Taxation Flashcards
What is a receipt?
Money paid to business
What is an expense?
Money paid out of business
Why is it important to have a distinction between income expenditure/receipt and capital expenditure/receipt?
Income expenditure can only be deducted from income receipt and vice versa
Which taxes are direct?
Income tax
CGT
Corporation tax
Which taxes are indirect?
VAT
What are direct taxes?
imposed by reference to taxpayer’s circumstances
What are indirect taxes?
imposed by reference to transactions
What is an income receipt?
Money received on a regular basis
What is a capital receipt?
One off transactions
What is income expenditure?
Money spent in day to day trading
What is capital expenditure?
one off transactions (purchasing capital asset/enhancing capital asset)
What do capital allowances enable?
Certain capital expenditure to be deducted from income receipts
What year are individuals assessed for income/CGT?
tax year - 06.04-05.04
What year are companies assessed for corporation tax?
Financial year - 01.04-31.03
What is an example of tax being deducted at the source?
PAYE system
What are the two methods that HMRC assesses and collects income tax?
- self assessment
- deduction at source
What are the steps for assessing income tax?
- calculate total income
- deduct tax reliefs (net income)
- deduct personal allowances (taxable income)
- split into non-savings, savings and dividends
- PSA
- Apply tax rates
- Add up amounts of tax
What is the personal savings allowance for basic/higher rate taxpayers? (income tax)
basic - first £1000
higher - first £500
What is the dividends allowance for income tax?
first £1000
Are benefits in kind generally subject to deduction of tax under PAYE?
no
What are the tax reliefs for income tax?
Interest paid out on qualifying loans
Pension scheme contributions
What are examples of qualifying loans for income tax relief?
- buy interest in partnership
- contribute capital/make loan to partnership
- buy shares/make loan to close company
- buy shares in employee controlled company/co-operative
What is the 23/24 personal allowance for income tax?
12,570
How is personal allowance reduced for income tax?
by £1 for every £2 over £100,000
What is CGT charged on?
- Chargeable disposal
- Of a chargeable asset
- By a chargeable person
- Which gives rise to a chargeable gain
What are chargeable disposals?
- Sale of an asset
- Gift of an asset during taxpayer’s lifetime
What assets are not chargeable assets?
- Principal private residence
- Motor cars for private use
- Certain investments
- UK sterling + foreign currency
What chargeable gains are exempt?
Charities
What is the consideration where disposal is made at arms length?
Price paid by buyer
What is the consideration where disposal is made to a connected person?
Market value
What is the consideration where disposal is undervalued?
Market value
What is the consideration where disposal is a gift?
Market value
What are the allowable expenditures?
- Initial expenditure
- Subsequent expenditure
- Disposal expenditure
What is included in subsequent expenditure?
Enhances its value
Establishing, preserving or defending title to the asset
What can be set off against capital gains?
capital losses
What happens if the capital losses are more than the capital gains for a tax year?
set against future tax years until used up
What is the current annual exemption?
£6000
Who does not have annual exemptions?
Companies
What is the CGT rate for basic rate taxpayers?
10%
What is the CGT rate for higher rate taxpayers?
20%
What is the effect of Business Asset disposal relief?
Reduces higher rate of CGT to 10%
What are the qualifying assets for business asset disposal relief?
- All or part of a trading business
- Assets in business that used to trade
- Shares in trading company
- Shares in a company that used to trade
What are the requirements for BADR for disposal of all or part of a trading business?
owned for at least 2 years prior
What are the requirements for BADR for disposal of assets in a business that used to trade?
o Owned for 2 years prior
o Used in the business when it ceased to trade
o Disposed of within 3 years of ceasing to trade
What are the requirements for BADR for disposal of shares in a trading company?
o Business is and has been for 2 years a trading company
o Shares held for 2 years
o Officer or employee of the company who holds at least 5% of ordinary voting shares, entitled to 5% of profits and net assets on winding up for at least 2 years
What are the requirements for BADR for disposal of shares in a company that used to trade?
o Owned for 2 years before ceased to trade
o Officer or employee of the company who holds at least 5% of ordinary voting shares, entitled to 5% of profits and net assets on winding up for at least 2 years
o Disposed of within 3 years of ceasing to trade
What is the business asset disposal relief lifetime allowance?
£1 million
What is the effect of investors relief?
reduces higher rate to 10%
What is the lifetime limit for investors relief?
£10 million
What are qualifying shares for investors relief?
- Fully paid ordinary shares issued for cash consideration
- Trading company/holding company of trading company
- At time of issue, no shares listed on stock exchange
- Held for 3 years (from 04.16)
- Not an officer/employee
What are the two types of business relief?
- Replacement of business assets relief (rollover relief)
- Gift of business assets relief (hold-over relief)
What is Replacement of business assets relief?
Taxpayer can postpone CGT on sale of asset by rolling over the gain into a qualifying replacement asset
what does rollover relief apply to?
land and buildings
fixed plant and machinery
goodwill
What is qualifying property for business property relief (IHT)?
- A business or interest in a business
- Shares in an unquoted company;
- Shares in a quoted company
- Land or buildings, machinery or plant owned by transferor but used for business purposes by either a company of which the transferor has control, or a partnership of which the transferor was a partner.
What is the requirement for BPR?
owned asset for 2 years prior to transfer
Which assets does BPR at 100% apply?
- Transfer of a business or interest in business
- Transfer of shares in unquoted company
Which assets does BPR at 50% apply?
- Transfer of shares in quoted company (if shareholder had control of company)
- Land and buildings etc.
