TOPIC 3 Flashcards
What are 2 taxes mainly affected by residency?
- Income tax
2. Capital gains tax
How many days of residency in the uk is classed to be a resdient for the tax year?
183 days
A person who is resident and domiciled in the UK is subject to tax on what income? Whether or not that income is brought into the UK.
World wide earned and unearned income.
What is the purpose of reciprocal tax treaties?
Contain agreements to exchange information in order to combat tax evasion
Tax payable on the gain made when certain assets are sold is known as what?
Capital gains tax
Give 6 examples of earned income:
- Profits
- Salary
- Tips
- Comission
- Bonuses
- Pension benefits
Give 4 examples of unearned income:
- Interest from investements
- Dividends from investments
- Rental income
- Trust income
What is meant by domicile?
The country that an individual treats as their home even if they were to live for a time in another country
Which tax liability does domicile affect?
Inheritance tax
What is taxable income?
Tax based on income received in a tax year
Give 3 example of income assessable to tax:
- Salary/wages
- Pensions & retirement annuities
- Profits from trade or proffession
- Inventors income from copy right/patent
- Dividends from company
Give 3 examples of income not assessable to tax:
- Redundancy payments
- First £3600 of shares given to an employee as part of a share incentive plan
- Interest on NS&I savings
- Gift aid payments
- Gambling & lottery prizes
What amount is the personal allowance of 2020/21?
£12,500
How is PA reduced for amounts over £100,000?
The allowance is reduced by £1 for evey £2 over the £100,000 limit
Spouses and civil partners transferring up to 10% of their basic PA when one of them is not liable for tax and the other is not a higher or additional tax payer is known as what?
Marriage allowance
A couples tax bill being redcued between £351 and £907.50 if one partner was born before 6 April 1935 is known as what?
Married couples allowance
Whats the limit for the starting rate savings band?
£5000
Whats the basic rate for income tax?
20% of income up to £37,500
What is the higher rate income tax?
40% of income between £37,501 and £150,000
Whats the additional rate of income tax?
45% of income earned over £150,001
Whats the income limit for personal allowance before any reductions are made?
£100,000
Whats the limit for no inheritance tax?
The first £325,000
What is the tax amount for inheritance tax after the nil rate?
40%
What is the amount for blind persons allowance?
£2,500
What is the personal savings allowance (PSA) for a basic rate taxpayer?
£1000
What is the PSA for a higher rate taxpayer?
£500
What is the allowance for trading and property income?
The first £1000
List the order or how tax is calculated:
- dividends tax
- non savings income
- savings income
- non qualifying life assurance policies
- Non savings income
- Savings income
- Dividends
- Non qualifying life assurance policy
What system do employees use to pay tax?
PAYE - Pay As You Earn
What is a P60?
Issued to each employee to show the total tax deducted for the previous tax year, national insurance contributions and the final tax code.
What is a P45?
On leaving an employer, a P45 is provided to last entries of an employees tax. This will also help the new employor compelte a new tax deductions working sheet.
Saira’s income = £27,430
Less personal allowance = £12,500
Taxable income £14,930
What is her final tax amount?
A) £14,930 x 20% = £2,986
B) £14,930 x 0% = £0
C) £14,930 x 10% = £1,493
A) £14,930 x 20% = £2,986
Michael’s self employed gross profit is £240,000.
Less allowable deductions = -£40,000
Net profit = £200,000
What is michaels taxable income?
A) £200,000 - £12,500 = £187,500
B) £200,000 - £0 = £200,000
C) £200,000 - £100,000 = £100,000
B) £2000 as his PA of £12,500 is reduced by £1 for every £2 he earns over £100,000.
How is tax calculated for a £200,000 taxable income?
£37,500 x 20% = £7000
A) £112,500 x 40% = £45,000
£50,000 x 45% = £22,000
B) £62,000 x 40% = £24,800
£100,000 x 45% = £45,000
C) 200,000 x 45% = 90,000
A) 112,500 at 40% as the higher rate tax band is up to £150,000. (£37,500 + £112,500 = £150,000)
Anything above £150,000 is taxed at the additional rate of 45%
Calculate the starting rate band:
Income = £13,500
Which means their starting rate band would be:
A) £5000
B) £1000
C) £4000
C) £4000 as £13,500 - PA £12,500 = £1000.
Starting rate band of £5000 - £1000 = £4000.
What is the PSA for basic, higher and additional taxpayers?
Basic = £1000 Higher = £500 Additional = £0
Everyone with the same amount of savings income would be charged the same amount of savings income tax.
True or false?
False. The tax due on savings income is calculated with your annual income. The higher your income, the more tax you’ll pay.
Jamies earned income = £12,650 Taxable earned income = £150 Savings income = £2,500 Starting rate band = £5000 - jamie’s savings income tax is calculated to be £100. True or false?
False. Jamie is not subject to any sagubgs income tax:
PA + starting rate band must be over £17,500 to be taxed.
£5000 - £150 = £4850 jamies starting rate band.
£12,500 + £4,850 = £17,350 which is under £17,500
Roisin earned income = £29,500
Taxable earned income = £17,500
Savings income = £2,500
Roisin is not eligible for any PSA. True or false?
False. £29,500 + £2,500 = £32,000 which is under the basic rate tax band of £37,500 therefore she is eligible for the £1000 PSA.
Jodie’s earned income = £49,000
Taxable earned income = £36,500
Savings income = £2,500
Total income = £51,500
This means jodie will pay 20% of £1000 as basic rate (under £37,500) And £1,500 at 40% the higher rate. True or false?
False. Jodies total income of £51,500 makes her a hughe rate tax payer. She will get £500 tax free and pay:
£500 at 0%
£500 at 20%
£1,500 at 40%
What class of NIC is:
- paid by employees at 12% of earning between certain levels and upper earnings limit with a reduced level of 2% payable on earnings above the upper limit.
- paid by employers at 13.8% at the secodnary threshold but with no upper limits.
Class 1
What class of NIC is:
- flat rate of contributions paid by the self employed if their annual profits exceed the small profits threshold.
- are quoted as a weekly amount
- collected through self assessment
Class 2
What class of NIC are:
- voluntey contributions that can be apid by people who would not otherwise be entitiled to the full state pensions or sick benefits.
- can occur because a person has taken a career break or spent time working overseas.
Class 3
What NIC class is:
- additional contributions payable by self employment on annual profits between the minimum and maximum amount levels with reduced rate payable above the upper limit as for class 1.
- paid to HMRC in half-yearly installments by self assessment
Class 4
