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CeMAP Unit 1 > Topic 3 UK Taxation > Flashcards

Topic 3 UK Taxation Flashcards

1
Q

What dates are tax year in the UK

A

6th April - 5th April (following year)

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2
Q

Income tax and CGT mainly affects which tax persons in the UK?

A

Residence

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3
Q

How many days in a tax year does a person need to stay in the UK to be classed as a resident?

A

183 Days

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4
Q

Do UK residences need to pay tax on all income & unearned worldwide?

A

Yes

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5
Q

Describe what Domicile means?

A
  • A country an individual treats as home
  • can be changed by moving to a different country
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6
Q

How does IHT affect UK domiciles?

A

IHT is chargeable on all worldwide assets

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7
Q

True or false

Non-UK Domiciles only pay IHT tax on UK assets?

A

True

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8
Q

What happens to a non UK Domicile who has lived in the UK for 15 of the last 20 tax years?

A

They are deemed UK Domiciled for IHT purposes

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9
Q

What do Reciprocal Tax Treaties do?

A
  • Ensure a person is not taxed twice on the same income
  • Income to be taxed in 1 of the 2 countries involved
  • Helps to combat tax evasion
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10
Q

What type of tax is defined as?

Payable on gain when assets such as property over a certain amount and business assets are disposed of via sale or gift.

A

Capital Gains Tax (CGT)

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11
Q

What type of income is defined as?

Income from employer or self-employment
(Profits,Salary,tips, commission, bonus, pensions benefits)

A

Earned income

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12
Q

What type of employment is defined as?

Income not from employment or self-employed
(Investment Dividends/ Interest, rental and trust income)

A

Unearned Income

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13
Q

True or false

Children are subject to tax?

A

True UK residents including children can pay tax

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14
Q

If a child receives income from parents in the form of an arrangement or settlement is this the child’s income?

A

No treated as parents income for tax purposes

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15
Q

Wages/bonuses/commission, Pension,self employed profits, Investor income, interest on bank deposits, Tips, company dividends, stocks/corporate bonds, trust income, rents, employees BIK

A

Assessable Income

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16
Q

Redundancy payments, shares (by employer), NS&I savings interest, ISA income, Gift aid, proceeds of life policy, Casual gambling profits, lottery prizes, interest on tax rebate

A

Non-assessable income

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17
Q

Wedding present/ gifts from employer for employee service, retirement gratitudes from employer, educational grant

A

Non-assessable income

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18
Q

grants from employer for degree/diploma, war widows pension, certain state benefits, house grants, capital from life annuity

A

Non-assessable

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19
Q

What is an allowance?

A

The amount of income that can be received before tax is taken

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20
Q

What are the 7 types of allowances?

A
  1. Person allowance
  2. Marriage allowance
  3. Married couple’s allowance
  4. Blind Person’s allowance
  5. Personal Savings Allowance (PSA)
  6. Dividend Allowance
  7. Property & Trading Allowance
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21
Q

Key considerations for Personal Allowance?

A
  • Allowance is £12,570
  • reduced by £1 for every £2 over £100k
  • £1,260 can be transferred to spouse
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22
Q

Which allowence is this?

  • Only available if born before 06/04/1935
  • Provided as tax reduction
  • Limited to a percentage of allowance
A

Married Couple’s Allowance

23
Q

Which allowence is this?

  • Only available to blind person
  • If blind person can’t use allowance it can be transferred to spouse
A

Blind Person’s Allowance

24
Q

What allowance is?

  • Allows savers to earn interest on savings without paying tax on interest
  • Depends on tax band
  • Not available to additional rate tax
A

Personal Savers Allowance (PSA)

25
Q

What allowance is?

  • Receive a dividend allowance each year
  • Dividend above the allowence is taxable
  • ISA shares are tax free
A

Dividend Allowance (DA)

26
Q

Describe what a Micro-entrepreneur is

A

Somebody who supplements income with property or trading income

27
Q
  • 2 separate allowances
  • 1 for property & trading
  • Small amounts of income
  • if income is less than allowence tax is not payable
  • If income more tax is payable
A

Is allowances for property and trading

28
Q

Which allowence is this?

  • Part can be transferred to spouse
  • Providing the transferor is not liable for tax
  • Receiptiant is not due to tax at higher & Additional rates
A

Marriage Allowance

29
Q

What are the types of deductions?

A
  1. Charitable contributions
  2. Pension contributions
  3. Allowable expenses (employment)
30
Q

What tax percentage does the below pay?

£0 - 37,700

A

Basic rate 20%

31
Q

What tax percentage does the below pay?

£37,701 - £125,140

A

Higher rate 40%

32
Q

What tax percentage does the below pay?

£125,141+

A

Additional rate 45%

33
Q

What order is income tax calculated?

A

1st Non-savings (earned, rents etc)
2nd Savings (Interest)
3rd Dividends
4th chargeable gains (qualifying life assurance policies)

34
Q

How are employees tax deducted?

A
  • At source via PAYE system
  • HMRC provide tax tables to employer
  • Tax code from HMRC is used to determine how much can be earned before tax
35
Q

What is a P60?

A

Form given by employer to employee every May that shows a figures income, deductions (Inc tax code) for last tax year

36
Q

What is P45?

A

When employee leaves a company, employer will provide P45 showing contributions of tax YTD. HMRC receive copy. P45 gives new employer tax details for the tax year.

37
Q

What is Self Assessment?

A

Self employed calculate own figures to HMRC. HMRC provide amount of tax to be paid.

38
Q

How do the self-employed pay tax?

A
  • Directly to HMRC
  • Income based on net profits
  • Submit “Self-assessment” to HMRC
  • Tax payable figure from by HMRC
  • Tax payable in 2 equal parts 31st January & July
39
Q
  • Self Employed
  • Investment income in access of allowances
  • people who receive rental income
  • Trustees
  • Legal representatives of the deceased
A

Have to complete Self Assessments

40
Q

PSA Allowances for tax band are?

A

Basic £1,000
Higher £500
Additional N/A

Savings within these limits pay 0% tax

41
Q

How do people pay tax interest on deposits?

A

Received gross so either by:
1. Paid via self assessment
2. Ask HMRC to deduct via tax code

42
Q

What is the Starting rate tax band?

A

0% tax on the first £5,000 of savings income for low income.

Reduces as Non-savings Income is received

43
Q

When doesn’t the start rate band apply?

A

When taxable income is more than personal allowance & starting rate band

44
Q

What are the two categories savings income fall in to?

A
  1. Tax Free (ISA, Investments, some national savings
  2. Gross paid without tax deduction (Bank, Building Society accounts)
45
Q

What is the 4 stage process for tax calculation?

A
  1. Work out income
  2. Make deductions
  3. Deduct allowances
  4. Apply tax at appropriate band
46
Q

How can Gift Aid benefit a charity?

A

They can recover basic rate tax (20%) on amount assumed to have been paid. Increasing the gift value

47
Q

How does Gift Aid donations aid a basic or higher rate tax payer?

A

Tax threshold is increased by the value of the gross gift

48
Q

Why would an employee want to make a charitable gift from their salary?

A

Tax relief is granted on the gift at the employee’s highest rate of tax

49
Q

What NIC Limit is?

  • Paid by employees between “primary/ upper earnings” limit
  • Paid by employers above “secondary threshold”
  • No employer NIC paid for employees & apprentices under a certain age
A

Class 1

50
Q

What NIC Limit is?

  • Paid by self employed if profits exceed “small profits threshold”
  • Deemed paid if above “small profits” but below “lower profits threshold”
  • Quoted as weekly amount
  • Collected by 1 lump sum payment through self assessment
A

Class 2

51
Q

What NIC Limit is?

  • Voluntary contribution by those not entitled for full pension or sickness benefit
  • Flat rate contributions
  • occurs if person takes career break, overseas etc
A

Class 3

52
Q

What NIC Limit is?

  • Additional contributions by self employed on profits between min & max limits
  • Reduced payment for above upper limit
  • Paid half yearly to HMRC by self assessment
A

Class 4

53
Q

What happened to Class 2 NICs

A

Abolished in April 2024

54
Q

When does a person acquire their Domicile?

A

At birth

CeMAP Unit 1 (18 decks)

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