Income Tax and Business

Question 1

What is income tax

Answer 1

Income tax is a direct tax levied on the income of individuals

Question 2

What are UK residents generally taxed on

Answer 2

UK residents are generally taxed on worldwide income

Question 3

What are non residents taxed on

Answer 3

Non residents are taxed on UK-sourced income

Question 4

What does ITEPA 2003 govern

Answer 4

ITEPA 2003 governs employment, pensions, and social security income

Question 5

What does ITTOIA 2005 covers

Answer 5

ITTOIA 2005 governs trading income, property income, dividends, interest, and miscellaneous income

Question 6

What tax should you follow to calculate taxable income

Answer 6

To calculate taxable income, follow these steps:
1. Aggregate all income
2. Deduct tax reliefs
3. Apply loss relief
4. Deduct the personal allowance
5. Apply tax bands

Question 7

What does aggregate all income include

Answer 7

Aggregate all income includes employment income, profit from self-employment, rental income, interest, and dividends

Question 8

What is deducting tax reliefs

Answer 8

Deducting tax relief is: interest on qualifying loans, Gift aid donations, pension contributions

Question 9

What is the current personal allowance rate

Answer 9

The current personal allowance is £12,570

Question 10

What are the different tax bands

Answer 10

The different tax bands are:
- Basic rate 20% (up to £37,700 after PA)
- Higher rate 40% (£37,701 - 125,140)
- Additional rate 45% (above £125,140)

Question 11

What tax system does the UK have

Answer 11

The UK has a progressive tax system

Question 12

What does a progressive tax system mean

Answer 12

A progressive tax system means higher earning have higher taxes

Question 13

What is marriage allowance

Answer 13

Marriage allowance can transfer up to £1,260 of unused PA between basic rate taxpayers in a marriage/civil partnership

Question 14

What is the Blind persons allownace

Answer 14

Blind persons allowance is £3,070

Question 15

What happens to PA when Adjusted Net Income (ANI) exceeds £100,000

Answer 15

When Adjusted Net Income (ANI) exceeds £100,000, PA is reduced

Question 16

What is the reduction rate for every £2 over £100,000

Answer 16

Reduction = £1 for every £2 over £100,000

Question 17

When is personal allowance fully lost

Answer 17

Personal allowance is fully lost when income reaches £125,140

Question 18

Adjusted Net Income =

Answer 18

ANI = Net income - (gross Gift Aid + pension contributions

Question 19

What are self-employed individuals taxed on

Answer 19

Self-employed individuals are taxed on net trading profits

Question 20

What do self-employed individuals use self-assessments for

Answer 20

Self-employed individuals use self-assessment to report and pay tax

Question 21

How can self-employed individuals enjoy cash flow benefits

Answer 21

Self-employed individuals may enjoy cash flow benefits by paying tax in instalments

Question 22

What are the key differences between self-employed and employment

Answer 22

Key differences from self-employed from employees:
- No PAYE
- Broader range of deductible expenses
- Must manage own tax and National Insurance Contributions (NCIs)

Question 23

What’s the criteria for employment vs self-employment

Answer 23

The criteria for employment vs self-employment are:
- Number of clients
- Ownership of tools/equipment
- Risk and reward structure
- Ability to subcontract
- Access to employee benefit

Question 24

What are allowable expenses

Answer 24

Allowable expenses are “wholly, exclusively and necessarily”

Question 25

What are examples of allowable expenses

Answer 25

Examples of allowable expanses are: - Professional subscription - Work-related travel and accommodation - Employer pension contributions

Question 26

What can inappropriate claims lead to

Answer 26

Inappropriate claims can lead to HMRC penalties

Question 27

What are benefits in kind

Answer 27

Benefits in kind are non-cash benefits provided by employers and are taxible

Question 28

What are examples of benefits in kind

Answer 28

Examples of benefits in kind are: - Company cars - Accommodation

Question 29

What is benefits in kind tax based on

Answer 29

Benefits in kind tax is based on the cost to the employer or specific performance

Question 30

What benefits in kind have excemption

Answer 30

Some benefits like (travel benefits)

Question 31

What is the national insurance class for employers or employees

Answer 31

The national insurance class for employers or employees is class 1

Question 32

Who is primary class 1 paid by

Answer 32

Class 1 primary is paid by employee

Question 33

Who is secondary class 1 paid by

Answer 33

Class 1 secondary is paid by employer

Question 34

What is class 1A

Answer 34

Class 1A is employers NIC on BiKs

Question 35

What is class 1B used in

Answer 35

Class 1B is used in PAYE settlement agreements for minor or irregular BiKs

Question 36

What are the classes for self-employed individuals

Answer 36

The classes for self-employed individuals are: - Class 2 - Class 3 - Class 4

Question 37

What is class 2 NIC

Answer 37

Class 2 NIC are flat rate contributions £3.45 a week

Question 38

What is class 3 NIC

Answer 38

Class 3 is voluntary contributions to maintain State Pension entitlement

Question 39

What is class 4 NIC

Answer 39

Class 4 NIC is earnings based self-assesment