Income Tax Flashcards
when is income tax payable and for what year?
- payable on income received in a tax year = 6 April to 5 April
- payable = on or before 31 January after the tax year in which the income is received
who is charged income tax?
individuals:
- employees
- sole traders
- partners
- shareholders
- lenders
- debenture holders
what are the 2 methods that HMRC assesses and collects income tax and what types of individuals do they apply to?
- self-assessment = the individual calculates the tax due e.g., directors, high and additional rate tax payers, and self-employed people
- deduction at source = payer of a taxable sum deducts tax and accounts to HMRC e.g., PAYE for employees
what are the steps for calculating income tax?
- calculate total income
- calculate net income (minus tax reliefs)
- calculate taxable income (minus personal allowance)
- apply tax rates by:
1) split taxable income into non-savings, savings, and dividend income
2) calculate non-savings income = taxable income - savings income - dividend income (and apply tax rate)
3) apply personal savings allowance on savings income then apply tax rate
4) apply dividend nil rate (1000) on dividend income then apply tax rate
5) add 3 amounts of tax = total tax liability
what is included when calculating someone’s total income? (4)
income receipt from all sources - e.g.,:
- interest on savings accounts (‘savings income’)
- dividends from shares held (‘dividends income’)
- salary and bonuses (even if under PAYE)
- benefits in kind received by an employee = gym membership, company cars, health insurance
BUT NOT CAPITAL RECEIPTS
what is the net income?
total income minus available tax reliefs
what are the available tax reliefs for income tax?
- interest paid by individual on qualifying loans
- pension scheme contributions
when can an individual have the benefit of a tax relief for interest paid on qualifying loans?
qualifying loans = loans to
1. buy an interest in a partnership
2. contribute capital or make a loan to a partnership
3. buy shares in or make a loan to a close company
4. buy shares in employee controlled company or invest in a cooperative
what is the taxable income?
income after tax reliefs minus the personal allowance
what is the personal allowance for income tax? (3 points)
- £12,570
- reduced by £1 for every £2 of net income above £100,000 - £125,140
-no personal savings allowance if net income is above £125,140
what is the personal savings allowance if the taxable income falls in the basic, higher, or additional tax band?
- basic = £1,000
- higher = £500
- additional = 0
what is the dividend nil rate band if the taxable income falls in the basic, higher, or additional tax band?
£1,000 regardless of tax band
what is the taxable income range for the basic, higher, and additional rate taxpayer?
- basic = £0 - £37,000
- higher = above £37,000 - £125,140
- additional = above £125,140
if an employee’s income tax is deducted at source via PAYE, how is this treated when calculating income tax?
- Include the total income received which was already taxed at source in the total income (grossing up)
- After completing the individual’s income tax calculation, deduct the amount of income tax which was deducted at source via PAYE. This is the figure of tax due for this year.
what is the anti-avoidance legislation for income tax?
taxpayer cannot reduce their income tax liability by making gifts of shares (which produce dividend income) or lump sum (which produce interest income) to their children = these are treated as remaining with the taxpayer who made the gift
