2 Basic income tax computation

Question 1

Who are assessable persons?

Answer 1

All individuals, including children, are chargeable to income tax.

Question 2

What are residents of the UK taxed on?

Answer 2

Worldwide income

Question 3

How is income treated for married couples?

Answer 3

Generally, income generated from assets jointly owned is split 50:50 between spouses regardless of the actual percentage ownership

Question 4

How can you change the percentage of ownership in a marriage in relation to income from assets?

Answer 4

Where jointly owned assets are held other than in a 50:50 ratio, an election can be made to HM Revenue & Customs (HMRC) for the income to be taxed on the individual spouses according to their actual percentage ownership.

Question 5

What is the order of income?

Answer 5

Trading income, employment income, property income, pension income, savings income, UK dividends

Question 6

What are the sources of income categorised as?

Answer 6

Non-savings income, savings income or dividend income

Question 7

What does non savings income compromise of?

Answer 7

Trading income, employment income, pensions income and property income.

Question 8

What are property income be?

Answer 8

Property income is typically rental income, but also includes other items such as the income element of a premium on granting a short lease.

Question 9

What are sources of investment income?

Answer 9

Savings income and dividend income

Question 10

What income is exempt?

Answer 10

Interest from NS&I, Gambling and lottery winnings, income from an ISA

Question 11

What is the personal allowance for 16/17?

Answer 11

£11,000

Question 12

What can the personal allowance not be set against?

Answer 12

Capital gains

Question 13

How do you reduce a persons personal allowance if earning over £100,000.

Answer 13

Net income - gift aid - personal pension contributions = net income. net income -100000 *50%.

Question 14

What is the basic rate band for 16/17?

Answer 14

£32,000

Question 15

What percentages are used for non savings income?

Answer 15

20%, 40%, 45%

Question 16

Is the ANI exceeds £xxxxxx the personal allowance is reduced to Nil

Answer 16

£122,000

Question 17

What is the marriage allowance?

Answer 17

The marriage allowance (MA) allows a spouse or civil partner to elect to transfer a fixed amount of the personal allowance to their spouse/civil partner.

Question 18

What might the marriage allowance be referred to?

Answer 18

The MA may also be referred to as the transferable amount of the PA.

Question 19

When is the marriage allowance available?

Answer 19

The MA is available provided neither spouse (or civil partner) is a higher rate or additional rate taxpayer.

Question 20

What percentage of the personal allowance is given to the spouse?

Answer 20

10%

Question 21

What is the maximum benefit of the marriage allowance?

Answer 21

£220

Question 22

How do you work out the maximum saving of the marriage allowance?

Answer 22

Unused personal allowance x basic rate income tax

Question 23

When must the marriage allowance be claimed for during the tax year?

Answer 23

By 5th April 2017

Question 24

Do you need to reapply each year for the marriage allowance?

Answer 24

No

Question 25

When can you claim marriage allowance for?

Answer 25

Within 4 years by April 2021

Question 26

What is income tax payable?

Answer 26

The final tax bill to be paid via self-assessment after deducting, tax already paid on employment income (PAYE).

Question 27

What is income tax liability?

Answer 27

The total income tax due on the taxpayer's total gross income, after deducting reliefs and the personal allowance.

Question 28

What relief is given for employees? (2)

Answer 28

1. The purchase of plant or machinery by an employed person for use in his employment. 2. The purchase of shares in a employee-controlled trading company by a full-time employee.

Question 29

What relief is given for partners? (2)

Answer 29

1. The purchase of a share in a partnership, or the contri­bution to a partnership of capital or a loan. The borrower must be a partner in the partnership. 2. The purchase of plant or machinery for use in the partnership, by a partner.

Question 30

How is relief given for qualifying interest payments?

Answer 30

Relief is given by deducting the amount of interest paid in a tax year from total income.

Question 31

What two ways can you get tax relief for charitable giving?

Answer 31

1. Donations under the gift aid scheme | 2. Payroll giving under the payroll deduction scheme.

Question 32

How do basic rate tax payers obtain tax relief on gift aid payments?

Answer 32

Obtain the tax relief at the time of payment, by only paying 80% of the amount of the donation.

Question 33

How do higher and additional rate tax payers obtain tax relief on gift aid payments?

Answer 33

The effect of extending the basic and higher rate bands is that income equivalent to the value of the gross donation is taxed at: – 20%, rather than 40% for a higher rate taxpayer or – if an additional rate taxpayer, at 20% rather than 45%.

Question 34

What is child benefit tax charge?

Answer 34

Child benefit is a tax free payment from the Government that can be claimed in respect of children.

Question 35

When does a child benefit income tax charge occur?

Answer 35

When an individual or spouse have adjusted net income of £50,000 or more.

Question 36

What percentage is charged on income between £50,000 and £60,000 for child benefit?

Answer 36

1% of each £100 of income over £50,000

Question 37

What percentage is charged on income over £60,000 for child benefit?

Answer 37

The amount of child benefit received

Question 38

When working out child benefit charge. What do you use as the income figure?

Answer 38

Adjusted net income (less gift aid)

Question 39

Under what three conditions is a individual a resident in the uk?

Answer 39

1. Do not meet one of the automatic non-UK residence tests 2. Meet one of the automatic UK residence tests 3. Meet one or more of the sufficient ties tests.

Question 40

What is the procedure to determine residence?

Answer 40

1. Check automatic non-UK residence test - if not satisfactory - 2. Check automatic UK residence tests, if not - 3. Determine how many sufficient ties with the UK exist, and, how many days are spent in the UK in the tax year, then use tax tables to decide status

Question 41

What is the automatic non-UK residency tests?

Answer 41

An individual is automatically not UK resident if they are ‘in the UK’ in the tax year for less than: 16 days or, 46 days and has not been a resident in the UK in any of the previous three tax years or 91 days and works full time overseas

Question 42

When is an individual automatically a resident in the UK? (3)

Answer 42

they are in the UK for at least 183 days in the tax year or | their only home is in the UK or they work full-time in the UK.

Question 43

What time does it count if the resident is in the UK for residency?

Answer 43

Midnight

Question 44

What are the five ties that HMRC determine if a UK resident?

Answer 44

1. Family 2. Accommodation 3. Work 4. Days in the UK - 90 days in the UK 5. Country - More time here than anywhere else

Question 45

If a individual is leaving the country, what ties are relevant?

Answer 45

All five

Question 46

If a individual is arriving in the country, what ties are relevant?

Answer 46

Only the first four ties, not the country one