Unit 1 Topic 3 - UK taxation I Flashcards
Outline Class 1 National Insurance Contributions
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.
No employer NICs are paid in respect of employees aged under 21 and apprentices under 25 on earnings between the primary threshold and the upper earnings limit.
Outline Class 2 National Insurance Contributions
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.
Outline Class 3 National Insurance Contributions
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.
Outline Class 4 National Insurance Contributions
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.
What is the 2019/20 annual dividend allowance and tax rates on dividend income for exceeding this allowance?
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
What is the Personal Savings Allowance (PSA) for 2019/20?
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 taxpayers.
There is no tax-free interest allowance for higher rate taxpayers.
How is Residence determined for tax purposes?
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.
Where someone is not resident for at least 183 days in a tax year, the statutory residence test is applied (unless they are regarded as automatically not UK resident). This determines whether or not they will be treated as resident for a particular tax year.
Define Capital Gains Tax
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.
Define Earned income.
Income from employment or self-employment (profits, salary, tips, commission, bonuses and pension benefits).
Define Unearned income.
Income that is not derived from employment or self-employment (interest/dividends from investments, rental income, trust income, etc).
What is Domicile?
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.
What does Domicile affect?
Domicile mainly affects liability to 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.
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.
What is the Personal allowance in the 2019/20 tax year?
£12,500.
People whose annual income exceeds £100,000 have a restricted personal allowance. The allowance is reduced by £1 for every £2 they earn above the £100,000 limit.
What is the Marriage allowance in the 2019/20 tax year?
It is possible for spouses and civil partners to transfer up to 10% 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.
What is the Married couple’s allowance in the 2019/20 tax year?
This allowance is available if one partner in a marriage or civil partnership was born before 6 April 1935. In 2019/20, the minimum amount is £3,450, and the maximum is £8,915 but the relief is limited to 10%. This means that a couple’s tax bill could be reduced by between £345 and £891,50.
