Basics of Tax - Sole/Partnerships

Question 1

What is tax Planning?

Answer 1

Tax planning is looking at an individuals income and using the rules in the most tax efficient way. E.g. paying into a pension scheme or giving money to charity are both legitimate ways of reducing the liability.

Question 2

What is tax avoidance?

Answer 2

Tax avoidance is defined as bending the rules of the tax system to gain a tax advantage that parliament never intended. This operates within the letter of the law but not the spirit of the law.

Question 3

What tax evasion?

Answer 3

Tax evasion is where there is a deliberate attempt not to pay the tax which is due. This can involve deliberately concealing income or reporting less income than was actually received.

Question 4

What does the badges of trade mean?

Answer 4

Where there is a disagreement as to where there is a trade or not the may be asked to decide. They look for the presence or absence of common features of trade. These are labelled the badges of trade.

Question 5

List the 9 badges of trade

Answer 5

• Profit Seeking Motive
• Frequency of transactions
• Subject Matter
• Existence of similar trading transactions or interests
• Changes to the asset
• The way the sale was carried out
• The source of finance
• Length of ownership
• Method of acquisition

Question 6

When do you have to register with HMRC by?

Answer 6

You must register with HMRC before 5 months after the end of the first tax year. Always lands on Oct 5th