Topic 3 (UK Taxation 1)

Question 1

Name the 2 forms that tax laws can take on

Answer 1

• Statutes (legislation passed by government)

- case laws (established by decisions made from judges in court law)

Question 2

What is ‘the new act’?

Answer 2

A bill that has gone through parliament and received royal assent

Question 3

What makes someone UK Resident and what do you gain from it?

Answer 3

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

Question 4

What is ‘Domicile’?

Answer 4

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)

Question 5

What is the definition of Capital Gains Tax?

Answer 5

The tax payable on the gain made when certain assets are disposed of

Question 6

What is income tax?

Answer 6

The main source of income for the Government

Question 7

What is liability for income tax based on?

Answer 7

It’s based on the income within the tax year/fiscal year

Question 8

What is ‘child tax’?

Answer 8

Anything arranged by the parents is normally treated as the parents income for tax purposes

Question 9

What is a personal allowance?

Answer 9

An amount of income that can be received each year before income tax is charged

Question 10

The initial Personal Allowance amount is…

Answer 10

£12,500

Question 11

What happens if your annual income exceeds £100,000?

Answer 11

The allowance is reduced by £1 for every £2 above £100,000

Question 12

What is the ‘marriage allowance’?

Answer 12

Where it’s possible to transfer 10% of basically personal allowance to your partner

Question 13

What is the ‘blind persons allowance’?

Answer 13

When registered blind with local authority you get £2,450

Question 14

What is the personal savings allowance?

Answer 14

The saver gets interest tax free (first £1,000 for basic rate employees but £500 for higher rate employees)

Question 15

What is the Dividend allowance?

Answer 15

£2,000

Question 16

What is the allowance for property and trading income?

Answer 16

You have 2 separate allowances of £1,000 (one for trading and one for property income)

Question 17

What is the current tax/band rate?

Answer 17

Basic = 20% (£0-£37,500)
Higher = 40% (£37,501-£150,000)
Additional = 45% (£150,000+)

Question 18

What is the investment income allowance?

Answer 18

Tax rate of 0% for anything below £5,000

Question 19

What is PAYE?

Answer 19

An example where tax is deducted at source. Employers deduct tax from wages which are paid to the employer net of tax

Question 20

What does HMRC stand for?

Answer 20

Her Majesty’s revenue and customs

Question 21

How is taxable income calculated?

Answer 21

Income-personal allowances

Question 22

How do the self-employed pay income tax?

Answer 22

Pay income tax directly to the HMRC on a declaration of NET profits

Question 23

How does tax work with savings?

Answer 23

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)

Question 24

What are the dividend tax rates?

Answer 24

Basic rate = 7.5%
Higher rate = 32.5%
Additional rate = 38.1%

Question 25

What are the 4 stages of calculation personal liability income tax?

Answer 25

1. Ascertain the total income
2. Income is reduced by allowable deductions
3. Deduct personal allowances
4. The figure left is the taxable income

Question 26

If income comes from several sources what is the order of priority?

Answer 26

1- non-savings
2- savings
3- dividends
4- chargeable gains

Question 27

What are National Insurance contributions?

Answer 27

Contributions that pay towards social security benefits, state pensions etc)

Question 28

Describe CLASS ONE national contributions

Answer 28

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

Question 29

Describe CLASS TWO national contributions

Answer 29

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

Question 30

Describe CLASS THREE national contributions

Answer 30

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

Question 31

Describe CLASS FOUR national contributions

Answer 31

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