Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Law and Practice > Workshop 6: Taxation of Individuals, IT, CGT and IHT > Flashcards

Workshop 6: Taxation of Individuals, IT, CGT and IHT Flashcards

**Topic: Individual Taxation** - Introduction to taxation - general principles - Income tax - Capital gains tax - Inheritance tax and the Business Exemption relief - Taxation self-assessment exercises Part 1

1
Q

What is the difference between receipts and expense?

A

Receipt - money paid to business
Expense - money business pays out

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why is it important to distinguish income receipts from capital receipts and

income expenditure from capital expenditure?

A

Because, the only way calculations when reducing tax bill work are:

  1. Income receipts - income expenditure and
  2. Capital receipts - capital expenditure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is ‘income receipts’ generally defined as?

A

Money received on a regular basis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are some examples of income receipts?

A
  • Trading profits
  • Interest bank pays in relation to savings held in account
  • Rent received by landlord is landlord’s income receipt
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is ‘capital receipts’ generally defined as?

A

One-off transactions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is an example of capital receipts?

A

Gain on sale of premises

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is ‘income expenditure’ generally defined as?

A

Money spent as a part of day-to-day trading

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are some examples of income ependiture?

A
  • Heating and lighting bills
  • Rent
  • Marketing
  • Stationery expenses
  • Staff wages
  • Fees in general running of business
  • General repairs
  • Interest payable on loans
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is ‘capital expenditure’ generally defined as?

A

Money spent to purchase capital assets as part of business infrastructure or enduring benefit for business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are some examples of ‘capital expenditure’?

A
  • Equipement
  • Machinery
  • Property
  • Expenditure on enhancing capital asset
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Are routine maintenance on capital assets classified as capital expenditure?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What result do you get from the following formula?

Income receipts - income expenditure =

A

Income receipts - income expenditure = trading profts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What calculation is used when seeking relief for capital expenditure?

A

Capital receipts (large property, machinery or equipment) - capital expenditure (cost of the asset) = reduced tax bill as his results in reduced gain/profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When do tax reliefs (i.e., deductions from the tax bill) apply?

A

When capital asset is sold or disposed of (e.g., gifted)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What do capital allowances do for certain capital items?

A

Spreads the cost of capital expenditure on them over a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What calculation is used for capital allowances spreading cost of capital expenditure over a period of time?

A

Income receipts - capital expenditure over a period of time

(Exception to general rule of income receipts - income expenditure and capital receipts - capital expenditure)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What do companies pay corporation tax on?

A

Their taxable total profit (TTP) which includes:

  • Income profits
  • Chargeable gains
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the tax years individuals are assed on their income tax and capital gains tax?

A

6th Apr - 5th Apr

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the ‘sum net of tax’?

A

Sum after tax has been deduced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Which amount is to be included when calculating tax liabilities?

Net amount [net of tax] or gross amount

A

Gross amount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Who is the annual exemption tax allowance applicable to and on what tax?

A

For CGT only

Individuals only

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What type of allowance is an ‘annual investment allowance’?

A

A special type of capital allowance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Who is assessted to [x] tax based on the financial year?

A

Companies

are assessed to corporation tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

When does the financial year begin and end?

A

1 Apr - 31 Mar

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the ‘gross sum’?

A

Total before tax is levied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is ‘income tax’?

A

Tax paid by individuals on taxable income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Who pays tax through the self-assessment system?

A

Individuals and businesses incl.
- Sole traders
- Partnerships
- Companies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Individuals are assessed to income and capital gains tax based on __ year

Companies are assessed to corporation tax based on __ year

A

Individuals - tax year

Companies - financial year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What is an example of income tax being deducted at source?

A

PAYE

This is where a payee receives a sum of net tax when being paid (i.e., after tax has been deducted)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What are capital allowances and who are they available to?

A

They are tax allowances (i.e., deductions) for capital expenditure

Available to businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is capital gains tax?

A

Tax paid by individuals on taxable chargeable gains

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is corporation tax?

A

Tax paid by companies on taxable total profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is meant by income tax is charged on a current year baiss?

A

That income earned in the current year, e.g. 6 Apr 2024 to 5 Apr2025, will be taxed in and according to rate applicable to 6 Apr 2024 to 5 Apr 2025

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What is ‘dividend allowance’?

A

Band of tax free dividend income available to individuals for income tax purposes

35
Q

What is the difference between ‘gross sum’ and ‘net sum’?

A

Gross sum - total sum before tax is deducted

Net sum - amount left after tax has been deducted

36
Q

What is ‘net income’?

A

Total income less (i.e. minus) available tax relief

Money left after taking away taxes, costs and allowances

37
Q

Who is ‘personal allowance’ relevant for?

A

Individuals paying income tax only

38
Q

What is ‘personal allowance’?

A

A band of tax-free income

39
Q

What is a company’s TTP made up of?

A

Income profits and chargeable gains

40
Q

What is ‘total income’?

A

A taxpayer’s gross income from all sources before any deductions

41
Q

What is income?

Provide an example

A

Income from savings

e.g., interest

42
Q

What is ‘taxable income’?

A

Net income less/minus personal allowance

43
Q

What are the two ways HMRC assesses and collects income tax?

A
  1. Self assessment
  2. Deduction at source
44
Q

What is ‘total income’?

A

Taxpayer’s total gross income from all sources

45
Q

Which types of savings are received gross (i.e., with no deduction)?

A

Savings income and dividend income

46
Q

What are basic rate taxpayers entitled to regarding the benefit of a personal savings allowance?

A

First £1k of interest on savings is taxed at 0%

47
Q

What are higher rate taxpayers entitled to regarding the benefit of a personal savings allowance?

A

First £500 of interest on savings is taxed at 0%

48
Q

Do additional rate taxpayers get personal savings allowance?

A

No

49
Q

What is the effect of the dividend allowance?

A

No individual pays any tax on the first £500 of dividend income they receive

50
Q

Why was ‘dividend allowance’ introduced?

A

To attempt accommodating for companies paying dividends to shareholders out of profits that have already been charged to corporation tax

51
Q

How does the dividend allowance vary amongst different taxpayers?

A

Dividend allowance is the same for all taxpayers, no matter how much non-dividend income they receive

52
Q

What tax liability are benefits in kind subject to?

A

Subject to income tax but not deduction of tax under PAYE

53
Q

What types of benefit in kind are subject to deduction of tax under PAYE, despite benefits in kind generally not being subject to deducted of tax under PAYE?

A

Cash payments of salary including bonuses

54
Q

What are the 6 steps to working out an individual’s income tax?

A
  1. Calculate total income
  2. Calculate net income
  3. Calculate taxable income
  4. Applying tax rates
  5. Personal savings allowance
  6. Add tax payable on three types of tax payable on three types of income (non-savings, saving & income)
55
Q

How do you calculate total income?

A

By adding together all receipts from all sources of income

56
Q

How do you accomodate for income after deduction of tax at source?

A

You need to include gross amount in the calculation of Total Income

57
Q

How do you work out net income?

A

By deducting available tax reliefs for individual

58
Q

What tax relief can be sought to be applied when calculating net income for understanding an individuals income tax?

A

Interest that has been paid on

  • Qualifying loans
  • Pension scheme contributions
59
Q

Why is interest that is paid to the bank as the cost of receiving qualifying loans from the bank a form of tax relief?

A

Because it can be deducted from the Total Income, thereby reducing tax bill

60
Q

What do qualifying loans include?

A

Loans to:

  • Buy interest in partnership
  • Contribute capital or make loans into partnership
  • Buy shares in or make loans to ‘close’ company
  • Buy shares in employee-controlled company or invest in a co-operative
61
Q

Are pension scheme contributions able to benefit from the relief of income tax?

A

Yes

61
Q

What is the relief on pension scheme contributions?

A

An amount equivalent to pension scheme contribution is deducted from taxpayer’s Total Income for that year

62
Q

How do you ascertain a taxpayer’s Taxable Income?

A

By deducting the taxpayer’s personal allowance from their net income

63
Q

What is the personal allowance for the tax year 2024/2025?

A

£12,570

64
Q

How does personal allowance vary when a taxpayer has a net income above £100,000?

A

Personal allowance of £12,570 is reduced by £1 for every £2 of Net Income

65
Q

What will a taxpayer have to have a Net Income of to lose the personal allowance of £12,570 completely?

A

£125,140

66
Q

What are the three different types of income that must be separated when applying tax rates?

What is the order they must be taxed in?

A

Non savings
Savings
Dividends

(Never say die)

67
Q

How do you work out non-savings income?

A

Taxable income minus savings and dividend income = non-savings income

68
Q

What are the taxable incomes per band?

A

Basic - £0 - £37k
Higher - £37,701 - £125,140
Additional - + £125,140

69
Q

What are the non-saving and savings % tax rates for each tax band?

A

Basic - 20%
Higher - 40%
Additional - 45%

70
Q

What are the dividends % tax rates for each tax band?

A

Basic - 8.75%
Higher - 33.75%
Additional - 39.35%

71
Q

When do you apply savings tax rates to a taxpayer’s taxable income?

A

After their personal savings allowance has been applied

72
Q

When do you apply dividends tax rates to a taxpayer’s taxable income?

A

After the nil rate has been applied to the first £500 of dividend income

73
Q

What was the nil rate for dividend income applied in the tax year 2023/2024?

A

Applied to the first £1000 of dividend income

74
Q

What is the savings nil rate taxed on?

A

First £1000 if taxpayer’s entire Taxable Income is within basic rate band

First £500 if taxpayer’s entire Taxable Income does not exceed higher rate band

75
Q

Is there a savings nil rate for taxpayer’s Taxable Income exceeding additional/higher rate band?

A

No

76
Q

Do National Insurance Contributions affect an individuals personal income tax computation?

A

No

77
Q

What are the four conditions that need to be met for capital gains tax to be charge?

A
  1. A chargeable disposal
  2. of a chargeable asset
  3. by a chargeable person
  4. which gives rise to a chargeable gain
78
Q

When is capital gains tax payable?

A

On or before Jan 31 following the tax year when the disposal occurs

79
Q

What are the two main instances of the disposal of an asset?

A
  1. Sale of an asset
  2. Gift of an asset during taxpayer’s lifetime
80
Q

What are main types of assets that are excluded from being a ‘chargeable asset’?

A
  1. Principal private residence
  2. Motor cars for private use (incl. vintage cars)
  3. Certain investments
  4. UK sterling and foreign currency held for your own or your family’s personal use
81
Q

Are gains made by charities exempt for capital gains tax?

A

Yes provided that the gain is applied for charitable purposes

82
Q

Why is CGT not payable on disposals between spouses?

A

Because legislation says neither a gain or loss has ocurred

83
Q

What value does a spouse receive an asset that their spouse is disposing of?

A

At the initial value (not the value that has seen a decrease or increase in)

Business Law and Practice (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions