Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

SQE - FLK1 > Taxation > Flashcards

Taxation Flashcards

1
Q

When does an individual pay Welsh income tax?

A

When that person lives in Wales for longer than anyone else in the UK during a tax year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

When does the tax year for individuals run?

A

6 April to 5 April the following year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What income tax filings must an employee perform in respect of their salary?

A

None. Income tax (and national insurance) for salaried employees are deducted at source through the pay as you earn system.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

4 important differences in income tax admin for self-employed individuals?

A
  1. Need to register for self-assessment
  2. File their own returns with HMRC within six months of the relevant tax year
  3. Some additional expenses can be deducted (e.g. utility costs when WFH, interest on qualifying loans, other expenses solely for purposes of the business)
  4. Pay self-assessment tax in two equal instalments (January and July)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Option for self-employed individuals who do not know how to file tax returns?

A

If it has sufficient information, HMRC can perform simple assessment without taxpayer having to complete tax assessment return, with taxpayers having 60 days to dispute the assessment amount if they wish.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Personal allowance for 2023-2025?

A

12,570 GBP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are the two grades of personal savings allowance?

A

Basic rate - 1,000 GBP tax-free

Higher-rate - 500 GBP tax-free

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

When does income tax for savings interest kick in?

A

When interest exceeds 5,000 GBP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the tax-free dividend allowances for 2023-2024 and 2024-2025?

A

1,000 GBP for 2023-2024

500 GBP for 2024-2025

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are the two incentives to donate through Giftaid? Threshold?

A
  1. Income tax paid on the donated amount will be returned by HMRC to the charity
  2. Charities can claim 25p for every 1 GBP given by the taxpayer

Donation must be less than four times what the taxpayer paid in either IT or CGT in that tax year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the most tax-efficient investment option for an individual?

A

Invest through an Individual Savings Account.

No income tax payable on dividends or income, and no CGT on capital gain from selling an investment held in an ISA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How is a partnership taxed on profits? What about a partner’s salary?

A

Each partner taxed as a sole trader on his share of partnership’s profits or losses.

Any payment made by the partnership to a partner is a distribution of trading profits, including salary, and taxable accordingly. Nb: therefore, salary to a partner is not a deductible expense

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Two examples where payments to a partner constitute a deductible expense?

A
  1. Interest on loan made by the partner to the partnership
  2. Rent paid to the partner for use of their assets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When is the tax return deadline for a partnership?

A

31 January after the end of the tax year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

3 step process for income tax calculation?

A
  1. Calculate total adjusted net income
  2. Deduct reliefs and personal allowances
  3. Apply income tax rates for different income types
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Important limit for individuals seeking to claim income tax reliefs / allowances?

A

If the reliefs exceed 50,000 GBP, the individuals are restricted to the greater of: (i) 25% of their income for the year in question or (ii) 50,000 GBP

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the tax rates payable by a corporation with profit of 250,001 GBP?

A

25% on the whole profit. This is the main rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the tax rates payable by a corporation with profit of 250,000 GBP?

A

19% small rate on the first 50,000
26.5% tapered rate on the second 50,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Deadline for corporation tax for small and large companies?

A

Small companies pay 9 months after the tax year ends.

Large companies pay corporation tax on a quarterly basis.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the test for deductible expenses when computing corporation tax? Exception?

A

Whether expenses are wholly and exclusively incurred in the course of business.

Exception: payments to charity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When are capital allowances deductible from corporation tax (2 criteria)?

A
  1. Specific item(s) purchased by the business
  2. Annual writing down expenditure can be applied to that item to reduce taxable profits (e.g. 20%/year for plants and machinery)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Explain the concept of trading loss relief (3 points).

A
  1. Company makes a loss from trading, disposal of a capital asset, or property income
  2. Company offsets loss against other gains or profits of the business in that accounting period
  3. If not utilised in that year, can be set off against all profits in the preceding 12-month period OR income of future years
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the maximum carried forward loss offset for companies? What about the time limit?

A

5 million plus 50% of profits

Carrying forward is not limited in time.

24
Q

3 points about carried forward capital loss offset?

A
  1. Can be carried forward indefinitely to set off against chargeable gains from current or future accounting period
  2. Limited to 5 million GBP plus 50% of gains in excess of that amount
  3. Cannot be carried back against gains from earlier years
25
Q

What is roll-over relief? What are the 2 criteria?

A

Where a business property is sold and a new property acquired with the proceeds, no chargeable gain will immediately arise.

  1. Both the asset disposed and the new assets are used in the trade
  2. New asset must be purchased 1-3 years after the date of disposal (subject to extension by HMRC in exceptional circumstances)
26
Q

What is incorporation relief? What are the 2 criteria?

A

Occurs where a business is transferred to a company in exchange for shares, delaying chargeable taxable gains at the time of the transfer until the SHARES are sold or disposed of.

  1. Sole trader or business partnership
  2. ALL business assets, excluding cash, are transferred in consideration for shares in the acquiring company
27
Q

What is group relief against corporation tax? What are the two ways to qualify?

A

Where one group company surrenders losses to another group company to be deducted against the second company’s profits.

  1. One company is a 75% or greater subsidiary of the other OR
  2. Both companies are at least 75% subsidiaries of a third company
28
Q

An Italian-incorporated company earns annual revenues of 15 million GBP entirely based on selling Italian footwear to British customers. What kind of tax does it pay on the UK revenue?

A

Diverted Profits Tax of 25%.

This is payable by large foreign companies with annual revenues of more than 10 million GBP from supplying goods or services to persons in the UK, even i the company has no permanent establishment in the UK.

29
Q

6 steps to calculate corporation tax?

A
  1. Calculate net trading profits
  2. Add chargeable gains
  3. Calculate taxable profits post-deductions and reliefs
  4. Apply corporation tax to derive gross corporation tax
  5. Apply tax credits
  6. Pay corporation tax (due 9 months + 1 day after end of accounting period)
30
Q

What is the current UK VAT rate?

A

20%

31
Q

How long can a trader backdate claims for VAT prior to VAT registration?

A
  1. Up to four years for goods
  2. Up to six months for services
32
Q

3 requirements for VAT to be chargeable?

A
  1. Taxable person (carrying on economic activity)
  2. Taxable supply (goods and services are solr or leased)
  3. In the course of any business carried on in the UK
33
Q

2-stage test to determine whether a transaction amounts to economic activity for VAT purposes?

A
  1. CONSIDERATION provided by consumer in return for the supply
  2. Supply is made for REMUNERATION (i.e., for income on a continuing basis)
34
Q

What is the difference between output and input VAT? Why must a business track both?

A

Output VAT is charged on sales of goods and services by the business.

Input VAT is charged on goods and services purchased for and by the business.

Output VAT must be offset against input VAT-if the entity pays more tax than it collects, it can get a rebate.

35
Q

When is VAT due for an entity? Bonus?

A

One month after the end of the VAT period (usually quarterly).

Can add 7 extra calendar days by paying electronically.

36
Q

What are the three VAT rates?

A

Standard - 20%

Reduced - 5%

Zero - 0%

37
Q

What is the definition of a “tax point”?

A

Date when the transaction takes place for VAT purposes

38
Q

When does the “actual tax point” occur earlier than the basic tax point?

A

When a VAT invoice is raised OR payment is made before the performance or completion of a service or provision of the goods.

39
Q

When does the actual tax point occur after the basic tax point? What is the 14 day rule?

A

When an invoice is issued only AFTER the basic tax point.

The 14 day rule allows you to issue a VAT invoice within 14 days of the basic tax point (otherwise the basic tax point, i.e. the date of physical supply, will govern)

40
Q

When is the tax point determined where a trader receives a deposit or part payment for a good or service? One caveat?

A

The transaction will have two tax points: (1) when the deposit/part-payment is first received and (2) when the balanced is paid.

If the invoice for the whole sum is issued before any payment is made, then that is the actual tax point.

41
Q

What is the threshold for VAT registration (2 tests)?

A
  1. Where the turnover of the entity’s taxable supplies within the UK for the previous 12 months exceeds 90,000 GBP
  2. Where the trader has reasonable grounds for believing that the value of their taxable supply will exceed that figure in the next 30 days alone
42
Q

What is the threshold to de-register from VAT?

A

Make supplies of below 88,000 GBP per annum.

43
Q

What is the nil-rate band for inheritance tax purposes?

A

Where the value of the estate and chargeable transfers does not exceed 325,000 GBP

44
Q

What is the criteria for business property relief?

A

Transferor owned the relevant property for AT LEAST TWO YEARS immediately prior to the transfer.

45
Q

When is 100% business property relief available?

A

Where:
1. Person died after 6 April 1996 AND
2. Property consists of (i) an interest in a business OR (ii) any unquoted shares in a company

46
Q

What 2 kinds of property qualify for 50% business property relief?

A
  1. Quoted shares and securities in a company controlled by the transferor immediately before transfer
  2. Land, buildings and equipment belonging to the transferor which, immediately before the transfer, were used for a business controlled by the transferor
47
Q

When is the date of disposal for CGT purposes?

A

The date on which the transferor becomes legally bound to transfer the asset

48
Q

What are 3 examples of deductible expenditure for capital gains tax?

A
  1. Initial expenditure -stamp duty, legal fees
  2. Subsequent capital expenditure - e.g. costs of an extension
  3. Costs of disposal (advertising)
49
Q

Deadline for reporting and paying CGT on sale of residential property? 2 notable exemptions?

A

60 days

Exemption: principal dwellings and grounds of up to half a hectate

50
Q

What is the annual exemption for CGT in 2023-2024 and 2024-2025? What is the maximum carry forward for unused allowance?

A

6,000 GBP in 2023-2024

3,000 in 2024-2025

Allowance cannot be carried forward

51
Q

When does investor’s CGT relief apply? What is the extent of the relief

A

When individual shareholders that are not involved in the business dispose ordinary shares of unlisted companies.

10% tax rate on gains with a lifetime limit of 10 million GBP

52
Q

What is the 3 stage test for determining the applicability of the General Anti-Abuse Rule?

A
  1. Is there an arrangement giving rise to a TAX ADVANTAGE?
  2. Does the tax advantage concern a REGULATED TAX?
  3. Is the tax arrangement ABUSIVE?
53
Q

What is the test for abuse under the GAAR? Who bears the burden of proof?

A

If the tax arrangement cannot reasonably be regarded as a REASONABLE COURSE OF ACTION in relation to the relevant tax provision, in all the circumstances.

HMRC bears the burden of proof.

54
Q

What is the penalty for a finding of abuse under the GAAR? Can it be avoided?

A

60% of the counteracted tax.

Can be avoided by taking action to fully counteract the abusive tax advantage (e.g., amend tax return or enter into arrangement with HMRC).

55
Q

What are the components of the offence of fraudulently evading income tax?

A
  1. Knowledge or wilful blindness (rather than mere suspicion)
  2. Actual involvement in the fraudulent act
56
Q

When is the offence of evading CGT committed (2 elements)?

A
  1. LOSS accrues to a person DIRECTLY OR INDIRECTLY
  2. As a consequence of arrangements where the main PURPOSE is to secure a TAX ADVANTAGE
57
Q
A

SQE - FLK1 (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions