week 8: personal taxes 1 Flashcards
When is the fiscal year?
The Fiscal year is the 6th April - 5th of following April
who are taxable persons who may be subject to income tax?
Taxable Persons:
Adults, children, trustees (holds or administers property or assets for the benefit of a third party) and personal representatives of the estates of dead persons.
Not liable to income tax: Companies, charities and pension funds.
What are the three acts relating to icnome tax?
The law relating to income tax has been rewritten into the following Acts:
1) Income Tax (Earnings and Pensions) Act 2005 (ITEPA).
Covering employment income and Pension income
2) Income Tax (Trading and Other Income) Act 2007 (ITTOIA)
3) Income Tax Act 2007
What are some types of income is exempt from income tax?
Exempt income types:
1) Some benefits – housing benefit, child benefit, maternity benefit;
2) Tax free savings returns – e.g., interest from mini-ISA, Payments from employment –redundancy payments (to max of £30,000), death in service payments.
3) Dividends from initial investments in Venture capital trusts, £7500 (was £4,250 before 6 April 2016) under rent-a-room scheme.
4) Others – scholarship grants (for recipient) , pension lump sums, lottery/premium bond winnings etc.
When is income tax taken?
your income is Aggregated and the tax is either - deducted at source or direct assessment
Deducted at Source = collected from person paying the income rather than person receiving it
PAYE - tax also deducted at source on employed earnings
What are the three classifications of income?
There are 3 classifications:
Non-savings – most types of earned income like wages / salaries, trading income
Savings – interests from banks or Building Society
Dividends – from UK companies
Different rates of tax on different income types so must classify in aggregation calculation
what are the non savings income tax rates?
bands tax rate tax band
Basic rate (BRT) 20% 1 – 37,700
Higher rate (HRT) 40% 37,701 – 125,140
Additional rate 45% over 125,140
How are savings treated in income tax?
Treated as HIGHER SLICE of income than non-savings (but lower than dividends)
Any savings that then falls into the basic rate band is taxed at 20%
Any savings that then fall into the higher rate band is taxed at 40% (excess then at 45% for the additional band)
Personal Allowances deducted first from non-savings income
what are the personal savings allowances?
Gives an additional zero rate sum of £1,000 for basic rate taxpayers and £500 to higher rate taxpayers (none for additional rate).
Whats the dividend allowance?
The first £500( was £1000 in 2024-2023)and (£2,000 in 2018-2023) of dividends are tax free; then;
Above £500, dividends are taxed at basic rate 8.75%, higher rate 33.75% or additional rate 39.35%
What is gift aid?
Tax relief is given to individuals on gifts to charities, of whatever size, providing that:
The taxpayer pays enough tax (income or capital gains) to cover the tax reclaimed by the charity. For a taxpayer who has not paid enough tax to cover the reclaim made by the charity, additional tax is paid.
The taxpayer gives a declaration to the charity, including details, e.g. name and address.
How much is gift aid per £1 donation?
For every £1 of donation, the charity can reclaim 25p.
e.g. For a gift of £80 cash made by the taxpayer, you would expect the charity to be able to reclaim £20, making the gift worth £100 (125% of donation amount).
are contributions to pension schemes by emlpoyers and emplyees allowable against tax?
Employers’ contributions allowable against their tax as an expense (reducing employer’s taxable profits)
Employee’s contributions allowable against income tax at highest marginal rate (reducing it from employee’s income before calculating tax)
Limit for contributions eligible for tax relief - Lower of earnings and £40,000.
