Topic 3 - NICs and the administration of personal tax Flashcards
What are the four main classes of National Insurance Contributions (NICs)?
Class 1 Primary (employee), Class 1 Secondary (employer), Class 1A, Class 4
How is Class 1 Primary NIC collected?
Via PAYE (Pay As You Earn)
What is the percentage rate for Class 1 Primary NIC above the Upper Earnings Limit (UEL)? IN TAX TABLES
2%
What is the Primary Threshold (PT) for Class 1 NIC? IN TAX TABLES
£12,570
What is the Upper Earnings Limit (UEL) for Class 1 NIC? IN TAX TABLES
£50,270
At what earnings level does an employer start paying Class 1 Secondary NIC? IN TAX TABLES
£9,100
What is the percentage rate for Class 1 Secondary NIC? IN TAX TABLES
13.8%
Which class of NIC is payable on benefits in kind?
Class 1A
When is Class 1A NIC payable? NOT IN TAX TABLES
22 July
Which NIC class applies to self-employed individuals?
Class 4
What is the percentage rate for Class 4 NIC above the Upper Profits Limit (UPL)? IN TAX TABLES
2%
What are the Lower Profits Limit (LPL) and Upper Profits Limit (UPL) for Class 4 NIC? IN TAX TABLES
LPL: £12,570, UPL: £50,270
How is Class 4 NIC collected?
Via self-assessment
Which of the following NICs is collected via PAYE?
A) Class 1
B) Class 1A
C) Class 4
D) None of the above
A) Class 1
Which of the following NICs is paid via self-assessment?
A) Class 1
B) Class 1A
C) Class 4
D) None of the above
C) Class 4
Who is liable to pay Primary Class 1 NIC?
Employees, from their 16th birthday until state pension age (assumed to be 66 for the exam)
What types of earnings are included in the calculation of Class 1 NIC?
Earnings received as money, including salary, bonus, and tips, but excluding benefits (except vouchers)
Which of the following earnings are subject to Class 1 NIC?
A) Salary
B) Bonus
C) Tips
D) Vouchers
A) Salary, B) Bonus, C) Tips
If an employee receives a fixed salary each month, how should annual NIC contributions be calculated?
Use annualised limits from tax tables to find total contributions
If an employee receives variable earnings (e.g., a bonus in one month), how should NIC contributions be calculated?
Calculate contributions for each period (weekly/monthly) separately and sum them up, rounding at each stage
Who is liable to pay Class 1 Secondary NICs?
Employers
At what age do employees start being subject to Class 1 Secondary NICs?
From their 16th birthday, with no upper age limit
Are there any exemptions from Class 1 Secondary NICs for younger employees?
Yes, employees under 21 and apprentices under 25 pay 0% Class 1 Secondary NICs
What is the Employment Allowance for Class 1 Secondary NICs? IN TAX TABLES
£5,000 per employer (not per employee)
Which businesses are NOT eligible for the Employment Allowance?
Companies with only one director and no employees; businesses with a total Class 1 Secondary NIC liability of £100,000 or more in the previous tax year
In the ICAEW exam, what assumption should be made regarding the age of employees when calculating Class 1 Secondary NICs?
Assume the employee is aged 21 or over and not an apprentice unless told otherwise
Which of the following employees would be exempt from Class 1 Secondary NICs?
A) An apprentice under 25 years old earning £12,000/year
B) A 22-year-old employee earning £20,000/year
C) A 19-year-old employee earning £15,000/year
D) A company director with no employees
A) An apprentice under 25 years old earning £12,000/year, C) A 19-year-old employee earning £15,000/year, D) A company director with no employees
Who is liable to pay Class 1A NICs?
Employers
On what type of earnings is Class 1A NIC charged?
Taxable benefits
How is the taxable value for Class 1A NICs generally determined?
It is generally the same as the taxable value for income tax
Which benefits are NOT subject to Class 1A NICs?
Benefits already taxed as earnings under Class 1, such as vouchers
Who is liable to pay Class 4 NICs?
Self-employed individuals
Until what age are self-employed individuals liable for Class 4 NICs?
Until state pension age
How are Class 4 NICs paid?
Via self-assessment
Which of the following individuals is subject to Class 4 NICs?
A) A self-employed individual with £30,000 taxable profits
B) A company director
C) A retired self-employed person aged 67
D) A full-time employee with no self-employment income
A) A self-employed individual with £30,000 taxable profits
By what date must a taxpayer inform HMRC if they have not been automatically issued a self-assessment return? IN TAX TABLES
5 October 2025
What is the deadline for submitting a paper self-assessment return for the 2024/25 tax year? IN TAX TABLES
31 October 2025
What is the deadline for submitting an electronic self-assessment return for the 2024/25 tax year? IN TAX TABLES
31 January 2026
If a taxpayer receives a self-assessment return from HMRC after the usual issue date, when must it be submitted? IN TAX TABLES
Within 3 months after the return was issued
What happens if a taxpayer is issued a return by HMRC but has no income to declare?
The return must still be submitted by the deadline
Which of the following deadlines applies to a paper self-assessment return?
A) 31 January 2025
B) 31 October 2025
C) 5 October 2025
D) None of the above
B) 31 October 2025
Which of the following statements about self-assessment tax returns is TRUE?
A) Paper returns are due on 5 October
B) Electronic returns must be submitted by 31 October
C) Late submissions may result in penalties
D) A self-assessment return is only required if the taxpayer has taxable income
C) Late submissions may result in penalties
Who is required to file a self-assessment tax return?
Individuals with self-employment income over £1,000, untaxed income of £2,500 or more, claims for tax relief over £2,500, or savings/investment income over £10,000
What is the income threshold for self-employment requiring a self-assessment tax return? NOT IN TAX TABLES
£1,000
At what level of untaxed income must an individual file a self-assessment tax return? NOT IN TAX TABLES
£2,500 or more
Who qualifies for a short tax return? NOT IN TAX TABLES
Employees, pensioners, and sole traders with turnover under £90,000
What is the deadline for submitting a short tax return? NOT IN TAX TABLES
31 October following the end of the tax year
What is a simple assessment? NOT IN TAX TABLES
An assessment issued by HMRC when they have enough information to calculate tax due, removing the need for a return
When is the tax due for a simple assessment? NOT IN TAX TABLES
31 January after the end of the tax year, or 3 months after the assessment if later
How do partnership tax returns relate to individual returns?
It reports partnership income and gains and is used to check partners’ individual tax returns; due dates match individual returns
What is the deadline for amending a tax return for any reason? NOT IN TAX TABLES
Within 12 months of the normal submission date (31 January)
What is the deadline for amending a tax return due to an HMRC error? NOT IN TAX TABLES
Within 9 months of the actual filing date
What is the deadline for amending a tax return due to overpayment relief? NOT IN TAX TABLES
Within 4 years of the end of the tax year
Which of the following individuals must file a self-assessment return?
A) A sole trader earning £1,500 per year
B) A landlord with £3,000 rental income
C) An employee earning £30,000 through PAYE with no other income
D) A pensioner earning £12,000 in bank interest
A) A sole trader earning £1,500 per year, B) A landlord with £3,000 rental income, D) A pensioner earning £12,000 in bank interest
Which of the following statements about amending tax returns is TRUE?
A) Taxpayers can amend returns for any reason within 4 years
B) HMRC can amend returns due to errors within 9 months of the filing date
C) Overpayment relief claims must be made within 12 months
D) Sole traders cannot amend returns after submission
B) HMRC can amend returns due to errors within 9 months of the filing date
What are the key payment dates for income tax and Class 4 NICs under self-assessment? IN TAX TABLES
31 January for the first POA, 31 July for the second POA, and 31 January of the following year for the balancing payment
What percentage of the previous year’s tax liability is each payment on account (POA)? NOT IN TAX TABLES
Each POA is 50% of the previous year’s income tax and Class 4 NIC liability
When is the first payment on account due? IN TAX TABLES
31 January in the tax year
When is the second payment on account due? IN TAX TABLES
31 July following the end of the tax year
When is the balancing payment due? IN TAX TABLES
31 January following the end of the tax year
Who is required to make payments on account?
Individuals with a self-assessment tax liability over £1,000 unless covered by PAYE
When are payments on account NOT required? IN TAX TABLES
If the previous year’s tax liability under self-assessment was less than £1,000 or less than 20% of total liability
What taxes are included in the balancing payment?
Balance of income tax, Class 4 NICs, and any Capital Gains Tax due
What option does an employed taxpayer have if their balancing payment is less than £3,000?
They can choose to have it collected via next year’s PAYE instead of paying a lump sum
What is the deadline for choosing to have a balancing payment collected via PAYE? NOT IN TAX TABLES
By 30 December for online filing or by 31 October for paper returns
Which of the following payment deadlines is correct?
A) First POA - 31 January
B) Second POA - 30 June
C) Balancing payment - 31 October
D) None of the above
A) First POA - 31 January
Which of the following taxpayers is required to make payments on account?
A) A self-employed individual who paid £800 in self-assessment tax last year
B) A sole trader who paid £1,500 in tax last year
C) A landlord who paid £900 in tax last year
D) A company director who pays all tax through PAYE
B) A sole trader who paid £1,500 in tax last year
What are the two types of penalties enforceable under self-assessment?
Late filing of tax returns and late payment of tax liabilities
When are penalties imposed for late filing of tax returns?
When self-assessment returns are not submitted by the due date
Do late filing penalties apply to self-assessment tax returns for both income tax and capital gains tax?
Yes, both are subject to late filing penalties
Do late payment penalties apply to payments on account?
No, penalties for late payment do not apply to payments on account
When does HMRC charge interest on late-paid tax?
On late-paid payments on account (POA), balancing payments, and penalties
What is the HMRC interpretation for calculating interest on late-paid tax for exam purposes?
Do not count the actual due date or the date of payment
What tax liabilities can be subject to interest on late payment?
Payments on account, balancing payments, and penalties
How is interest on late tax payments calculated?
Calculated from the due date to the day before payment is made
What types of tax payments can accrue repayment interest if overpaid?
Payments on account, balancing payments, and penalties
Is repayment interest subject to income tax?
No, repayment interest is exempt from income tax
Which of the following statements about late payment interest is TRUE?
A) Interest applies only to unpaid balancing payments
B) Interest is not charged on penalties
C) Interest is calculated from the day after the due date
D) Payments on account do not attract interest
C) Interest is calculated from the day after the due date
Which of the following statements about repayment interest is TRUE?
A) Repayment interest applies only to penalties
B) Repayment interest is taxable
C) Repayment interest applies to overpaid balancing payments
D) Repayment interest is calculated only on payments made before the due date
C) Repayment interest applies to overpaid balancing payments
Which taxes are covered under the common penalty regime?
Income tax, capital gains tax, NICs, corporation tax, and VAT
What is the basis for penalties under the common penalty regime?
Percentage of potential lost revenue (PLR). Tax on missing thing.
Can penalties under the common penalty regime be reduced or suspended?
Yes, they can be reduced or suspended
What happens when a taxpayer makes an error leading to a loss of tax revenue?
A penalty assessment is issued, payable within 30 days
What are the penalty rates for deliberate and concealed errors? IN TAX TABLES
100% of the potential lost revenue
What are the penalty rates for deliberate but not concealed errors? IN TAX TABLES
70% of the potential lost revenue
What are the penalty rates for careless errors? IN TAX TABLES
30% of the potential lost revenue
What are the penalty reductions for prompted disclosure? IN TAX TABLES
15%, 35%, or 50%, depending on circumstances
What are the penalty reductions for unprompted disclosure? IN TAX TABLES
Nil, 20%, or 30%, depending on the taxpayer’s cooperation
Under what circumstances does no penalty apply?
If the taxpayer took reasonable care in completing the return and reasonable steps to disclose errors
Which of the following statements about the common penalty regime is TRUE?
A) Penalties apply only to income tax
B) Penalties are based on potential lost revenue
C) There is no penalty for deliberate errors
D) The penalty regime applies only to self-employed taxpayers
B) Penalties are based on potential lost revenue
Which of the following errors will incur the highest penalty?
A) A taxpayer who makes a careless mistake
B) A taxpayer who deliberately hides income from HMRC
C) A taxpayer who makes a simple miscalculation
D) A taxpayer who promptly discloses an error to HMRC
B) A taxpayer who deliberately hides income from HMRC
Which taxes are covered under the common failure to notify penalty?
Income tax, NICs, PAYE, capital gains tax, corporation tax, and VAT
What is the basis for penalties under the common failure to notify regime?
Percentage of potential lost revenue (PLR)
Are failure to notify penalties behaviour-related?
Yes, they are behaviour-related
What is a ‘reasonable excuse’ for failing to notify HMRC or submit a return on time?
A valid reason that prevented the taxpayer from meeting their obligations, provided the failure was not deliberate
Give two examples of situations that might qualify as a reasonable excuse for failure to notify.
Death of a close relative, unexpected stay in hospital before the return/payment was due
Which of the following statements about failure to notify penalties is TRUE?
A) They apply only to income tax and NICs
B) They are based on a percentage of potential lost revenue
C) They cannot be reduced even if the taxpayer has a valid excuse
D) HMRC does not allow reasonable excuses
B) They are based on a percentage of potential lost revenue
Which of the following situations would most likely be considered a reasonable excuse for late notification?
A) Forgetting to file a return
B) Taking a holiday during the submission deadline
C) Being in the hospital unexpectedly before the return was due
D) Being too busy with work
C) Being in the hospital unexpectedly before the return was due
What type of information must taxpayers keep for tax purposes?
Adequate information, which may be electronic
Which taxes are covered under the record-keeping regime?
Income tax, PAYE, capital gains tax, corporation tax, and VAT
Under Making Tax Digital, what is required for VAT records?
Some VAT records must be digital (within compatible software), while others must be kept in original form
For how long must corporation tax records be kept? NOT IN TAX TABLES
Six years from the end of the accounting period
For how long must income and capital gains tax records be kept if the taxpayer is in business? NOT IN TAX TABLES
Five years from 31 January following the end of the tax year
For how long must income and capital gains tax records be kept if the taxpayer is NOT in business? NOT IN TAX TABLES
One year from 31 January following the end of the tax year
For how long must VAT records be kept? NOT IN TAX TABLES
Six years
For how long must PAYE records be kept? NOT IN TAX TABLES
Three years from the end of the tax year to which they relate
What is the penalty for failing to keep adequate records? IN TAX TABLES
£3,000 per year/accounting period
What is the specific penalty for failure to keep VAT records? IN TAX TABLES
£500
Who is responsible for ensuring adequate records are kept in qualifying companies?
Senior Accounting Officers (SAOs) of qualifying companies
What is the penalty for a Senior Accounting Officer (SAO) who fails to ensure proper record-keeping? NOT IN TAX TABLES
£5,000
What are the criteria for a qualifying company under the SAO regime? NOT IN TAX TABLES
Turnover > £200 million and/or Balance Sheet total > £2 billion at the end of the previous financial year
Which of the following time limits for record-keeping is correct?
A) Corporation tax - 3 years
B) VAT - 6 years
C) PAYE - 5 years
D) Income tax - 10 years
B) VAT - 6 years
Which of the following statements about Senior Accounting Officers (SAO) is TRUE?
A) They must ensure tax records are adequate
B) They are exempt from penalties
C) Only small companies need an SAO
D) SAOs are responsible for employees’ tax compliance
A) They must ensure tax records are adequate
