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AF1 > Income tax > Flashcards

Income tax Flashcards

1
Q

Name two examples of income ignored for tax purposes.

A

ISA income
VCT income
Rent-a-room
NS&I Premium Bond winnings
Redundancy payments up to £30,000

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2
Q

In what position of ‘ESDL’ are offshore life assurance bonds taxed?

A

At the end of the savings category after all other savings income has been added

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3
Q

In what position of ‘ESDL’ is the excess over £30,000 from a redundancy payment taxed?

A

After dividend income but before chargeable gains

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4
Q

Who is still able to use childcare vouchers?

A

Those who applied before 04/10/2018, provided they don’t move job or stop payments for a year.

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5
Q

What is the maximum amount of salary that can be given up for childcare vouchers per parent?

A

£55pw BRT
£28pw HRT
£25pw ART

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6
Q

True or false? Expenditure on a rental property to improve its eventual sale price can be used as a deductible rental cost.

A

False

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7
Q

What is the maximum deduction an individual can get from interest payment relief?

A

25% of individuals adjusted total income
OR
£50k

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8
Q

What is the calculation for adjusted total income?

A

Total annual income + amount given under payroll giving - gross pension contributions

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9
Q

Name examples of employee benefits that are wholly or largely exempt for income tax purposes.

A

-Group income protection
-Provision of meals
-Mobile phone
-Long service awards up to a maximum of £50 per year of service
-Staff suggestion schemes
-Work-related training
-Relocation & removal expenses up to a max of £8k
-Home working
-Workplace childcare
-Liability insurance

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10
Q

What is the “taxable cash equivalent” value of a benefit?

A

The cost to the employer of providing the benefit, less any employee contributions

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11
Q

How is taxable car benefit calculated?

A

-% of the list price
-2% for EVs and hybrids > 130 mile range
-15% for non-EVs with CO2 emissions 51<x<55 g/km
-16% for non-EVs with >55g/km CO2
-Extra 1% for each additional 5g/km CO2
-Max rate 37% for non-EVs with >160g/km

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12
Q

How are classic cars taxed as a company car?

A

Cars older than 15yo are taxed at market price, rather than list price

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13
Q

How much contribution can the employee make towards a company car?

A

£5,000

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14
Q

How is the taxable value of fuel calculated on a company car?

A

Based on % value of £27,800

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15
Q

What are the mileage limits for non-taxable reimbursement of work-related use of an employee’s private vehicle?

A

45p/mile (1st 10k miles)
25p/mile thereafter

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16
Q

What is the position of benefits in kind with regards to employer & employee NICs?

A

Employee - not liable to NI
Employer - pays class 1A NI

17
Q

What are three examples of benefits in kind?

A

-Company car
-Beneficial loan
-Living accommodation

18
Q

How is the benefit in kind calculated for beneficial loans?

A

-Must be over £10k
-Difference between actual interest rate and HMRC’s official rate (2.25%)

19
Q

How is the benefit in kind calculated for living accommodation?

A

Either:
-annual rental value
OR
-excess cost over £75k multiplied by official interest rate

20
Q

When are the “Payment on Account dates”?

A

31st Jan - 1st PoA (50% of last TY’s bill)
31st July - 2nd PoA (50% of last TY’s bill)
31st Jan - Balancing payment

21
Q

Rob has the following:
-Accounting profits of £60,000 each year.
-Overlap profits of £20,000 to use.
-Accounting period ends 31 October.

What would be his taxable profit for 2023/24 TY?

A
  1. Standard part profit: £60,000
  2. Transition part profit: (60000*[156/366]) = £25,573.77
  3. Deduct overlap profit from transition part: £5,573.77
  4. Add (1) and (3): £65,573.77
  5. Total transitional profit. This is the lesser of (3) or (4) divided by 5: 5,573.77/5 = £1,114.75
  6. Taxable profit for basis period. Either (5) if (1) =<0 or (5)+(1): £61,114.75
22
Q

True or false? Transitional profits are not included when looking at the impact on the high income child benefit charge.

A

True

23
Q

True or false? A property owner can claim expenses if utilising the property allowance.

A

False

24
Q

How does mortgage interest tax relief work?

A

-Annual amount paid in mortgage interest multiplied by 20%
-This is then subtracted from any income tax due.

25
Q

What four conditions must be met to qualify for rent-a-room allowance?

A

-Furnished accommodation in landlord’s main home
-Not self-contained i.e. doesn’t have its own kitchen and bathroom
-UK-based property
-Can’t be used for office/business purposes

26
Q

True or false? Expenses can be claimed if using rent-a-room allowance?.

A

False

27
Q

What conditions must be met for furnished holiday lets to be treated as a trade?

A

-Situated in UK/EEA
-Furnished & let on a commercial basis
-Available for let for at least 210 days a year
-Actually let for at least 105 days
-Cannot be let for a continuous period of over 31 days
-Total periods of continuous letting cannot exceed 155 days

28
Q

How old must either spouse be to qualify for the Married Couples Allowance?

A

Born before 6/4/1935

29
Q

How does Married Couples Allowance work?

A

-MCA: £10,375
-Provides tax reducer of 10% of MCA
-For every £2 ANI goes over £34,600, MCA reduces by £1
-Minimum MCA is £4,010

30
Q

How does Marriage Allowance work?

A

-Only available to BRT
-Amount transferred is a fixed £1,260
-Provides tax reducer of 20% of MA

31
Q

Name two examples of income that needs to be grossed up at the start of an income tax calculation.

A

-PID income from a REIT
-Trust income

32
Q

How are pension contributions in excess of the AA added to an income tax calculation?

A

Added at the top of all other income sources

33
Q

Name three ways a business owner may be able to reduce their tax liability.

A

-Paying their partner to work in the business to utilise their personal allowance.
-Using salary sacrifice
-For Ltd Co: pay income as mix of dividends & income to maximise use of allowances

34
Q

An individual is self-employed and usually prepares his accounts to 31st October every year. What will be his standard & transitional parts of his profit for the 2023/24 tax year?

A

Standard part: 1 November 2022 to 31 October 2023

Transitional part: 1 November 2023 to 5 April 2024

35
Q

Zak became self-employed on 1 September 2017, and his profits for his first accounting period were £80,000. What is his overlap profit?

A

First year’s profits based on 7 months
(7/12) * £80,000 = £46,666.67

AF1 (5 decks)

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