Tax Revision Flashcards
1
Q
What is the threshold salary at which an employer must deduct and submit to HMRC employee income tax?
A
£184
2
Q
In the first year of trade, no payments are required
A
3
Q
Payments on account are always calculated using 50% of the prior year’s income tax payable figure
A
4
Q
Additional rate taxpayers are not entitled to any personals savings allowance
A
5
Q
One-off capital expenses are not deductible as revenue expenses
A
6
Q
Capital losses can be carried forward indefinitely to offset against future gains
A
7
Q
All UK taxpayers can use the full capital gains annual exemption – even taxpayers in the higher rate band.
A
8
Q
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
A
9
Q
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.
A
10
Q
Everybody is allowed to receive £2,000 of dividends tax free
A
11
Q
Income derived from an ISA or prizes from Premium Bonds are exempt from tax.
A
12
Q
The marriage exemption is £1,000 for anyone other than a parent, grandparent, or the other party to the marriage.
A
13
Q
For leases stamp duty land tax will be calculated based only on both the premium paid and the present value of the lease payments
A
14
Q
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
A
15
Q
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.
A
16
Q
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
A
17
Q
Residential properties are exempt from VAT
A
18
Q
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.
A
19
Q
How to calculate the SDLT on the grant of a lease?
A
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).
20
Q
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.
A
21
Q
A basic rate taxpayer can make use of 10% of their spouse’s personal allowance (£1,250), which would save £250 in taxes
A
22
Q
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
A
23
Q
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.
A
24
Q
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.
A
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.
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.
27
Payments on account are always calculated using 50% of the prior year's income tax payable figure
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
29
When the lifetime tax already paid in life exceeds the tax on death, the difference is not repaid
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
31
Gifts to charity are exempt from inheritance tax.
32
If more than 10% of the net chargeable assets have been left to charity, a reduced inheritance tax rate of 36% applies
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
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.
35
Income derived from an ISA or prizes from Premium Bonds are exempt from tax
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.
37
Capital allowances are deducted from trading income to arrive at the final tax adjusted trade profit
38
Motor vehicle expenses that are business related are allowable, but only to the extent the motor vehicle is used for business
39
Inheritance tax due on the death estate is paid by the executors but it is suffered/borne by the residual legatee
40
Companies pay corporation tax at 19% on their taxable total profits including chargeable gains
41
Companies do not usually pay tax on dividend income because it usually is exempt.
42
Companies do not pay capital gains tax on their gains or get a deduction for the annual capital gains exemption.
43
Higher rate taxpayers have a tax-free interest allowance of £500
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.
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.
46
Personal allowance is deducted from the non-savings income
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)
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.
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
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
51
Gains from sales of cars are exempt for capital gains tax purposes
52
Tangible personal property sold for less than £6,000 is exempt from capital gains tax
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
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.
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.
56
An 18% per annum writing down allowance applies to the balance on the main pool of the tax written down value
57
Online tax returns are due on 31 January after the end of the tax year
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
59
Net income from trading generally equals gross income from trading less revenue-related expenses (such as salaries and electricity bills) and capital allowances
60
Only revenue-related expenses that are recurring expenses may be deducted against gross income to determine the trading income of a business
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
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
63
The unused annual investment allowance portion cannot be carried forward into future years.
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
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
66
All UK income taxpayers are entitled to a £2,000 Dividend Allowance
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
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
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
70
Is there an annual exemption available to reduce the IHT value for lifetime transfers?
Yes £3,000 per year
71
May the annual exemption for lifetime transfers be carried forward if not used in a particular tax year?
Yes, it may be carried forward for only one year
72
What is a potentially exempt transfer (PET)?
A lifetime transfer made by one individual to another individual
73
Transfers to either a discretionary trust or an interest in possession trust will always be a CLT
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.
75
Describe the lifetime tax charge on a CLT, payable by the donor
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
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
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
78
When is taper relief is available against IHT?
On any CLTs and PETs that were made more than three years prior to death
79
The trustees of a trust will receive credit for any lifetime tax paid on a CLT
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
81
Agricultural relief usually provides 100% relief for transfers of farmland and buildings for both lifetime and death transfers of qualifying agricultural property
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.
83
Is any nil rate band available to reduce tax liability on a death estate?
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.
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%
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
86
The residence nil rate band is tapered by £1 for every £2 by which the estate's net value exceeds £2 million
87
Which reliefs are available against the death estate?
1. Business relief
2. Reduced rate for substantial charity gifts
3. Quick succession relief
88
When is the lifetime IHT due for a CLT?
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
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
90
As a general rule, on what is an asset's probate value based?
Its market value on the date of the decedent's death
91
Are Personal Representatives entitled to claim any annual exempt amount against the estate's capital gains?
Yes, for the year of death and the following two years only
92
What tax rates apply to capital gains made on estate assets during the administration of the estate?
20% on general gains and 28% on residential property
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
94
Car sales are exempt from CGT
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.
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
97
Business Asset Disposal Relief is available on qualifying gains of up to £1 million.
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
99
Chargeable disposals that qualify for Gift Relief
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
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
101
An individual entitled to exempt £12,300 capital gains annually
102
How many years may capital losses be carried forward?
Indefinitely, until they can be used to offset capital gains
103
Corporation tax rate = 19%
104
If a company's profits do not exceed £1.5 million, what is the deadline for a company to pay its corporation tax?
Nine months and a day after the end of its accounting year
105
A close company is a company which is resident in the UK and is controlled by
Five or fewer participators (shareholders)
Any number of directors who are also shareholders
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
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
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
109
If a VAT invoice is issued within 14 days after the basic tax point, the invoice date becomes the new tax point
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
111
A VAT registered business has submitted consistently late VAT returns. What is the maximum penalty that HMRC could impose?
15%
112
Stamp Duty Land Tax (SDLT) is charged on the VAT-inclusive amount of the consideration in land transactions
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
114
Land transactions that are exempt from SDLT
Transfer of a property on divorce
Gift of land to the donor's child
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?
£200
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.
117
The annual exemption against capital gains available to companies.
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.
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.
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.
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.
122
Transfer of value for inheritance tax purposes is the loss to the donor
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
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
125
An estate can be excepted if specified transfers do not exceed £150,000 in the seven years before the deceased's death
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.
127
An IHT account must be delivered to HMRC within 12 months from the end of the month of the deceased's death.
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.
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
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.
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
132
Revenue expenses which merely maintain and repair the asset are not deductible. However, any purchase costs and costs of improvement can be deducted
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.
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
