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Company and Partnership Practice > Taxes > Flashcards

Taxes Flashcards

1
Q

Three potentially taxable forms of income

A
  • Trading profits
  • Dividends
  • Salary
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2
Q

On what basis is an individual’s tax liability calculated?

A

On the basis of an income which accrues to that person in the course of income tax year

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3
Q

What do the self employed pay income tax on?

A

Their trading profits

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4
Q

Statutory income

A

Aggregate of individual’s income from trading profits, dividends and salary

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5
Q

When does the tax year run from/to?

A

6 April to the following 5 April

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6
Q

Under s33 IT(TOI)A 2005, to be allowed as a deduction against trading receipts under Part 2 IT(TOI)A 2005, expenditure must: (3)

A
  • be of an income, not of a capital, nature
  • be incurred wholly and exclusively for the purposes of the trade
  • not be expressly disallowed by s33A IT(TOI)A 2005
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7
Q

How are benefits in kind taxed?

A

As if the employee received as income a sum equal to the cost incurred by the employer in providing the benefit

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8
Q

What’s the position on loans and taxes?

A

When the rate of the employer-employee loan is lower than the official rate, the difference between the amount of interest payable under the given loan and what would have been paid at the official rate is treated as taxable income, unless it’s less than 10k a year, in which case it doesn’t arise

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9
Q

Deductible expenses

A

Expenses incurred by an employee which he incurred because he was obliged to incur and pay it and incurred them wholly, exclusively and necessarily for the performance of his duties

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10
Q

How is an employee’s statutory income calculated?

A

Salary + benefits in kind - deductible expenses

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11
Q

Trading loss relief forms (6)

A
  • set off against other income in the same tax year
  • carry back to set off against income in the preceding tax year
  • carry forward loss relief
  • early years trading loss relief
  • terminal loss relief
  • loss relief on incorporation of business
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12
Q

What does set off against other income in the same tax year allow the taxpayer to do?

A

Deduct the trading loss incurred in the tax year from his other income, if any, including capital profits, arising from any source in the same tax year

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13
Q

What is the condition for claiming set off relief in the preceding tax year?

A

That the taxpayer carried on the trade in which the loss arose in the preceding tax year

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14
Q

Carry forward loss relief

A

A trading loss may be carried forward indefinitely into the future and set off against the trading profits of the same trade as and when further trading profits are made

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15
Q

Early years trading loss relief

A

A trader who makes a trading loss in the first 4 years of carrying on a business may set off such a loss against any income from any source preceding the tax year in which the loss was incurred (e.g. salary)

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16
Q

Terminal loss relief

A

A trading loss incurred in the last year of a trade can be set off against income arising from the same trade in the three preceding tax years

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17
Q

Loss relief on the incorporation of business

A

On incorporation, it will be impossible to carry forward the trading losses but the partners will be able to set them off against their future IT(EP)A 2003 and IT(TOI)A 2005 income

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18
Q

When is the loss relief on the incorporation of business available?

A

When at least 80% of the value of the consideration given by the company has been paid in the form of shares issued to the transferors

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19
Q

Personal allowance for 17/18

A

£11,500

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20
Q

Personal allowance for 18/19

A

£11,850

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21
Q

Tax-free dividend allowance

A

£2,000

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22
Q

Annual allowances of £1,000 are for…

A

Property and trading income

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23
Q

Rates for NSNDI

A

Basic 20% - 0-34,500
Higher 40% - 34,501-150,000
Additional 45% - 150,001 and over

24
Q

Copeman v William Flood and Sons Ltd 1941

A

Directors’ remuneration must be deductible as a business expense in order to reduce the profits but it will be deductible only to the extent that it is reasonable, unlikely to be treated as unreasonably excessive if paid to a full time working director

25
Q

When does a person/entity become taxable?

A

When the total value of taxable supplies made in any 12-month period exceeds £85,000

26
Q

A transfer of shares attracts stamp duty at the rate of…

A

50p for every £100 of the consideration of value

27
Q

Capital taxes

A

Taxes which arise on the disposal of assets and on the value of assets which are transferred

28
Q

Who is CGT levied on?

A

A chargeable person who makes a chargeable disposal of a chargeable asset

29
Q

What is the correct approach to reducing CGT liability?

A

Calculate the basic gain, reduce it as far as possible by claiming reliefs that have such an effect and then seek to defer payment of any tax by claiming further reliefs which have that effect

30
Q

Exemptions which reduce the basic gain (5)

A
  • loss relief
  • entrepreneur’s relief
  • investor’s relief
  • the annual exemption
  • substantial shareholding exemption
31
Q

CGT loss relief

A

If a taxpayer disposes of a chargeable asset and makes a capital loss, that loss may be offset against other chargeable gains made in the same tax tear

32
Q

If it’s not possible to relieve a capital loss in full by use of this relief, the balance of the loss can be…

A

Carried forward indefinitely into the future until it can be offset against a chargeable gain

33
Q

Entrepreneur’s relief

A

Available on a disposal of shares or securities in a trading company, or the holding company of a trading group, where throughout the period of one year ending on the date of disposal the person making it is an officer/employee of a company with 5% of shareholding, first 10m of lifetime gains will be taxed at 10%

34
Q

Annual exemption for CGT 2018/19

A

£11,700

35
Q

Substantial shareholding exemption

A

Applies to companies, gains made by a company disposing of shares it holds in another company will be exempt from corpo tax if both companies are trading and the company which makes the disposal must have owned at least 10% of the ordinary shares in the other company for a continuous period of 12 months in the 2 years before disposal is made

36
Q

Reliefs which operate to defer payment of CGT (4)

A
  • gifts and sales at an undervalue
  • roll-over relief on replacement of business assets
  • roll-over relief on the incorporation of a business
  • deferral relief on investment in shares
37
Q

Gifts and sales at an undervalue relief

A

An individual who makes a gift of an asset or sells it for a consideration which is less than its actual value makes a disposal for CGT purposes and will be taxed on the basis of the asset’s market value but the gain can be held over, i.e. passed on to the donee who will pay the CGT on the donor’s gain when he comes to dispose of the asset

38
Q

Roll-over relief on replacement of business assets

A

If this relief is claimed, no CGT due on the disposal of the asset to be replaced but the gain which accrues up to the date of disposal is rolled over into the replacement asset, can be rolled over indefinitely

39
Q

What assets is the CGT roll-over relief on replacement of business assets available in respect of?

A

Assets used wholly for the purposes of a trade, including buildings, land, fixed plant and machinery and goodwill

40
Q

Roll-over relief on the incorporation

A

Can only be claimed if the consideration given by the company in return for the transfer is wholly or partly in form of shares, the acquisition cost of which is reduced by the amount of the gain rolled over on the disposal of the business to the company

41
Q

Deferral relief on reinvestment of shares

A

An individual who invests in ordinary shares in an unquoted trading company by subscription for cash is entitled to defer payment in CGT on any gain that accrues to him on an asset which he disposes of in order to acquire those shares

42
Q

An individual who retains ownership of shares acquired under the EIS for a period exceeding three years will not…

A

Be charged CGT on any gain which accrues on those shares

43
Q

EIS

A

Enterprise Investment Scheme

44
Q

On disposal of any asset by a partnership, the chargeable gain or loss which accrues…

A

Will be assessed and charged on the members of the partnership separately

45
Q

How is the capital gain divided between the partners?

A

In their capital profit-sharing ratio

46
Q

Annual exemption for inheritance tax

A

In each tax year, an individual is entitled to make transfers of a combined value of up to 3k which will be exempt, able to be carried forward to next year (only)

47
Q

Small gift exemption for inheritance tax

A

Any gift with a value of £250 or less will be exempt

48
Q

Rates of inheritance tax

A

First £325,000 NIL, then balance at 40%

49
Q

Corporation tax

A

Tax charged on the income profits and capital gains of companies

50
Q

Rate of corpo tax

A

19%

51
Q

What can trading losses be set against for corpo tax?

A

Income and gains for the same accounting period or of the preceding accounting period provided that the company was trading through that period

52
Q

Trading losses in the last 12 months of trading may be… (corpo tax)

A

Carried back against trading profits of the preceding three years in the same trade, taking later years before earlier years

53
Q

Capital losses may be… (corpo tax)

A

Carried forward against chargeable gains only if not relieved against capital gains of the same accounting period

54
Q

If shareholders are given a choice between receiving a cash dividend or bonus shares in lieu…

A

Those shareholders who opt for bonus shares are taxed on the amount of the dividend they would’ve received as if it were a distribution

55
Q

If a loan is made by a close company to one of its participators…

A

A special levy is made and the company must pay HMRC a sum equal to 32.5% of the loan, if it’s prepaid HMRC repays the charge but if it’s written off, there are consequences for the participator - treated as a dividend

56
Q

Loans to whom are exempt from the loan levy?

A

Participators who hold less than 5% of the shares and are full time employees

57
Q

W T Ramsey v IRC 1981, Furniss v Dawson 1984

A

A transaction made simply to avoid tax may not achieve its objective if it forms part of a series of associated operations designed merely for that purpose

Company and Partnership Practice (20 decks)

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