Topic 3 (UK Taxation 1) Flashcards
Name the 2 forms that tax laws can take on
- Statutes (legislation passed by government)
- case laws (established by decisions made from judges in court law)
What is ‘the new act’?
A bill that has gone through parliament and received royal assent
What makes someone UK Resident and what do you gain from it?
Your UK resident if you live in the Uk for at least 183 days in a given tax year and you get income tax on earner/unearned income and CGT on the realisation of gains anywhere in the world
What is ‘Domicile’?
It is the country the individual treats as their home (you can change your domicile to live in different countries and people who have lived in the UK for at least 15 years are deemed to be UK domiciled for inheritance tax)
What is the definition of Capital Gains Tax?
The tax payable on the gain made when certain assets are disposed of
What is income tax?
The main source of income for the Government
What is liability for income tax based on?
It’s based on the income within the tax year/fiscal year
What is ‘child tax’?
Anything arranged by the parents is normally treated as the parents income for tax purposes
What is a personal allowance?
An amount of income that can be received each year before income tax is charged
The initial Personal Allowance amount is…
£12,500
What happens if your annual income exceeds £100,000?
The allowance is reduced by £1 for every £2 above £100,000
What is the ‘marriage allowance’?
Where it’s possible to transfer 10% of basically personal allowance to your partner
What is the ‘blind persons allowance’?
When registered blind with local authority you get £2,450
What is the personal savings allowance?
The saver gets interest tax free (first £1,000 for basic rate employees but £500 for higher rate employees)
What is the Dividend allowance?
£2,000
What is the allowance for property and trading income?
You have 2 separate allowances of £1,000 (one for trading and one for property income)
What is the current tax/band rate?
Basic = 20% (£0-£37,500) Higher = 40% (£37,501-£150,000) Additional = 45% (£150,000+)
What is the investment income allowance?
Tax rate of 0% for anything below £5,000
What is PAYE?
An example where tax is deducted at source. Employers deduct tax from wages which are paid to the employer net of tax
What does HMRC stand for?
Her Majesty’s revenue and customs
How is taxable income calculated?
Income-personal allowances
How do the self-employed pay income tax?
Pay income tax directly to the HMRC on a declaration of NET profits
How does tax work with savings?
For those on low income a starting rate of 0% applies to the first £5,000 of savings (for every £1 of taxable non-savings income the starting rate reduces by £1)
What are the dividend tax rates?
Basic rate = 7.5%
Higher rate = 32.5%
Additional rate = 38.1%
What are the 4 stages of calculation personal liability income tax?
- Ascertain the total income
- Income is reduced by allowable deductions
- Deduct personal allowances
- The figure left is the taxable income
If income comes from several sources what is the order of priority?
1- non-savings
2- savings
3- dividends
4- chargeable gains
What are National Insurance contributions?
Contributions that pay towards social security benefits, state pensions etc)
Describe CLASS ONE national contributions
All employees whose earnings exceed a specific figure must pay class 1 contributions, their employer must also pay contributions. In both cases the amount is based on a % of employee’s earnings
Describe CLASS TWO national contributions
Flats-rate contributions paid by the self employed if their annual profits exceed a specific threshold. Quoted as a weekly amount and collected through self-assessment
Describe CLASS THREE national contributions
Voluntary contributions paid by those who wish to bring their contributions to the basic state pension up-to-date. Can occur when spent time working overseas
Describe CLASS FOUR national contributions
Paid by the self e,played based on their annual profits between specified minimum and maximum levels with a reduced rate payable above the upper limit for class one. Suitable for sole traders
