Introduction to Taxation – General Principles Flashcards
Which of the following is a direct tax?
A. Income Tax
B. Value Added Tax (VAT)
C. Council Tax
D. Customs Duty
A. Income Tax
Explanation:
Direct taxes like Income Tax are based on a taxpayer’s personal circumstances. VAT and Customs Duty are examples of indirect taxes based on transactions.
Which tax is calculated based on the financial year (1 April to 31 March)?
A. Income Tax
B. Capital Gains Tax
C. Inheritance Tax
D. Corporation Tax
D. Corporation Tax
Explanation:
Corporation Tax is calculated using the financial year, not the tax year. The financial year runs from 1 April to 31 March.
Alex sells a delivery van that his company used for deliveries. The money received is:
A. An income receipt
B. An income expense
C. A capital receipt
D. A capital expense
C. A capital receipt
Explanation:
The sale of a business asset like a van is a capital transaction and the money received is a capital receipt, not income.
Maya receives monthly rent payments from her tenants. How should this receipt be classified?
A. Capital receipt
B. Capital expense
C. Income expense
D. Income receipt
D. Income receipt
Explanation:
Regular rent payments are income receipts because they occur routinely as part of a business or investment activity.
Emily pays £600 for marketing her flower business. This cost is:
A. A capital expense
B. A capital receipt
C. An income expense
D. An income receipt
C. An income expense
Explanation:
Marketing is part of the regular business running costs and therefore treated as an income expense, deductible against income.
Which of the following is an example of capital expenditure?
A. Monthly staff salaries
B. Routine office cleaning
C. Repairing a broken printer
D. Buying a new delivery truck
D. Buying a new delivery truck
Explanation:
Purchasing a major asset like a truck provides an enduring benefit and is therefore classified as capital expenditure.
Under the Pay As You Earn (PAYE) system, who deducts tax from employees’ salaries?
A. The employee
B. HMRC
C. The employer
D. The accountant
C. The employer
Explanation:
Employers are legally responsible for deducting tax under the PAYE system before paying the employee their net salary.
John receives £500 interest on his savings account. How is this interest classified?
A. Capital receipt
B. Non-savings income
C. Savings income
D. Dividend income
C. Savings income
Explanation:
Interest received from savings accounts is classified as savings income for Income Tax purposes.
A company calculates a capital gain on selling a building. Which tax may be due?
A. Income Tax
B. Corporation Tax
C. Capital Gains Tax
D. VAT
B. Corporation Tax
Explanation:
Companies pay Corporation Tax not only on profits but also on chargeable gains like the sale of a building.
What is the “gross amount” in taxation terminology?
A. Amount after tax deducted
B. Amount before tax deducted
C. Net receipt after PAYE
D. Amount after expenses deducted
B. Amount before tax deducted
Explanation:
The gross amount is the full amount received before any tax is deducted. Calculations are usually made based on gross figures.
