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Tax > Forgetting > Flashcards

Forgetting Flashcards

1
Q

IHT occurs?

A

Transfer of value of chargeable property made by a chargeable person

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2
Q

exempt transfer from IHT?

A

Transfers to a spouse

Transfers to a charity

Transfers to qualifying political party

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3
Q

What is the AE for IHT and what if it is unused

A

3000 a year and can be carried forward one year only

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4
Q

exempt amount for gifts for IHT?

A

If gift less than 250£

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5
Q

what is a PET? how do you treat it

A

Potentially exempt transfer. It is not exempt if the transferor dies within 7 years.

Apply any AE that there is and any wedding exemption if necessary. Can apply the NRB when/if IHT due on these due to transferor dying within 7 years.

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6
Q

What is a CLT? How do you treat it?

A

Chargeable lifetime transfer.

Apply the relevant AE (if any) and nil rate band.

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7
Q

How do you treat trusts in IHT?

A

Apply AE and Nil rate band as they are a CLT

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8
Q

What IHT do you pay if transferror pays IHT and if the recipient pays IHT?

A

Transferor - Gross-up tax rate by x by 100/80.

Recipient - Apply normal IHT rate.

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9
Q

Gross value of tranferor if transferor pays IHT

A

Value of gift - AE left - NRB left * (100/80 x Tax rate)

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10
Q

WHo pays IHT on death

A

Personal representitives

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11
Q

What if tranferor dies within 7 years of making a CLT and PET PET?

A

For PET need to pay tax on this at the death rate. For CLT need to pay additional tax

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12
Q

what if a spouse dies, what can the other do?

A

Inherit their unused NRB. This is done by taking the percentage unused of the NRB that existed in the year of their death, and applying it to the NRB in the relevant year. This is now the new NRB.

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13
Q

What is the Residence NRB? What can they clain on RNRB?

(IHT)

What if exceeds 2.5m?

A

This is for direct descendents where they will inherit property.

Can claim lower of:

  1. Value of property
  2. Maximum amount (125,000)

If exceeds 2.5m reduce by 1£ for every 2£ over.

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14
Q

When can you reduce the IHT rate on death?

A

If more than 10% of the chargeable amount is gifted to charity.

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15
Q

What if there is private use for car and house? (employment income)

How does this differ to self- employed?

A

Benefit in kind exists. Not if its completely job realted.

If self employed need to add back motor costs to Trading income as the private element is not an allowable expense.

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16
Q

5 ethics principles

A

Integrity

  • This is being straightforward and honest in all professional and business relationships.

Objectivity

  • This means being free from bias, undue influence and conflict of interest.

Professional Competence and Due Care

  • We have a requirement to maintain professional knowledge and skills, act diligently and in accordance with applicable technical and professional standards.

Confidentiality

  • We must respect confidentiality, do not disclose unless required to do so, do not use for own advantage. If expect money laundering etc you can break confidentiality, or for criminal investigation. Can’t use info, ie knowing a firm will float, to buy shares etc to benefit.

Professional Behaviour

  • Avoid any behaviour that discredits the profession.
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17
Q

5 ethics threats

A

Self-interest

  • The financial or other interest of an accountant or close family member.

Self-review

  • When a previous judgement need to be re-evaluated by the accountant responsible for that judgement.

Advocacy

  • Promoting a position or opinion to the point that subsequent objectivity may be compromised.

Familiarity

  • Because of close friendships, become too sympathetic to the interests of others.

Intimidation

  • When deterred from acting objectively because of threats, actual or perceived.
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18
Q

Five standard of tax advisor

A
  1. Client Specific
    * Tax planning must be specific to a particular client’s facts and circumstances.
  2. Lawful
    * Members and clients must act at all times with integrity and within the law. Members should highlight areas where the law is uncertain.
  3. Disclosure and Transparency
    * All disclosures to HMRC must fairly represent all the facts.
  4. Tax Planning Arrangements
    * Members should not create, encourage or promote tax planning arrangements that are contrary to clear intention of Parliament, or seek to exploit shortcomings within the relevant legislation.
  5. Professional Judgement and appropriate documentation
    * Members should keep notes on a timely basis of the rationale behind the advice.
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19
Q

differece between tax avoidance and evasion?

A

Tax evasion illegal and try to mislead HMRC by surpressing info or providing false info

Tax avoidance legal and used to reduce the tax burden.

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20
Q

What to do if there is a purchase of capital assets included in the trading profits?

A

Add it back this is a disallowed expenditure

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21
Q

what to do if goods taken by the employer when calculating the trading income?

A

Tax trader on the profit that would of been made (i.e. add this amount back).

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22
Q

What items get their own pool in CA?

A

Ones that have a private use element

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23
Q

What items go in the special pool of CA?

A

Cars with emmisions >110g/km

Integral features - water systems, AC etc

Thermal insulation

Assets>25k and UEL over 25 years

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24
Q

WHat do you calculate capital allowances on

A

Assets that perform a function and not just a setting.

25
Q

How to work out the CA on a car?

A

For a self employed individual only allowance allowed is that which relates to business.

For an employee or business vehicles can claim the whole allowance on cars.

26
Q

What if a partner takes drawings from a partnership when splitting profits?

A

Make sure to remove the r from their income figure.

27
Q

How to deal with notional profits/lossess for partners? What are they?

A

Notional profit - when co makes a profit but one or more partners make a loss.

reallocate the profits to the partner with a loss so that it is reduced to 0.

Notional loss - This is when co makes a loss but on or more partners make a profit

reallocate the profit amongst those that makes a loss untill the profit is 0 or their loss is zero.

Allocate based on the share of profits losses the partners make. e.g. If A makes 3000 loss and B makes 2000 loss then reallocate for A by 3/5 x PRofit of C and for B 2/5 x profit of C.

28
Q

When is each NIC paid? explain them all.

A

Class 1 Primary - Paid on salary by the employees.

Class 1 Secondary - Paid on salary of employees by Employers.

Class 1A - Paid by employers on the Emplyees BIK. (so calc BIK and then work out).

Class 2 - Paid by self employed on earnings. Pay when greater than small earnings exemption.

Class 3 - Paid by anyone to keep a record of contribution and to guarantee state pension in future.

Class 4 NIC - Paid on taxable profits by self employed.

29
Q

E.g. of something exempt from VAT?

A

Insurance

30
Q

three rates of VAT?

A

zero rate, reduced rate (5%), standard rate (10%).

31
Q

When do you charge VAT

A

When a taxable person makes a taxable supply of a G or Sin the course of business.

32
Q

what must businesses pay HMRC for VAT?

A

Amount of output VAT from sales - the amount of input VAT from purchases

33
Q

When should you register for VAT?

A

When you have reason to believe the taxable turnover will exceed the registration threshold in the next 30 days, of that it will exceed it over 12 months.

34
Q

Why would a company want to voluntary register for VAT? whats the condition

A

To recover input VAT. Can do so long as they are moving taxable supplies.

35
Q

When can a taxable person apply to deregister?

A

When they believe their taxable income will be less than 83000 in next 12 months

36
Q

When must a taxable person submit a VAT return?

A

month after the end of a tax period.

37
Q

Basic VAT tax point and actual?

A

Basic is the date the g or service has been received by the customer.

Actual tax point is the date of the invoice if within 14 days of acutal

38
Q

What can registered businesses not recover input VAT on?

A
  1. Motor cars
  2. Customer entertainment
  3. Non business expenses
39
Q

What is the VAT effect if a business pays private fuel of an employee?

A

Go to VAT scale and find figure relative to the cars g/km CO2, and calc the VAT off this. This will be added as output VAT.

40
Q

what is recoverable VAT from HMRC?

A

Standard and zero rate, but not exempt.

41
Q

When is exempt supplies VAT recoverable?

A

input vat on exempt supplies less than 625£ on average, and less than 50% of all input VAT for a period relates to exempt supplies.

42
Q

VAT charged across global sales?

A

Registed co and customer - charge zero rate and they pay home country VAT

Register co and unregister customer - charge UK rate.

Sale to non EU country – classed as an export

The sale would be zero rated

43
Q

exempt from CGT?

A

Cars

livestock

wasting chattels (less than 25 years useful life)

premium bonds, cash

chattels if consideration less than 6000

44
Q

how to treat non wasting chattel if proceeds greatear than or equal to 6000, and costs less than

A

Gain is the lower of:

  1. Sale proceeds - cost
  2. 5/3 x (sale proceeds - 6000)
45
Q

how to treat enhancements and repairs to items in CGT?

A

Enhancements add to cost, repairs dont add to cost.

46
Q

What if disposal of asset at a loss.

A

If less than 6000 the asset no longer exempt so can claim loss relief.

47
Q

when is CGT payable?

A

31/1 following end of tax year.

48
Q

what if persons taxable income less than BRB for CGT?

A

Can use up rest of the BRB for gains and tax gains after AE at 10% untill all the BRB has been used up.

49
Q

What if there are a mixture of losses and gains for CGT?

A

Can offset losses against gains and pay a net rate.

50
Q

reliefs available for CGT and explain

A
  1. Rollover relief - Pay 0 tax on the amount that is reinvested. amount reinvested will reduce the cost of the new assets and encourage in future to reinvest again to avoid a large gain.
  2. Entrepreneurs relief - tax at 10% on business assets.
  3. Principle private residence - 100% relief against the property if it is the elected one. (one between husband and wife)
51
Q

Options for dealing with a trade loss?

A
  1. Carry forward against future trade profits (default)
  2. Relieve against total income of current or previous fiscal year.
  3. Offset trade loss against trading income of 3 years prior. (on FIFO basis so earlier years first)
52
Q

When do you pay income tax not deducted at source (PAYE)? e.g. for 2018/19

A

31/1/19 = first payment

31/7/19 second payment

31/1/20 = balancing payment/credit

Balancing option as first payment beofre the YE.

53
Q

what if capital allowances for trading income have been calculated on a period different to the tax year?

A

Time apportion the capital allowance to fit the tax year and only claim what you are allowed to cliam.

54
Q

Employed v self employed? how to tell?

A
  • Control
    • Employees usually have no control over when, where or what they do. If they do not do it they can be sacked.
  • Remuneration and financial risk
    • Employees will generally always get paid a regular wage and bear no financial risk.
  • Equipment
    • If you are employed, employees do not provide their own equipment. If self-employed… e.g. a joiner, they will likely have their own bag of tools.
  • Work performance and correction
    • Employees perform work themselves, no financial consequences if corrections are needed.
    • Self-employed workers can delegate the work and suffer correction costs.
  • Holidays and Sickness
    • Employees are entitled to holiday and sick pay. If the person you are working agrees to give you this then this is good evidence that you are employed.
  • Exclusivity
    • Generally an employee can only work for one employer.

(employees usually have contract for services).

55
Q

Implication of employment for:

  1. Employer
A
  1. They must contribute to a work based pension scheme
  2. They must comply with minimum wage laws
  3. They must provide holiday pay, sick pay, maternity/paternity pay etc.
  4. They must pay Secondary Class 1 National Insurance on the wages paid
  5. They must operate and comply with the PAYE system
  6. However, they can direct when and where individuals work, restrict individuals to only work for that company and take all the profit from the work performed by the employees.
56
Q

Implication for the employee of employment:

A
  1. Less expenses can be deducted against employment income – for example travel to and from work is generally allowable for the self employed
  2. Less flexibility of work – you must do what your employer reasonably expects you to do. If reasonable you can sack them if they do not do it. employee has to do what he/she is told.
  3. Suffer Primary Class 1 National Insurance on salary (top rate 13.8% cf 9% for self-employed – see later lecture on National Insurance)
  4. They automatically have income tax deducted from their pay, usually monthly, and so pay tax much earlier than a self-employed individual.
  5. However, employment income in theory is more secure, consistent and has various rights attached (holiday pay etc.) and the employee does not have to produce accounts, account for VAT or deal with HMRC (apart from normal tax return)
57
Q

How to determine if someone is trading or not?

A
  1. Subject matter of the transac
    • if bought to resell for profit = trading
  2. profit motive
    • if bought with intention of selling at profit and have profit motive it is trading.
  3. Length of ownership
    • goods bought and sold quickly = trading
  4. frequency of transaction
    • frequent transactions = trading
  5. Supplementary work
    • enhance/improve assets before sale = profit motive
  6. Reasons for sale
    • selling on irreg basis to cover finances. not trade.
58
Q

Arguments for and against abolition of IHT?

A

For:

  • Income taxed during life and again taxed on death
  • Raises relatively little compared with costs to administer
  • Would encourage a saving attitude which would help in times of austerity
  • The very wealthy can often reduce the tax by careful planning
  • Large IHT bills can cause dismemberment of family firms, force sale of ancestral homes

Against:

  • Only the wealthy are taxed
  • Form of social justice – prevents wealth accumulating in few families
  • State needs to raise tax some somewhere – IHT at least is progressive tax
  • Loopholes can be closed to prevent the very wealthy avoiding it

Tax (7 decks)

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