Week 2 - Income Tax Basics

Question 1

What is grossing up and how do you calculate?

Answer 1

All figure in income aggregation must be gross

Net Amount x (100/100-Tax Rate)

Question 2

Tax liability difference for UK and Non UK resident

Answer 2

UK resident liable for income tax on global income

Non-UK, only liable for income only made in UK

Question 3

Automatic treatment of Non-UK resident

Answer 3

In UK for less than 16 days in the tax year
UK resident but work for 90+ days abroad
In UK <46 days but not a resident in previous three years

Question 4

Automatic treatment UK resident

Answer 4

In UK for 183 days
Only house owned is in UK
Full time work in the UK

Question 5

When residency rules don’t apply, status will be based on which ties?

Answer 5

In UK for 90+ days in either 2 tax years
House in UK used in tax year
Spouse/Civil Partner or child in UK 
Substantive work in the UK
More time in UK than any other country in tax year

Question 6

Exempt from taxation

Answer 6

Scholarship grants
Dividends from initial investment in venture capital trust (up to 7.5K)
Pension lump sum (25%)
Lottery and Premium Bond winnings

Question 7

Penalty for missing self-assessment deadline

Answer 7

£100 + £10 a day up to £900

No tax paid after 3 months, 5% of tax due or £300, whichever is higher

Question 8

Key dates for the filing of a return

Answer 8

31st October after tax year for paper return

31st January after tax year for online filing

Question 9

Treatment of only income being saving income

Answer 9

£5,000 tax free allowance instead of £12,570

Question 10

Dividend treatment

Answer 10

£2,000 tax free allowance
Basic Rate - 7.5%
Higher - 32.5%
Additional - 38.1%

Question 11

Married couple allowance

Answer 11

Transfer 10% of allowance (1257) to spouse but transferor must be maximum a a basic band rate payer

Question 12

MCA

Answer 12

Additional allowance for older married couples and registered civil partners

Question 13

Terms of MCA

Answer 13

Reduces tax liability between 353-912.50 a year
Income above 30,400 reduces MCA by £1 for every £2 over
(X-30,400)/2
Cannot be reduced below 353

Question 14

What are charges on income?

Answer 14

Recurring, legally enforceable liability of the taxpayer allowed as a deduction from total income to give adjusted total income

Question 15

When are “charges on income” made?

Answer 15

After basic band deductions are made
Gross up in tax calculation and then deduct tax withheld to determine tax payable
patent royalties
INCLUDES:
Payments made for proper commercial reasons in connection with individual trade, profession or vocation

Question 16

Charges to income paid in gross w/o deduction

Answer 16

Copyright royalties

Payments of eligible interest

Question 17

What is gift relief

Answer 17

Tax relief given on business’ on gifts to charity

Question 18

Requirements of gift relief

Answer 18

Donor receives no benefit, or, is less than the benefit to charity
Taxpayer pays enough tax to cover the tax reclaimed by the charity - if taxpayer doesn’t, they will have to pay additional tax

Question 19

Impact of donation on tax payer

Answer 19

Increases basic rate band by grossed up value of the gift

X * (100/100-20)

Question 20

How can charity claim?

Answer 20

25p for every £1 donated
£80 donation
80*0.25 = £20
80 + 20 = £100

Question 21

Child benefit

Answer 21

A tax free benefit payable to parents irrespective of their taxable income
If adjusted net income exceeds 50K, and they receive child benefit, the benefit is taxed and gradually removed - gone at 60K

Question 22

Child benefit formula

Answer 22

1 - (Child benefit amount x tax bracket rate)

Question 23

Occupational pension scheme

Answer 23

Contribution from employer and employee. No limitation on employer contribution but will count towards employees lifetime and annual allowance
When employee makes a contribution into occupational pension scheme, relief is given at source and employer contributes before calculating PAYE

Question 24

Personal Pension Scheme

Answer 24

Unlike OPS, contribution taken at net value
Basic tax rate relief given at source with HMRC paying equivalent amount to the basic rate reduction
20/80* Amount contributed

Question 25

What benefit does PPS give to higher and additional tax rate payers?

Answer 25

Extends their basic band by the grossed up contribution amount to the pension scheme

Question 26

Tax relief limits PPS

Answer 26

3,600 gross contribution
The relevant earnings of the taxpayer, being mainly employment income and/or trading profit
Any income from furnished holiday letting

Question 27

Annual allowance

Answer 27

Determine the amount of pension input available for tax relief
Limited to 40K a year but can carry any unused allowance forward 3 years

Question 28

Annual allowance when income exceeds 150k?

Answer 28

Reduced £2 for every £1 over with minimum allowance of 10k

Question 29

What makes up adjusted income

Answer 29

Net income + employee contribution to OPS which would have been deducted for net income
+ Employer contribution to Personal/Occupational

Question 30

Integrity

Answer 30

Members must act honestly in all deals with clients, tax authorities and other parties
Must not do anything misleading or careless either by commission or omission
Must not be associated with any info that advisor believes to contain a materially false or misleading statement

Question 31

Objectivity

Answer 31

No bias, conflict of interest or undue influence of others to override professional judgement
Don’t provide service if undermines professional judgement

Question 32

Professional competency and due care

Answer 32

Maintain professional knowledge and skill at the level required to ensure the client receives a competent and professional service

Question 33

Confidential

Answer 33

Can’t use info for personal gain
Confidentiality on info gained in professional setting, don’t disclose without proper and specific authority
Unless a professional or legal reason to disclose

Question 34

Professional behaviour

Answer 34

Must not perform in a way which may be viewed as:
- Negligent
- Incompetent
- Improper
Comply with relevant laws and regulations and avoid behaviour which discredits the profession

Question 35

Threats to compliance with professional rules

Answer 35

Familiarity - good friends with client
Self interest - Financial or other interests of a professional accountant or of an immediate or close family member
Advocacy - accountant promotes a position or opinion to the point that objectivity may be compromised
Self review - previous judgment needs to be re-evaluated by the professional accountant responsible for that judgment
Intimidation