Calculations

Question 1

How to calculate trading profit

Answer 1

Income 
Less
Expenditure 
Less 
allowances 
= trading profit or loss

Question 2

What kind of income and expenditure are applicable to a trading profit calculation

Answer 2

Income in nature (not capital) reoccurring

Incurred wholly and exclusively for purpose of trade (eg not eating out as you would eat anyway)

Question 3

What allowances apply to calculation for trading profit

Answer 3

Annual investment allowance up to £1million on plant and machinery
Can have WDA of 18% on anything above £1m
Also WDA on previous years pool of plant and machinery at 18%

Question 4

Income tax steps

Answer 4

Calculate total income (might need to gross up)
Deduct reliefs (qualifying loans)
Deduct allowances
Calculate tax on each type of income NSNDI, savings and dividends
Add together

Question 5

Gross up calculation

Answer 5

Net income / (1- tax rate)

Question 6

What are qualifying loans for income tax relief

Answer 6

A loan to PR to pay IHT
A loan to invest in a close trading company
A loan to buy a share in partnership or to contribute to capital or make loan to firm (cap £50k or 25% of their total income in year relief is claimed)

Question 7

What are the allowances for income tax

Answer 7

Personal allowance - 12,500 apply in order of NSNDI, savings and dividends. Cannot carry forward. Reduce £1 for every £2 over £100k of income

Spouse - £1,250 unused personal allowance unless higher or additional rate reciever

Blind person £2,500

Property and trading allowance £1k off gross income instead of actual expenses to arrive at taxable income

Question 8

How to reduce personal allowance for income tax if income is over £100k

Answer 8

12,500 - (net income - 100,000 then / 2)

Round to nearest £1

Question 9

What is personal savings allowance for income tax

Answer 9

£1k for basic rate
£500 for higher rate
Nothing for additional rate

Work out which rate based on NSNDI plus savings income

Basic up to 37,500
Higher is 37,500-150,000
Additional 150,000 and over

Question 10

What is dividend allowance for income tax

Answer 10

£2k for everyone

Question 11

How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate

This card will just demonstrate NSNDI element

Answer 11

NSNDI = step 3 income less savings less dividends

NSNDI element will fall into either basic (up to 37,500) higher (37,500-150,000) or additional (over 150,000)

Then tax 20% for basic, 40% for higher and 45% for additional

Question 12

How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate

This card will just demonstrate Savings element

Answer 12

Deduct PSA either £1k or £500

Then add NSNDI and PSA to work out which rate. Either starting (up to £5k), basic (5k - 37,500), higher (37,500-150,000) or additional (150,000+

Then tax at starting 0%, basic 20%, higher 40%, additional 45%h

Question 13

How to separate NSNDI, savings and dividends income and calculate income tax at appropriate rate

This card will just demonstrate dividends element

Answer 13

Deduct £2k allowance

Then add £2k to NSNDI and total savings income to work out which rate

Ordinary 0-37,500
Upper 37,500-150,000
Additional 150,000+

Ordinary 7.5%
Upper 32.5%
Additional 38.1%

Question 14

Capital gains tax calculation steps

Answer 14

Disposal of chargeable asset
Calculate gain (sale price - purchase price - expenditure) indexation allowance
Reliefs
Deduct annual exemption (12,300 from highest rate items first. Cannot carry forward)
Aggregate
Apply rate

Question 15

What is CGT payable

Answer 15

On chargeable gains made by chargeable person on disposal of chargeable asset

Question 16

CGT- what are chargeable people

Answer 16

Individuals
PRs
Ps
Trustees
Not companies or charities

Question 17

What are chargeable assets - CGT

Answer 17

All property including debts

Not cash

Question 18

What is expenditure when calculating gain for CGT

Answer 18

Acquisition, disposal or producing costs
Preserving title
Enhance value reflected at time of disposal

Question 19

What are reliefs for CGT

Answer 19

Replacement of business asset/ roll over 
Incorporation of business 
Hold over on gift
Business asset disposal relief
Tangible moveable property 
Principle private residence relief
Damages for personal injury

Question 20

Rates for CGT

Answer 20

All gains other than residential property and BAD relief: if capital gains plus taxable income equals £37,500 or less pay 10%. If more than £37,500 10% up to 37,500 and 20% over 37,500

Residential property has 8% surcharge so 18% or 28%

BAD relief 10% regardless of income

PR and trustee taxed at 20% and 28% for residential property

Question 21

When can CGT be paid in 10 annual instalments

Answer 21

If disposal was gift
Qualifying asset is land, a controlling shareholding in company or any share (controlling or not) in a company whose shares are unquoted
And
Conditions for holdover relief are not met

Question 22

CGT relief on incorporation of business

Answer 22

Interest in incorporated business sold to a company
Gain deducted from cost of acquisition of new shares
Must transfer business with all assets ignoring cash
Annual exemption cannot be used

Question 23

CGT hold over relief on gifts

Answer 23

Gain deducted from market value to give low acquisition cost to donee
Cannot use annual exemption
Must be gift of business asset which includes:
Assets used in trade
Shares in trading company unlisted
Shares in personal trading company (own 5% shares) listed or unlisted
Assets used by S and used in their personal trading company

Question 24

CGT relief on replacement of business asset (rollover relief)

Answer 24

Gain deducted from cost of replacement
Cannot use annual exemption
Get replacement 1 year before or 3 year after disposal
Claim relief within 4 years of disposal or replacement (whichever is later)
Qualifying asset: land, buildings, goodwill, fixed plant and machinery NOT shares
Asset must be used in business and not as investment
Asset must be owned by P, firm, ST and S with 5% voting shares

Question 25

``` Can relief on incorporation of business Hold over relief on gift Relief on replacement of business asset Business asset disposal relief Be used together ```

Answer 25

No must chose just one

Question 26

CGT exemption damages for personal injury

Answer 26

These are exempt from CGT

Question 27

CGT exemption principle private residence relief

Answer 27

Disposal of a dwelling house including grounds up to 1/2 hectors is exempt from CGT provided they occupied it as their only or main residence through their ownership Last 9 months of ownership are ignored

Question 28

CGT - tangible movable property

Answer 28

These are wasting assets ( predictable life less than 50 years) and are exempt from CGT Even if they increase in value eg antiques they are still exempt if consideration for disposal is less than £6k

Question 29

Business asset disposal relief

Answer 29

Lifetime cap of £1 million qualifying gains Rate of tax reduced to 10% Qualifying business disposal: when ST or P disposed of whole or part of a business including as a going concern or assets following cessation Must own for 2 years prior to disposal Must dispose within 3 years of cessation Assets used to carry on business only not investment assets Claim before 1 year anniversary of 31 Jan following end of tax year in which disposal was made Cannot use annual exemption

Question 30

When can disposal of shares qualify for business asset disposal relief

Answer 30

They company is a trading company And It is their personal company (5% voting rights) And either entitled to 5% profits on winding up or 5% proceeds of sale if sold as going concern And Disposer is employee or officer of company for 2 years before disposal or cessation And disposal within 3 years of cessation

Question 31

What is a trading company

Answer 31

Cannot have activities that include to a substantial extent activities other than trading activities. Cannot hold substantial case reserves or investments

Question 32

Does CGT apply to part disposals

Answer 32

Yes apportion initial and subsequent | eg sell 25% of asset then use 25% of cost when calculating gain

Question 33

How does CGT apply to disposals between spouses

Answer 33

No gain or loss on disposals between spouses | When recipient disposes of it they pay CGT on their gain and spouses gain

Question 34

When is buy back of shares taxed with CGT

Answer 34

Usually IT but will be CGT if: Trading company is purchaser Unlisted To fund IHT or to benefit of the company’s trade Must have owners them for at least 5 years And Must be reducing their shareholding by at least 25%

Question 35

How is LLP treated for CGT

Answer 35

Same as general partnership

Question 36

How is CGT calculated for partnership

Answer 36

Each P pays portion of CGT based on their percentage ownership Each P can decide which reliefs they want to apply

Question 37

Corporation Tax Calculation

Answer 37

Income profits Chargeable gains (roll over relief on qualifying business assets) Add Reliefs for any loss ( carry across/ carry back, terminal carry back, carry forward) Tax 19%

Question 38

How are carry across, carry back and terminal carry back reliefs different for COrporation tax

Answer 38

Claimed within 2 years from end of AP loss incurred

Question 39

How is carry forward relief different for corporation tax

Answer 39

Claim within 2 years of end of AP in which it is applied to reduce profit Max claim is £5m plus 50% of remaining total profits after deduction of the allowance Can be set against total profits (was only profits from same trade before 1 April 2017)

Question 40

How soon must a company notify HMRC of the beginning of their first accounting period

Answer 40

Within 3 months of the start of that accounting period

Question 41

What is the deadline for self assessment return

Answer 41

12 months from end of accounting period

Question 42

Deadline for payment of CT

Answer 42

9 months and 1 day from end of accounting period Might be before tax return is filed

Question 43

Are intangible fixed assets capital or income when calculating CT

Answer 43

Treated as income receipts for CT

Question 44

CT on good will and IP

Answer 44

Expenditure on these deductible when calculating income profits

Question 45

CT relief on intangible fixed assets

Answer 45

When disposed any profit can be rolled over into acquisition of replacement intangible fixed assets to defer CT

Question 46

When an asset is disposed of for less then market value how do you calculate gain or loss for CT

Answer 46

Bad deal- use amount it was disposed for Gift- market value Sale to connected person - market value Connected - control the company either alone or with others connected to them. Company is controlled by other company of both controlled by same person and others connected to them

Question 47

What if a capital disposal results on a loss when calculating chargeable gain for CT

Answer 47

Can deduct loss from chargeable gains not income profits | Can carry forward to subsequent AP and deducted from first chargeable gains made

Question 48

When does indexation allowance apply to Calculation of capital gain for CT

Answer 48

On assets owned from 31 March 1982 | Not applied to expenditure incurred after 31 Dec 2017

Question 49

Calculation for indexation allowance when calculating capital gain for CT

Answer 49

Proceeds of disposal - cost of asset - expenditure - (initial expenditure X IF when IE incurred) - subsequent expenditure X IF when SE incurred) = gain after indexation

Question 50

Roll over relief on replacement of qualifying business assets for CT

Answer 50

Includes land, buildings, fixed plant and machinery Assets must be used in trade, not held as investment Company shares, IP and good will don’t qualify Acquire new asset 1 year before or 3 years after disposal Deduct gain from cost of new item

Question 51

What is a close company

Answer 51

When company controlled by either 5 or fewer participants Or Any number of participants who are all Ds or shadow Ds

Question 52

What is a participator of a close company

Answer 52

S or right to become S

Question 53

Meaning of control | Re close company

Answer 53

Participator owns more than half shares in company or right to acquire more than half shares Or has more than half of voting power

Question 54

What does a close company have to do if it makes a loan to a participator or their associate (close relative or business partner)

Answer 54

Must pay 32.5% of loan to HMRC Refunded when loan is repaid or written off Unless Company is a loan company or Loan( plus any others) is less than £15k and borrower works full time for company and owns no more than 5% of shares

Question 55

CT benefits for groups of companies

Answer 55

No SDLT or Stamp Duty on transfers between companies in group May be able to register for VAT as a group Can claim income loss relief as group Can transfer losses and expenses to other companies in group Can transfer capital assets between companies in group on tax neutral basis Roll over relief can be acquisition by other company in group

Question 56

What is a group of companies re group relief for income losses

Answer 56

1 company must be 75% subsidy of other Or Both companies must be 75% subsidy of third company Multiple to get percentage ownership in chain

Question 57

What is a group re transfer of capital assets on tax neutral basis

Answer 57

75% subsidy and its 75% subsidies | All must be 51% subsidy of principle company