Taxation Topic 2 - Income Tax Flashcards
What is the UK tax system used to do
raise revenue, control inflation and encourage savings
What is published every year following the budget
A finance bill
What is a finance bill
publication stating the new taxation proposals made in the budget, once passed by parliament it can receive royal assent (where monarchy accepts the implication of this bill) and only then will become a finance act
Usually, how often are finance acts published
Every year
What are the 5 main sources of income
- Employment
- Trading (self-employment)
- Pension
- Income from property
- Income from savings and investments (dividends included)
Married couples can transfer 10% of their personal allowance for income tax as long as…
the recipient is not in the higher or additional tax band.
What happens to your personal allowance when you earn above £100k a year
Personal allowance is deducted by £1 for every £2 earned, , so anyone earning £125,140 or above (assuming the personal allowance is £12,570) will have no personal allowance left and will be taxed on all of their income.
What is the amount for Blind person’s allowance and can it be transferred
Yes it can be transferred, and the allowance is £2600 on top of your personal allowance
What 3 main deductions can be made to somebody’s gross salary before tax is calculated
- Pension contributions
- Charitable donations
- Allowable expenses (self-employed tax relief etc.)
If income tax rates are changed, what will this be shown in
The finance act
With Scottish income tax, what can the Scottish parliament control
Rates and bands for income, but the rates and bands do not apply to savings or dividends
What control does the welsh gov. have over their income tax
The UK gov. deducted 10p from the income tax rate paid by the Welsh, and the Welsh gov. can then decide how much to top it up by.
What are the personal savings allowance brackets
£1k for basic rate taxpayers and £500 for higher-rate payers, additional receive no allowance.
What is the starting rate band and hwo much is it
A starting rate band is also applied to anyone earning under the personal allowance band (£12,570) and this current starting rate is £5k.
What happens to your starting band if you begin to earn more than the personal allowance
for every £1 over the personal allowance, £1 is taken off the starting rate band.
What is the current dividend allowance
£2k
What are the tax implications when withdrawing funds from a life policy
The policy will satisfy a basic rate tax, so upon withdrawal if you only pay basic rate tax, you owe nothing. If you pay higher or additional, you have to pay the difference
What are some of the main types of income that are not taxable
- Redundancy payments up to £30k (anything over this can be taxed)
- Interest on National savings certificates
- Income from investments held in ISAs
- Proceeds of a qualifying life policy
- Lottery winnings
Company cars are taxable based on the cars what
CO2 emission rating and is equal to a percentage of the car’s list price.
Main examples of non-cash benefits
- Readily convertible assets – company shares
- Vouchers, credit cards and other forms of credit
- Non-cash vouchers – for recreational facilities (spa etc.)
- Providing housing and basic living costs for employees
- Private medical insurance
- Loans made to employees for beneficial rates of interest
Under what value are employees taxed for non-cash benefits
‘Annual value’
What is the annual value when talking about non-cash benefits
Annual value’ is 20% of the market value of the asset when the employer bought it, or if the asset is rented and the rent is over 20% of the market value, the employee is charged on the total rent.
When employees receive in-house benefits, what does HMRC generally accept as a “benefit with a marginal cost to the employer”
- At least wholesale price is paid, no taxable benefit
- Professional services that require no additional employees or partners mean the employee will only pay any disbursements
The 2 legislations including the tax rules on different types of income
Income tax (earning and pensions) Act 2003 covers income from employment, pensions and taxable social security benefits.
Income tax (trading and other income) Act 2005 covers trading income (self-employment), property rental trades income and savings and investment (dividends and interest included)
What system to HMRC use that collects tax automatically for the employed
Pay As You Earn (PAYE)
What regime plans to take tax from other types of income in the future
Making Tax Digital regime
When calculating someone’s tax liability, it is dealt with in a strict order of income types, what is the order
- Earned and pension
- Rental, savings then finally dividends
- Gains under life policies after everything
Who are Class 1 NICs paid by
paid by employees earning between the primary threshold and upper earnings limit (reduced level paid above upper limit). Also paid by employers on employees’ earnings above a lower limit called secondary threshold (no upper limit). Employers do not pay NICs for employees who are ages under 21 or under 25 for apprentices.
Who are Class 2 NICs paid by
flat-rate contributions at specified rate per week for self-employed if there annual earnings are above the small profits threshold.
Who are class 3 NICs paid by
voluntary contributions to people who would not otherwise receive state benefits (career break etc.)
Who are Class 4 NICs paid by
additional contributions paid by self-employed on their annual profits – similar to Class 1 they are paid between lower and upper limit with contributions above upper limit at a reduced rate.
What is entailed in a P60 form and when do you get it
A P60 form is given out every year, detailing how much tax was taken, NICs and final tax code
What is a P45, when is it given to you and what must it contain
A P45 should be given to the employee upon leaving the firm, and it should detail:
- Name
- District reference
- Code number
- Week or month of last entries
- Total gross pay to date
- Total tax due to date
