TC Income Tax Flashcards
Name the columns for the income tax computation.
Total, Non-Savings Income, Savings Income, Dividend Income.
What are the NSI tax bands?
20/40/45
What are the SI tax bands?
0/20/40/45
What are the DI tax bands?
0/7.5/32.5/38.1
What’s the marriage allowance?
1,250*0.2
How do you calculate DTR?
Low of overseas tax and UK tax.
What do you do with foreign income in the income tax computation?
Gross it up and put at the top of the calculation.
What makes up total income?
Trading income, employment income, overseas income, bank interest, dividends, property income.
What makes up net income?
Total income-gifts of assets to charity and qualifying loan interest
What makes up taxable income?
Net income-Personal allowance
What three deductions do you make after income tax?
Marriage allowance, DTR and Relief for finance costs on residential property income.
What one addition can you make after income tax?
Child benefit tax charge.
What one item do you deduct after calculating Income tax liability?
Tax credits/tax deducted at source.
Name the 5 exempt incomes.
NSC ISA interest/dividends Lottery winnings/betting winnings Premium bond prizes Statutory redundancy pay Scholarships.
Explain who gets 0% savings income and how much they get it on.
BRTP gets 0% on £1000 and HRTP gets )% on £500
Explain SRB on savings income.
For every £1 under £17,500 you get an additional £1 in tax free savings up to £5000.
What are the dividend tax rates?
BRB-7.5%
HRB-32.5%
ARB-38.1%
Name the 4 types of qualifying loan interest-
- To buy P/M for use in partnership/employment.
- To buy interest in a close company/employee controlled company/cooperative.
- To invest in/make loan to a partnership.
- To pay IHT.
How is the personal allowance reduced?
(ANI-£100,000)/2
ANI (USE FOR PA)=
net income-gross GA donations-gross PPS contributions
Explain how you calculate gift aid’s impact on tax bands.
Gross up amount paid by 100/80.
BRTB-no adj
HRTB-extend BR band by gross up.
ARTB-extend BR and HR bands by gross up.
Property income=
Rent received in the year-Allowable expenses paid
When do you begin using the accruals basis for property income?
If receipts exceed £150,000
When are allowable expenses deductible for property income?
For the period that the property is let or available for let.
Are finance costs an allowable expense?
No, they qualify for 20% basic relief at the bottom of the income tax computation.
What is the property allowance?
If rent received is under £1,000 the it’s exempt. If allowable expenses are under £1,000 then it’s beneficial to claim the property allowance.
What is rent-a-room relief?
If rent received is under £7,500 the it’s exempt. If allowable expenses are under £7,500 then it’s beneficial to claim the relief.
How do property losses work?
Net off profits and losses if there is more than one property. A net loss is put in the income tax computation as NIL and rolled forward against future property income only.
Explain how an Occupational Pension Scheme works.
Available to those in employment where employer has an approved scheme. Contributions are made gross. Relief is given by reducing income.
Explain how a Personal Pension Scheme works.
Available to all. Contributions are made net of 20%. Relief- BTRP-received at source, HRTP-extend BRB by gross contribution. ARTP extend BRB and HRB by gross contribution.
How are employer pension contributions treated?
Exempt benefits-in-kind.
What is tax relief available on? (Pensions)
Higher of £3,600 and 100% of relevant earnings.
What are the options for a pension pot on retirement and how are these taxed?
Take up to 25% of the pot tax free. Rest is taken as income and should go under NSI in the computation. If fund exceeds the lifetime allowance there will be extra charges at retirement.
What is the employment income working?
salary/bonus/commisions + taxable BIK - allowable deductions
Is job-related accommodation a chargeable benefit in kind?
No
Is subsidised canteen (available to all staff) a chargeable benefit in kind?
No
Is car parking (at or near place of work) a chargeable benefit in kind?
No
Is insignificant use of computer equipment a chargeable benefit in kind?
No
Are employers pension contributions a chargeable benefit in kind?
No
Are removal and relocation costs (under £8k) a chargeable benefit in kind?
No
Are annual social events (under £150 per head) a chargeable benefit in kind?
No
Are mobile phones (1 per employee) a chargeable benefit in kind?
No
Are bicycles (available to all employees) a chargeable benefit in kind?
No
Is an annual health screening/checkup a chargeable benefit in kind?
No
Are vouchers for goods or services a chargeable benefit in kind?
Yes
How is the benefit of employer provided living accommodation calculated?
Annual charge + expensive charge ([value-£75k]x2.25%)-employee contributions
How is the benefit of a use of an asset calculated?
20% X market value when first provided
How is the benefit of a use of a new gifted asset calculated?
Cost to employer.
How is the benefit of a use of a used gifted asset calculated?
Higher of-
MV when gifted
MV when first provided less previous private use benefits
How is the benefit of a car calculated?
list price X CO2 emissions %
How is fuel benefit of a car calculated?
£24,500 x CO2 emmisions %
How is the benefit of a van calculated?
£3,490 or £2,792 if 0 emissions
How is fuel benefit of a van calculated?
£666
How is benefit of a loan calculated?
loan amount (average/strict method) x 2.25% less interest paid (no benefit if total loans are less than £10k throughout tax year).
What happens if payments received from employer for mileage are under/over the Statutory Mileage Rate Scheme?
Over=taxable
Under=tax deductable
What are the three allowable deductions for employment income?
Occupational pension scheme contributions.
Contributions to a payroll giving scheme.
Professional subscriptions.
What are the three parts of the trading income calculation?
1-tax adjusted profit for the accounting period.
2-Less: Capital allowances for the accounting period.
3-Match to tax year using basis period rules.
How does the cash basis work for capital expenditure?
Capital payments are claimed instead of capital allowances for plant and machinery (except cars).
Name the 5 columns on the capital allowances pro-forma.
Main pool, SRP (Special Rate Pool), PU Asset (Private Use), SLA (Short Life Assets) and Allowances (Total)
What is a short life asset?
Expected to be used for under 8 years.
Describe the order of the rows on the capital allowances pro-forma.
TWDV b/f Additions (AIA) AIA allowance Additions (no AIA) Disposals Total WDA@18% WDA@6% Additions - FYA FYA@100% Total CAs TWDV c/f
What goes in the special rate pool?
Long life assets (>25 years >£100,000 in 12 months), Integral features, thermal insulation, solar panels, cars with CO2 emissions >110 g/km
Do you time apportion FYAs?
No.
Do you time apportion AIA?
Yes, for the accounting period.
What do you use AIA against and which pools?
Purchase of business equipment, firstly the SRP then MP.
What happens if you exceed AIA?
Use WDA.
What are the WDA rates for MP and SRP?
18% and 6%
Do you time apportion WDA?
Yes
What are the three steps to dispose of items from the MP and SRP?
- Deduct lower of proceeds and original cost.
- If a positive balance remains, carry on giving WDA as normal.
- If a negative balance arises, eliminate with balancing charge.
What are the three steps to dispose of items from the PU and SLA pools?
- Deduct lower of proceeds and original cost.
- If a positive balance remains, eliminate with balancing allowance.
- If a negative balance arises, eliminate with balancing charge.
What is the procedure if the MP/SRP TWDV before WDA is less than £1k?
Write down to nil. Remember to time apportion the 1k to the accounting period.
What are the capital allowances in final accounting period?
No WDA/FYA/AIA. Just balancing adjustments.
What is AIA?
ALWAYS £1M
What is the SBA?
3% (2% until 6 April 2020)
What are the three conditions for SBA?
- Can only be claimed from when the asset is brought into use by the business.
- On disposal there is no balancing adjustment. The buyer takes over the remainder of the SBA period receiving the same 3% SBA as the original buyer.
- For CGT purposes, on disposal the proceeds received by the seller are increased by the SBAs claimed to date.
What is a current year basis?
Where you tax the 12 month accounting period ending in the tax year.
What is the basis period in the first year of trading?
Tax from commencement of trade to following 5th April.
If the second tax year POA is exactly 12 months how do you tax it?
Tax THAT 12 month period of account = CYB.
If the second tax year POA is less than 12 months how do you tax it?
Tax first 12 months of trading i.e. from date of commencement.
If the second tax year POA is more than 12 months how do you tax it?
Tax the last 12 months of the POA.
If the second tax year doesn’t have POA ending during it how do you tax it?
Tax the actual tax year (6th April to 5th April)
How do you tax a business when they cease to trade?
Tax everything not yet taxed less overlap profits.
How do you deal with a change of accounting date? (3 steps)
- Tax the profits not yet taxed up to the new accounting date within the tax year
- If this is < 12 months profit, go back to make it up to 12 months (creates overlap).
- If this is >12 months profit, deduct overlap profits from commencement to bring the profits being taxed down to 12 months.
What are the 5 options for loss relief?
- Opening year relief (s72)
- Current year/prior year relief (s64)
- Converted into a capital loss (s261B)
- C/fwd relief (s83)
- TLR (s89)
Explain opening year relief.
- Loss in one of first 4 years of trade.
- Set against total income in the previous 3 tax years (FIFO).
Explain current year/prior year relief.
- Set against total income.
- Current year and/or previous tax year.
Explain converted into capital loss.
- Extension claim of “current year/prior year (s64)” therefor must make s64 claim first.
- Set excess loss against gains.
- Current tax year and/or previous tax year.
Explain c/fwd relief.
-Loss c/fwd against future trading profits from the same trade.
Explain TLR.
-Terminal loss from the last 12 months of trade can be offset against trading profit of the 3 preceding tax years (LIFO)
What is the only restriction for loss relief?
- Any losses set against total income, there is a restriction for relief against non-trading income.
- The limit is the higher of £50,000 and 25% of adjusted total income (total income less GPPC plus payments deducted under payroll giving schemes).
Explain how terminal loss relief works.
- Loss in the last 12 months of trading.
- Carry back for 3 years against trading profits. LIFO basis.
Explain how opening year loss relief works?
- Applies to trade loss that arises in the first four tax years.
- Carry back three years on a FIFO basis against total income.
- Could waste PA.
What are the columns in a partnership calculation?
Partner A, Partner B, Total.
What are the rows in a profit sharing calculation?
- Salary
- Interest on capital
- PSR
- Total
What is a notional loss and how do you deal with it (partnership)?
If overall profit but one partner = loss. Loss making partner = nil profit/nil loss, reallocate loss to other partners.
What is a notional gain and how do you deal with it (partnership)?
If overall loss but one partner = profit. Profit making partner = nil profit/nil loss, reallocate profit to other partners.
When selling shares what are the matching rules?
- Same day
- Next 30 days (FIFO basis)
- s104 pool (Shares aquired prior to date of disposal)
What are NI class 1 primary contributions?
Due by the employee on cash earnings (salary, bonus, commissions and taxable vouchers). 12% over £9.5k and 2% over £50k.
What are NI class 1 secondary contributions?
Due by the employer on cash earnings (salary, bonus, commissions and taxable vouchers). 13.8% over £8,788.
How are employees under 21/apprentices under 25 treated differently for class 1 secondary NICs?
The 13.8% rate only applies above cash earnings of £50k.
What is the employment allowance for NI?
- £4,000 per empolyER.
- Set against class 1 secondary NICs.
- Not available to companies with 1 director and 0 employees and/or businesses which had class 1 secondary NICs liability >£100k in py.
What is class 1A?
Employers pay flat 13.8% on benefits in kind. Allowable deduction from trading income.
What is class 1B?
Employer pays @13.8% of grossed up payments in a PAYE settlement agreement.
What is class 2?
£3.05 per week (subject to small earnings exemption limit of £6,475). (Self-employed only)
What is class 4?
9% on taxable trading profits between £9.5k and £50k, 2% thereafter. (Self-employed only)
Define domicile.
An individual’s domicile is usually the country in which they have their “permanent home”.
What does “deemed domicile” mean?
Deemed domicile applies if the individual has been a resident for at least 15 of the previous 20 years.
Income tax on a domiciled resident?
UK income: Arising BASIS
Overseas income: Arising BASIS
Income tax on a non-domiciled resident?
UK income: Arising BASIS
Overseas income: Possible remittance BASIS
Income tax on non-resident?
UK income: Arising BASIS
Overseas income:Not taxable
What is the remittance basis?
If a taxpayer elects to be charged under the remittance basis, they will lose the PA and AEA and may be subject to the RBC. Remittance basis charge=£30k/£60k depending on length of UK residency.
How you become UK domiciled? (2)
Sever ties with current domiciled country.
Take steps to make the UK your permanent home, including making burial arrangements in the UK.
How should you account for goods being taken out by a business owner that has elected to use the cash basis? And how would this be different under the accruals basis?
A ‘just and reasonable’ amount should be added to taxable profits. This would often be the cost of the goods. Under the accruals basis the goods are treated as sold at their market value
How does someone make the election for the cash basis to apply?
By ticking the ‘cash basis’ box on the tax return.
Explain the tax treatment of items (1) and (2) above on the change of basis from accruals to cash.
1) Debtors totalling £598 for which the money was received in CY
2) Accountancy fees of £860 accrued at the year-end but paid in CY
1) An adjustment expense is required to reduce profits as it was taxed in the PY.
2) Adjustment income.
What basis should be used by a partnership to account for VAT after they have begun using the cash basis?
VAT cash accounting scheme.
Can you deduct a stock write off from draft profits?
Yes.
Should you include or ignore company car repair costs paid for by the company?
Ignore.
What is the maximum annual allowance for pensions in 20/21?
£40,000
How do you write down PU assets in the WDA pro forma?
Minus 6% from TWDVbf to get the TWDVcf and the 6%*BU% to get the allowance.
How would a “round sum monthly allowance” that was partly used for client entertaining be treated in the income tax computation?
Include the whole amount for the year in taxable income and ignore the entertaining.
How should you deal with the salary sacrifice part of the personal pension contribution?
Ignore in it in the employment income part of the question but calculate it in the income tax liability part by multiplying it by 100/80 and adding it to the BRB.
How should you deal with the employer pension contribution in an employment income question?
Include the the calculation but just put “0” next to it as it’s exempt.
How would a “round sum monthly allowance” that was partly used for client entertaining be treated in a Class 1 NIC question?
Add on to salary.
How do you deal with vouchers in an NIC working?
Add onto the monthly salary in that month then use the monthly NIC bands.
How should you go about answering a question? 4 steps
- Requirement.
- Pro forma.
- Easy marks.
- Harder marks.
- Calculate the tax.
4 steps for any partnership Q. (extra 1 if there’s a loss)
- Adjust Profits.
- Capital allowances.
- Allocate Profits.
- Basis Periods.
(5) . Loss relief.
What is KEY with NI contribution answers?
Be clear on who’s paying each type.
What period is a director’s bonus taxable in?
Period it’s determined in.
How do you calculate the mileage benefit for NIC? e.g. 12,000 miles.
Constant 45p a mile. 12,000 x 0.45
If your car is unavailable for month does it affect the benefit?
Yes, 11/12 the car and fuel benefit.
How would you calculate the Class 2 contributions for 5 months?
3.0552(5/12)
Max pension is “relevant earning (capped at 40k)” which is made up of what?
Employment income + trading income (Income you’ve personally worked for)
Where can you find the van, van fuel and car fuel benefit?
HTT.
How would you calculate the statutory milage rate for 15,000 miles?
10,0000.45 + 5,0000.25
When do travel expenses become tax free for wife and son (under 18)?
If you’re working away for over 60 days.
USE THE RIGHT G/KM TABLE!!!!
!!!!
Can you deduct business loan repayments for the cash basis?
No, just interest.
What’s the maximum deduction you can take for loan interest under the cash basis? IMPORTANT
£500 (Prorate if accounting period isn’t 12 months)
Do you deduct a car lease payment for a trader? (Cash and accrual basis)
No, they get the 45p a mile.
What’s the disallowable % for a high emissions car lease? CLARIFY WHAT TRADER THIS APPLIES TO. Q90 JUST USED 45P A MILE
15%
What’s the statutory redundancy payment?
4 x £5k. (20K)
During the period £1,000 was spent on entertaining. This was for an evening meal for the 3 members of staff and 7 of their key clients, what is the allowable deduction?
£300
Does AIA go to SRP or MP first?
SRP
Do you increase a partnership loss by the partners salaries?
Yes.
remittance basis and loss relief
???
What is the trading allowance?
Individuals with gross income of up to 1k do not have to declare or pay tax on this income.
What’s the method to calculate DTR?
Copy the entire proforma and take out the foreign income. Do twice if there’s 2 streams of income.
What is key when disposing of a short life asset?
Make the pool=0 with a balancing allowance/charge
What items go in the SRP?
p158 HTT
When can you start claiming SBA?
From when the building comes into use.
What items qualify for FYA?
p156 HTT
How do you deal with use of own home in a trading income question?
Use HTT to calculate allowable expense.
If a trader employs their wife for £12,000 but the market rate for the job is £14,000, what is the allowable amount?
£12,000
Graham purchased a car for £22,200 with CO2 emissions of 32g/km. The car’s list price is £24,000. Graham uses the car 85% for business purposes. What is the allowable deduction?
£22,200*0.85
If someone leaves the partnership how do you calculate their assessable trading profit for that period?
Trading profit for that period less the overlap profits from beginning of trade. (Closing year rules)
What do you need to do when an additional rate tax payer makes a cash donation to charity?
Multiply by 100/80 and add onto BOTH the BRB and the HRB.
How do you deal with class 2 contributions in the closing year?
3.05*(weeks in current year-weeks of overlap)
How should you deal with the provision of a parking space near the companies offices in a public car park? The parking space costs the company £1,900 pa.
Exempt.
Where do you include IHT loan interest in a income tax proforma?
At the top to reduce NSI before any tax or allowances.
When calculating taxable employment income, how would you deal with “attendance at the annual party on 31 October which cost £180 per person”
Exceeds £150 so it’s fully taxable.
What is the PAYE settlement agreement proforma?
PAYE Settlement Agreement Total £ BR HR
Dinner 2,000 1250 750
Add IT (*20/80 and *40/60) 813 313 500
Gross value of benefit 2,813 1,563 1,250
Class 1B NIC @13.8% 388 216 172
Total payable (813+338) 1201
When calculating the car benefit for employment income how do you include a capital contribution from the employee?
Deduct from car cost and then use the benefit % second.
What is the car benefit % capped at (same for diesel and petrol)?
37%
Are speeding fines from a delivery driver an allowable expense?
No.
What is the relief for residential property finance cost the lower of and where does it go?
- Finance cost for the taxyear plus finance costs bf and property income for the tax year.
- Below all the tax calcs and before the final number.
What is the employee’s contribution towards a company car restricted to?
£5,000
