reduce their capital gains of the same tax year, provided a claim has been made to use the trade loss against their net income, any remaining loss can be used to reduce the taxpayer’s capital gains tax

Question 68

When a sole trader has ceased trading, terminal loss relief allows the trade loss in the last 12 months of trade to be carried back against trade income to the previous three years, taking more recent years first

Question 69

If a sole trader or partner transfers a business to a company in exchange for shares, the sole trader can set off any unused trading losses from the transferred business against salary or dividends they receive from the company whilst they own stock until the loss is used up

Question 70

Is there an annual exemption available to reduce the IHT value for lifetime transfers?

Answer 70

Yes £3,000 per year

Question 71

May the annual exemption for lifetime transfers be carried forward if not used in a particular tax year?

Answer 71

Yes, it may be carried forward for only one year

Question 72

What is a potentially exempt transfer (PET)?

Answer 72

A lifetime transfer made by one individual to another individual

Question 73

Transfers to either a discretionary trust or an interest in possession trust will always be a CLT

Question 74

A chargeable lifetime transfer (CLT) may suffer both a lifetime IHT charge and an additional IHT on death. If a CLT exceeds the available nil rate band, there will be a lifetime tax charge and a further death tax charge if the donor dies within seven years of making the gift.

Question 75

Describe the lifetime tax charge on a CLT, payable by the donor

Answer 75

25% tax is owed only if the net gift exceeds the nil rate band in the year of gift, less any gross chargeable transfers in the prior seven years to this gift and after deducting any available annual exemption

Question 76

The nil rate band available when calculating a lifetime IHT charge is the nil rate band in the year of gift less any gross CLTs

Question 77

The nil rate band available when calculating an IHT charge at death is the nil rate band in the year of death that is used less gross CLTs and PETs in the prior seven years

Question 78

When is taper relief is available against IHT?

Answer 78

On any CLTs and PETs that were made more than three years prior to death

Question 79

The trustees of a trust will receive credit for any lifetime tax paid on a CLT

Question 80

Business relief (formerly known as business property relief) is available only if the donor owned the property for at least two years before the transfer.

Exceptions to the general rule when the business property asset is replaced with another within three years of the transfer or the business property was inherited from one’s spouse

Question 81

Agricultural relief usually provides 100% relief for transfers of farmland and buildings for both lifetime and death transfers of qualifying agricultural property

Question 82

To qualify for agricultural relief, the agricultural property must have been occupied by the transferor for the purposes of agriculture throughout the two years prior to the transfer.

Question 83

Is any nil rate band available to reduce tax liability on a death estate?

Answer 83

Yes, the nil rate band in the year of the death is available, but it will be reduced by any gross CLTs and PETs made in the seven years prior to death.

Question 84

If 10% or more of the deceased’s net estate has been left to a charity, the taxable estate is charged at 36% instead of the normal 40%

Question 85

The residence nil rate band is available only when a ‘qualifying residential interest’ in the deceased’s estate is left to a lineal descendant

Question 86

The residence nil rate band is tapered by £1 for every £2 by which the estate’s net value exceeds £2 million

Question 87

Which reliefs are available against the death estate?

Answer 87

1. Business relief
2. Reduced rate for substantial charity gifts
3. Quick succession relief

Question 88

When is the lifetime IHT due for a CLT?

Answer 88

The later of six months from the end of the month in which the CLT was made and 30 April after the tax year in which it was made

Question 89

If the death estate has produced income, Personal Representatives will not be entitled to a personal allowance, personal savings allowance, or dividend allowance. However, if any assets are sold during the administration period, Personal Representatives will be entitled to an annual exemption

Question 90

As a general rule, on what is an asset’s probate value based?

Answer 90

Its market value on the date of the decedent’s death

Question 91

Are Personal Representatives entitled to claim any annual exempt amount against the estate’s capital gains?

Answer 91

Yes, for the year of death and the following two years only

Question 92

What tax rates apply to capital gains made on estate assets during the administration of the estate?

Answer 92

20% on general gains and 28% on residential property

Question 93

Non-savings income (that is, trading income, rental profits, employment income, and pension income) and interest earned by Personal Representatives during the administration period are taxed at the basic rate of 20% regardless of the amount of income

Question 94

Car sales are exempt from CGT

Question 95

A person who was absent from their home because they were working overseas will be deemed to have occupied their home during the absence so long as they lived in the home before and after the absence.

Question 96

A person who was absent from their home because they were working elsewhere in the UK will be deemed to have occupied their home during the absence so long as they lived in the home before and after the absence and the period of deemed occupation cannot exceed four years

Question 97

Business Asset Disposal Relief is available on qualifying gains of up to £1 million.

Question 98

The effect of Hold Over Relief is that, when the donee disposes of the asset, they are charged to CGT not only on their own gain, but also on that of the donor, if a joint election is made for hold over relief, the donor’s gain defers to the donee by deducting the deferred gain from the donee’s deemed acquisition cost

Question 99

Chargeable disposals that qualify for Gift Relief

Answer 99

A gift of shares in an unquoted trading company

A gift of land and buildings used in the transferor’s personal company

A gift of a plot of farmland

Question 100

Under Replacement Business Asset Relief/Roll-Over Relief, gain on the sale of a business asset will be deferred by reducing the acquisition cost of a replacement business asset by the amount of gain invested if the replacement asset is purchased within one year before or three years after the replaced asset is sold

Question 101

An individual entitled to exempt £12,300 capital gains annually

Question 102

How many years may capital losses be carried forward?

Answer 102

Indefinitely, until they can be used to offset capital gains

Question 103

Corporation tax rate = 19%

Question 104

If a company’s profits do not exceed £1.5 million, what is the deadline for a company to pay its corporation tax?

Answer 104

Nine months and a day after the end of its accounting year

Question 105

A close company is a company which is resident in the UK and is controlled by

Answer 105

Five or fewer participators (shareholders)

Any number of directors who are also shareholders

Question 106

If a close company lends money to a participator at a below-market rate, the forgone interest is a taxable benefit to the borrower which must be reported to HMRC and taxed as earnings if the loan is to an employee or director and it exceeds £10,000

Question 107

If a close company makes a loan to any employee or director, the company must pay HMRC 32.5% of the amount of the loan not later than nine months and one day after the close of the company’s accounting period

Question 108

If a supplier issues a VAT invoice or receives payment before the date that the goods are delivered or made available to the buyer, the tax point will be brought forward to that date

Question 109

If a VAT invoice is issued within 14 days after the basic tax point, the invoice date becomes the new tax point

Question 110

A VAT registered business that only or predominantly makes zero-rated supplies is allowed to submit monthly VAT claims to reclaim their input VAT to aid cashflow

Question 111

A VAT registered business has submitted consistently late VAT returns. What is the maximum penalty that HMRC could impose?

Answer 111

15%

Question 112

Stamp Duty Land Tax (SDLT) is charged on the VAT-inclusive amount of the consideration in land transactions

Question 113

If six or more residential properties are purchased in a single transaction, the purchaser can choose to apply non-residential SDLT rates instead of the residential rates

Question 114

Land transactions that are exempt from SDLT

Answer 114

Transfer of a property on divorce

Gift of land to the donor’s child

Question 115

What is the penalty that HMRC will automatically impose on a taxpayer for filing a SDLT land transaction form more than three months late?

Answer 115

£200

Question 116

Companies must offset their capital losses against their chargeable gains in the same year, and excess losses must be carried forward to be used against future chargeable gains. Capital losses cannot be carried back and cannot be used against any other type of income.

Question 117

The annual exemption against capital gains available to companies.

Question 118

A trade loss can be carried forward and used against future total profits, including gains. Companies can use a trade loss against total profits in the same year, in the prior year (but only after a current year claim is made) or can carry forward to future total profits. Total profits include gains.

Question 119

For tax purposes, a partnership’s entire annual profit must be allocated among the partners for tax purporses.

For example, it does not matter that the partners have agreed to distribute only £100,000 of their £180,000 profit. The partners must allocate the entire £180,000.

Question 120

If a partner receives a salary from tax adjusted total profit this must be allocated before calculating the relevant profit to be distributed according to the partnership agreement.

Question 121

Capital losses can be brought forward from previous years to offset capital gains, but they cannot be used to offset any other type of income.

Question 122

Transfer of value for inheritance tax purposes is the loss to the donor

Question 123

Gains from the sale of a principal residence are not subject to capital gains tax except in certain circumstances when the home was not lived in during the entire ownership

Question 124

UK residents must pay CGT on taxable gains, of an individual is working full time in the UK even if the commute daily from outside the UK they are considered UK residents

Question 125

An estate can be excepted if specified transfers do not exceed £150,000 in the seven years before the deceased’s death

Question 126

An estate which owes no inheritance tax (‘IHT’) and does not have to file a formal IHT account is called an excepted estate. To be excepted, the estate’s total gross value plus specified transfers cannot exceed either (1) the inheritance tax threshold, currently £325,000, or (2) £1 million if the net chargeable estate does not exceed the threshold. In addition, an estate can be excepted only if no more than £100,000 of the deceased’s property is situated outside the UK.

Question 127

An IHT account must be delivered to HMRC within 12 months from the end of the month of the deceased’s death.

Question 128

Shares in an unlisted trading company qualify for 100% relief so long as the shares have been owned for at least 2 years. This rule applies regardless of the percentage of the shares held and regardless of whether the company is private or public.

Question 129

Shares in a quoted trading company can attract a 50% relief, but only if the deceased had voting control over the company (that is, owned more than 50% of the company’s shares

Question 130

On disposal of a chargeable asset, any purchase costs incurred at acquisition are deductible (for example, SDLT). The costs of any capital improvements are also deductible. The chargeable gain is always the gain pre-deduction of the annual exemption.

Question 131

It does not matter when property was purchased for the purposes of capital gains tax; it only matters that the new partner was a partner at the time the investment property gain was realised and therefore all partners are responsible for capital gain tax

Question 132

Revenue expenses which merely maintain and repair the asset are not deductible. However, any purchase costs and costs of improvement can be deducted

Question 133

Any good or service that is not zero-rated, reduced-rated, or exempt is charged VAT at the standard rate of 20%. It does not matter whether the transaction is business to business or business to consumer.

Question 134

When a commercial building is sold to the buyer and is less than 3 years old it is deemed a standard-rated supply for VAT purposes