Taxation

Question 1

What is a receipt?

Answer 1

Money paid to business

Question 2

What is an expense?

Answer 2

Money paid out of business

Question 3

Why is it important to have a distinction between income expenditure/receipt and capital expenditure/receipt?

Answer 3

Income expenditure can only be deducted from income receipt and vice versa

Question 4

Which taxes are direct?

Answer 4

Income tax
CGT
Corporation tax

Question 5

Which taxes are indirect?

Answer 5

VAT

Question 6

What are direct taxes?

Answer 6

imposed by reference to taxpayer’s circumstances

Question 7

What are indirect taxes?

Answer 7

imposed by reference to transactions

Question 8

What is an income receipt?

Answer 8

Money received on a regular basis

Question 9

What is a capital receipt?

Answer 9

One off transactions

Question 10

What is income expenditure?

Answer 10

Money spent in day to day trading

Question 11

What is capital expenditure?

Answer 11

one off transactions (purchasing capital asset/enhancing capital asset)

Question 12

What do capital allowances enable?

Answer 12

Certain capital expenditure to be deducted from income receipts

Question 13

What year are individuals assessed for income/CGT?

Answer 13

tax year - 06.04-05.04

Question 14

What year are companies assessed for corporation tax?

Answer 14

Financial year - 01.04-31.03

Question 15

What is an example of tax being deducted at the source?

Answer 15

PAYE system

Question 16

What are the two methods that HMRC assesses and collects income tax?

Answer 16

• self assessment
• deduction at source

Question 17

What are the steps for assessing income tax?

Answer 17

1. calculate total income
2. deduct tax reliefs (net income)
3. deduct personal allowances (taxable income)
4. split into non-savings, savings and dividends
5. PSA
6. Apply tax rates
7. Add up amounts of tax

Question 18

What is the personal savings allowance for basic/higher rate taxpayers? (income tax)

Answer 18

basic - first £1000
higher - first £500

Question 19

What is the dividends allowance for income tax?

Answer 19

first £1000

Question 20

Are benefits in kind generally subject to deduction of tax under PAYE?

Answer 20

no

Question 21

What are the tax reliefs for income tax?

Answer 21

Interest paid out on qualifying loans
Pension scheme contributions

Question 22

What are examples of qualifying loans for income tax relief?

Answer 22

• 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

Question 23

What is the 23/24 personal allowance for income tax?

Answer 23

12,570

Question 24

How is personal allowance reduced for income tax?

Answer 24

by £1 for every £2 over £100,000

Question 25

What is CGT charged on?

Answer 25

* Chargeable disposal * Of a chargeable asset * By a chargeable person * Which gives rise to a chargeable gain

Question 26

What are chargeable disposals?

Answer 26

* Sale of an asset * Gift of an asset during taxpayer’s lifetime

Question 27

What assets are not chargeable assets?

Answer 27

* Principal private residence * Motor cars for private use * Certain investments * UK sterling + foreign currency

Question 28

What chargeable gains are exempt?

Answer 28

Charities

Question 29

What is the consideration where disposal is made at arms length?

Answer 29

Price paid by buyer

Question 30

What is the consideration where disposal is made to a connected person?

Answer 30

Market value

Question 31

What is the consideration where disposal is undervalued?

Answer 31

Market value

Question 32

What is the consideration where disposal is a gift?

Answer 32

Market value

Question 33

What are the allowable expenditures?

Answer 33

* Initial expenditure * Subsequent expenditure * Disposal expenditure

Question 34

What is included in subsequent expenditure?

Answer 34

Enhances its value Establishing, preserving or defending title to the asset

Question 35

What can be set off against capital gains?

Answer 35

capital losses

Question 36

What happens if the capital losses are more than the capital gains for a tax year?

Answer 36

set against future tax years until used up

Question 37

What is the current annual exemption?

Answer 37

£6000

Question 38

Who does not have annual exemptions?

Answer 38

Companies

Question 39

What is the CGT rate for basic rate taxpayers?

Answer 39

10%

Question 40

What is the CGT rate for higher rate taxpayers?

Answer 40

20%

Question 41

What is the effect of Business Asset disposal relief?

Answer 41

Reduces higher rate of CGT to 10%

Question 42

What are the qualifying assets for business asset disposal relief?

Answer 42

* 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

Question 43

What are the requirements for BADR for disposal of all or part of a trading business?

Answer 43

owned for at least 2 years prior

Question 44

What are the requirements for BADR for disposal of assets in a business that used to trade?

Answer 44

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

Question 45

What are the requirements for BADR for disposal of shares in a trading company?

Answer 45

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

Question 46

What are the requirements for BADR for disposal of shares in a company that used to trade?

Answer 46

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

Question 47

What is the business asset disposal relief lifetime allowance?

Answer 47

£1 million

Question 48

What is the effect of investors relief?

Answer 48

reduces higher rate to 10%

Question 49

What is the lifetime limit for investors relief?

Answer 49

£10 million

Question 50

What are qualifying shares for investors relief?

Answer 50

* 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

Question 51

What are the two types of business relief?

Answer 51

* Replacement of business assets relief (rollover relief) * Gift of business assets relief (hold-over relief)

Question 52

What is Replacement of business assets relief?

Answer 52

Taxpayer can postpone CGT on sale of asset by rolling over the gain into a qualifying replacement asset

Question 53

what does rollover relief apply to?

Answer 53

land and buildings fixed plant and machinery goodwill

Question 54

What is qualifying property for business property relief (IHT)?

Answer 54

* 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.

Question 55

What is the requirement for BPR?

Answer 55

owned asset for 2 years prior to transfer

Question 56

Which assets does BPR at 100% apply?

Answer 56

* Transfer of a business or interest in business * Transfer of shares in unquoted company

Question 57

Which assets does BPR at 50% apply?

Answer 57

* Transfer of shares in quoted company (if shareholder had control of company) * Land and buildings etc.