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Business Law and Practice > Taxation > Flashcards

Taxation Flashcards

1
Q

What is a receipt?

A

Money paid to business

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2
Q

What is an expense?

A

Money paid out of business

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3
Q

Why is it important to have a distinction between income expenditure/receipt and capital expenditure/receipt?

A

Income expenditure can only be deducted from income receipt and vice versa

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4
Q

Which taxes are direct?

A

Income tax
CGT
Corporation tax

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5
Q

Which taxes are indirect?

A

VAT

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6
Q

What are direct taxes?

A

imposed by reference to taxpayer’s circumstances

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7
Q

What are indirect taxes?

A

imposed by reference to transactions

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8
Q

What is an income receipt?

A

Money received on a regular basis

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9
Q

What is a capital receipt?

A

One off transactions

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10
Q

What is income expenditure?

A

Money spent in day to day trading

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11
Q

What is capital expenditure?

A

one off transactions (purchasing capital asset/enhancing capital asset)

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12
Q

What do capital allowances enable?

A

Certain capital expenditure to be deducted from income receipts

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13
Q

What year are individuals assessed for income/CGT?

A

tax year - 06.04-05.04

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14
Q

What year are companies assessed for corporation tax?

A

Financial year - 01.04-31.03

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15
Q

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

A

PAYE system

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16
Q

What are the two methods that HMRC assesses and collects income tax?

A
  • self assessment
  • deduction at source
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17
Q

What are the steps for assessing income tax?

A
  1. calculate total income
  2. deduct tax reliefs (net income)
  3. deduct personal allowances (taxable income)
  4. split into non-savings, savings and dividends
  5. PSA
  6. Apply tax rates
  7. Add up amounts of tax
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18
Q

What is the personal savings allowance for basic/higher rate taxpayers? (income tax)

A

basic - first £1000
higher - first £500

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19
Q

What is the dividends allowance for income tax?

A

first £1000

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20
Q

Are benefits in kind generally subject to deduction of tax under PAYE?

A

no

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21
Q

What are the tax reliefs for income tax?

A

Interest paid out on qualifying loans
Pension scheme contributions

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22
Q

What are examples of qualifying loans for income tax relief?

A
  • buy interest in partnership
  • contribute capital/make loan to partnership
  • buy shares/make loan to close company
  • buy shares in employee controlled company/co-operative
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23
Q

What is the 23/24 personal allowance for income tax?

A

12,570

24
Q

How is personal allowance reduced for income tax?

A

by £1 for every £2 over £100,000

25
Q

What is CGT charged on?

A
  • Chargeable disposal
  • Of a chargeable asset
  • By a chargeable person
  • Which gives rise to a chargeable gain
26
Q

What are chargeable disposals?

A
  • Sale of an asset
  • Gift of an asset during taxpayer’s lifetime
27
Q

What assets are not chargeable assets?

A
  • Principal private residence
  • Motor cars for private use
  • Certain investments
  • UK sterling + foreign currency
28
Q

What chargeable gains are exempt?

A

Charities

29
Q

What is the consideration where disposal is made at arms length?

A

Price paid by buyer

30
Q

What is the consideration where disposal is made to a connected person?

A

Market value

31
Q

What is the consideration where disposal is undervalued?

A

Market value

32
Q

What is the consideration where disposal is a gift?

A

Market value

33
Q

What are the allowable expenditures?

A
  • Initial expenditure
  • Subsequent expenditure
  • Disposal expenditure
34
Q

What is included in subsequent expenditure?

A

Enhances its value
Establishing, preserving or defending title to the asset

35
Q

What can be set off against capital gains?

A

capital losses

36
Q

What happens if the capital losses are more than the capital gains for a tax year?

A

set against future tax years until used up

37
Q

What is the current annual exemption?

A

£6000

38
Q

Who does not have annual exemptions?

A

Companies

39
Q

What is the CGT rate for basic rate taxpayers?

A

10%

40
Q

What is the CGT rate for higher rate taxpayers?

A

20%

41
Q

What is the effect of Business Asset disposal relief?

A

Reduces higher rate of CGT to 10%

42
Q

What are the qualifying assets for business asset disposal relief?

A
  • All or part of a trading business
  • Assets in business that used to trade
  • Shares in trading company
  • Shares in a company that used to trade
43
Q

What are the requirements for BADR for disposal of all or part of a trading business?

A

owned for at least 2 years prior

44
Q

What are the requirements for BADR for disposal of assets in a business that used to trade?

A

o Owned for 2 years prior
o Used in the business when it ceased to trade
o Disposed of within 3 years of ceasing to trade

45
Q

What are the requirements for BADR for disposal of shares in a trading company?

A

o Business is and has been for 2 years a trading company
o Shares held for 2 years
o Officer or employee of the company who holds at least 5% of ordinary voting shares, entitled to 5% of profits and net assets on winding up for at least 2 years

46
Q

What are the requirements for BADR for disposal of shares in a company that used to trade?

A

o Owned for 2 years before ceased to trade
o Officer or employee of the company who holds at least 5% of ordinary voting shares, entitled to 5% of profits and net assets on winding up for at least 2 years
o Disposed of within 3 years of ceasing to trade

47
Q

What is the business asset disposal relief lifetime allowance?

A

£1 million

48
Q

What is the effect of investors relief?

A

reduces higher rate to 10%

49
Q

What is the lifetime limit for investors relief?

A

£10 million

50
Q

What are qualifying shares for investors relief?

A
  • Fully paid ordinary shares issued for cash consideration
  • Trading company/holding company of trading company
  • At time of issue, no shares listed on stock exchange
  • Held for 3 years (from 04.16)
  • Not an officer/employee
51
Q

What are the two types of business relief?

A
  • Replacement of business assets relief (rollover relief)
  • Gift of business assets relief (hold-over relief)
52
Q

What is Replacement of business assets relief?

A

Taxpayer can postpone CGT on sale of asset by rolling over the gain into a qualifying replacement asset

53
Q

what does rollover relief apply to?

A

land and buildings
fixed plant and machinery
goodwill

54
Q

What is qualifying property for business property relief (IHT)?

A
  • A business or interest in a business
  • Shares in an unquoted company;
  • Shares in a quoted company
  • Land or buildings, machinery or plant owned by transferor but used for business purposes by either a company of which the transferor has control, or a partnership of which the transferor was a partner.
55
Q

What is the requirement for BPR?

A

owned asset for 2 years prior to transfer

56
Q

Which assets does BPR at 100% apply?

A
  • Transfer of a business or interest in business
  • Transfer of shares in unquoted company
57
Q

Which assets does BPR at 50% apply?

A
  • Transfer of shares in quoted company (if shareholder had control of company)
  • Land and buildings etc.

Business Law and Practice (9 decks)

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