Unit 1 topic 3 - Taxation Flashcards

1
Q

What is the main statute relating to taxation

A

Income and Corporation Taxes Act 1988

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2
Q

What are the 2 other sources of tax law (besides Income and Corporation Taxes Act 1988)?

A

StatutesCase Law

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3
Q

In the UK, what dates do a tax year run from and to?

A

Runs from 6 April in one calendar year to 5 April in the next.

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4
Q

‘Residence’ mainly affects which 2 types of tax?

A

Income tax Capital gains tax.

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5
Q

Any person who is present in the UK for at least ____(?) days in a given tax year is regarded as automatically UK resident for tax purposes

A

183

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6
Q

Where someone is not resident for at least 183 days in a tax year, what is applied?

A

statutory residence test is applied (unless they are regarded as automatically not UK resident).

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7
Q

True or false: A person who is resident and domiciled in the UK will be subject to UK income tax on their worldwide earned and unearned income, whether or not such income is brought into the UK.

A

True(Similarly, capital gains tax is charged on the realisation of gains anywhere in the world)

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8
Q

What is CAPITAL GAINS TAX?

A

Tax payable on the gain made when certain assets (eg personal property above a specific value, or business assets) are disposed of, usually by selling them.

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9
Q

What is EARNED INCOME?

A

Income from employment or self‐employment (profits, salary, tips, commission, bonuses and pension benefits).

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10
Q

What is UNEARNED INCOME?

A

Income that is not derived from employment or self‐employment (interest/dividends from investments, rental income, trust income, etc).

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11
Q

Explain Domicile

A

Domicile is best described as the country that an individual treats as their home, even if they were to live for a time in another country. This is the domicile of their father on the date of their birth (or the domicile of the mother if the parents are not married).

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12
Q

Which tax is mainly affected by domicile?

A

Inheritance tax (IHT).(If a person is domiciled in the UK, inheritance tax is chargeable on assets anywhere in the world, whereas for persons not domiciled in the UK, tax is due only on assets in the UK.)

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13
Q

True or false:People who are not UK‐domiciled but have been resident in the UK for tax purposes in at least 15 of the previous 20 tax years are deemed to be UK‐domiciled for inheritance tax purposes.

A

True

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14
Q

What qualifies you to be a UK resident for tax purposes?

A

Any person who is present in the UK for at least 183 days in a given tax year is regarded as automatically UK resident for tax purposes.

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15
Q

Which of the following people would be most likely to be a ‘UK resident’?a) Susan, who normally lives in Spain but spends three months a year working for the family business in England.b) Antoine, a French surveyor, whose eight‐month contract in Devon with a construction company started in May.c) Max, who moved to London from Cologne on 6 January for a seven‐month teaching contract.d) Brenda, who spends 180 days a year in the UK and the remainder in the USA.

A

b) Antoine, a French surveyor, whose eight‐month contract in Devon with a construction company started in May.c) is not correct because three months of Max’s contract are in one tax year and the rest in the following year. He will not spend 183 days in either tax year in the UK.

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16
Q

Which of the following will not be subject to UK inheritance tax upon death?a) UK property owned by Paolo, who has lived in the UK for three years but is not UK domiciled.b) Overseas property owned by Kavita, who was born in the US (to American parents) but has lived in the UK for the past 18 years.c) Overseas property owned by Helena, who is UK resident but not UK domiciled nor deemed domiciled.d) Overseas property owned by David, who is UK domiciled but resident in France.

A

As Helena is not UK domiciled she will not pay IHT on overseas assets.

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17
Q

On which of the following would a child be subject to income tax?a) All earned income.b) An educational grant.c) Any earned income that exceeds their personal allowance.d) A settlement from their parents.

A

c) Any earned income that exceeds their personal allowance. The settlement from their parents (answer d) will be taxed as the parents’ income, the educational grant (answer b) is tax‐free, and they would not pay tax on all of their earned income (answer a), only that which exceeds their personal allowance.

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18
Q

What is your Personal tax allowance?

A

£12,570

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19
Q

People whose annual income exceeds £100,000 have a restricted personal allowance, what is it?

A

The allowance is reduced by £1 for every £2 they earn above the £100,000 limit

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20
Q

What is Marriage allowance?

A

it is possible for spouses and civil partners to transfer up to 10 per cent of the basic personal allowance, providing the transferor is not liable to income tax, and the recipient is not liable to income tax at the higher or additional rate.

21
Q

What is Married couple’s allowance?

A

this allowance is available if one partner in a marriage or civil partnership was born before 6 April 1935.For 2021/22 it could cut a tax bill between £353 and £912.50 per year.

22
Q

What is Blind person’s allowance?

A

this allowance of £2,520 is available to those registered as blind with a local authority. If the allowance cannot be used by the individual, it can be transferred to their spouse or civil partner.

23
Q

What is Personal savings allowance (PSA) ?

A

this enables savers to receive a certain amount of interest tax‐free. For the 2021/22 tax year, the first £1,000 of savings interest is tax‐free for basic‐rate taxpayers. The first £500 of savings interest is tax‐free for higher‐rate taxpayers and there is no tax‐free interest allowance for additional‐rate taxpayers.

24
Q

What is Dividend allowance (DA)?

A

where an individual’s aggregate dividend income in a tax year falls within the DA, no tax is payable. In the 2021/22 tax year the DA is £2,000.

25
Q

What are Allowances for property and trading income?

A

There are two separate allowances of £1,000, one for trading income and one for property income. The allowances apply to those who, for example, make small amounts of money by selling on e‐bay or by renting a room in their house or a parking space. If trading/property income is less than £1,000 then no tax is payable on that income; if more than £1,000 then the individual has the choice to either deduct the allowance from trading/property income or calculate profit in the usual way and deduct allowable expenses.

26
Q

Name 3 types of deductions

A

certain pensions contributions certain charitable contributions allowable expenses

27
Q

What are the rates and bands of income tax?

A

Basic rate - 20% - 0–37,500Higher rate - 40% - 37,501–150,000Additional rate - 45% - 150,001+

28
Q

What is the set set order in which income tax is applied?

A

1) Non‐savings income (earned income, rent received, pension income etc)2) Savings income.3) Dividends.4) Chargeable gains on a non‐qualifying life assurance policy.

29
Q

Self‐employed people pay their income tax and what 2 other things in two equal parts?

A

Class 2 and 4 NICs

30
Q

The first payment is due on 31 _______ of the tax year in which their business year ends; the second is due on 31 _______, six months later.

A

January July

31
Q

What is Gift Aid?

A

the charity can recover the basic‐rate tax (20 per cent) that is assumed to have been paid on the amount of the gift, increasing the value of the net gift by 25 per cent.

32
Q

What is Payroll giving?

A

This enables employees to make tax‐efficient gifts by having a charitable gift deducted from their salary before income tax is charged. By making a gift in this way, tax relief is granted on the value of the gift at the individual’s highest rate of income tax. So, someone who earns £60,000 annually and gives £1,000 to charity via payroll will only be deemed to have a gross income of £59,000.

33
Q

What are National Insurance contributions?

A

National Insurance contributions are a form of taxation in everything but name. They are in effect a tax on earned income and are payable in different ways according to whether the earner is employed or self‐employed.

34
Q

What are the different `NIC classes?

A

Class 1,2,3 &4. (Self employed pay class 2 and 4)

35
Q

What is the personal savings allowance (psa) for 2021/22?

A

The first £1000 of savings interest is tax free for basic rate taxpayers The first £500 of savings interest is tax free for higher rate taxpayersThere is no tax free allowance for higher/additional rate taxpayers

36
Q

Outline class 3 NIC

A

Voluntary contributions that can be paid by people who would not otherwise be entitled to the full state pension or sickness benefit. This can occur because a person has, for instance, taken a career break or spent some time working overseas. They are flat rate contributions.

37
Q

What is a blind persons allowance?

A

£2,520 (if not used by individual can be passer to spouse or civil partner)

38
Q

Which deductions are taxpayers permitted to make from their gross income before their tax liability is calculated?

A

Certain pensions contributions Certain charitable contributions Allowable expenses

39
Q

How do self employed people pay income tax?

A

They pay income tax and class 4 NIC in two equal parts. The first is due January 31st of the tax year in which their business year ends; the second is due on 31st July, six months later.

40
Q

A person who is UK resident for tax purposes only pays income tax on earnings generated in the UK. True or false?

A

False

41
Q

Which of the following is not assessable for income tax purposes? a) Tips.b) Interest from bank and building society deposits. c) Lottery prizes.d) Rents from land and property.

A

c) Lottery prizes.

42
Q

In what order of priority is income taxed?

A

Non‐savings income, then savings income, then dividend income.

43
Q

Blind person’s allowance can be transferred to a spouse or civil partner if the blind person does not use the allowance. True or false?

A

True

44
Q

Emma worked abroad for five years but is now back working in the UK. What class of National Insurance contributions could she pay to improve her contribution record for the state pension?

A

Class 3

45
Q

Outline Class 1 National Insurance Contributions

A

Paid by employees at 12% on earnings between certain levers, known as the primary threshold and the upper earnings limit with a reduced level of 2% payable on earnings above the upper limit. They are also paid by employers at 13.8% on most employees’ earnings above a lower limit called the secondary threshold - but with no upper limit.

46
Q

Outline Class 2 National Insurance Contributions

A

Flat-rate contributions paid by the self-employed if their annual profits exceed the small profits threshold. They are quoted as a weekly amount. They are collected through self-assessment.

47
Q

Outline Class 3 National Insurance Contributions

A

Voluntary contributions that can be paid by people who would not otherwise be entitled to the full state pension or sickness benefits.This can occur because a persona has, for instance, taken a career break or spent some time working overseas.They are flat-rate contributions.

48
Q

Outline Class 4 National Insurance Contributions

A

Additional contributions payable by self-employed people on their annual profits between specified minimum and maximum levers with a reduced rate payable above the upper limit, as for Class 1.They are paid to HMRC in half-yearly instalments by self-assessment.

49
Q

What is the 2021/22 annual dividend allowance and tax rates on dividend income for exceeding this allowance?

A

Dividend allowance £2000, for dividend income exceeding allowance, tax rates are taxed at:- 7.5% falling in the basic-rate tax band- 32.5% falling in the higher-rate tax band- 38.1% falling in the additional-rate tax band