Principles of Tax Flashcards

Question

If an employer rents a property the benefit is...

Answer 1

The higher of annual or rateable value and rent paid by employer.contributions are deducte

Answer 2

The basic os the rateable value-if over 75k addition of 'cost'-75k*rate of tax for start of the year cost is generally purchased valued but if over 6 years when emplyee moves in use market value INCLUDE any capital movements BEFORE START OF TAX YEAR!!! Official rate 2% (given) note any extras eg decoration repairs cleaning heating etc are benefit=cost ot employer-contributions from employee rent is deducted from benefit

Answer 3

-manufacturers list price*CO2 emissions % -Employee contributions on private use is deducted, NO benefit for genuine pool cars -Manufacturer list price=optional extras-contributions by employee UP to 5k -CO2 emissions: from tax tables, round down to nearest 5 at 1% for each 5 above 75...+4% IF DIESEL not meet RDE2...CAP AT 37% in all cases (6/4/20 from) REMEMBER FLAT RATE CHARGED IN EMPLOYER PAYS PRIVATE FUEL EVEN IF EMPLOYEE PAYS SOME-currentl at 24k REMEMBER TO TIME APPORTION!

Answer 4

Decorating a sole trader’s office Parking fine incurred by a sole trader’s employee Electricity bill for a sole trader’s factory

Answer 5

Gift of £40 to the local animal hospital Note: -Relief for donations to national charities is available through gift aid not trading income. -Political donations are not allowable. -Gifts to customers are disallowable unless the item: cost < £50 per recipient per year, and is not food, drink, tobacco or vouchers exchangeable for goods, and carries a conspicuous advertisement for the business.

Answer 6

Step 1:Adjust acc profits Step 2: deduct capital allowances for that accounting period Step 3: Consider which tax year to tax this accounting period in=basis periods Current year basis therefore profits taxed are those 12 month of accounting years ending in that tax year

Answer 7

Start with P&L net profit Add disallowable expenditure and any taxable trading income not on accounts e.g. removal of goods for personal use Less allowable expenditure e.g. capital allowances or business expenses borne personally by the owner and any non-trading income on accounts which is not taxable e.g. income taxed elsewhere such as chargeable gains, rental or savings income e.g. exempt income such as exempt capital gains

Answer 8

It is taxable trading income however what we add depends on whether an accounting record has been made If it has e.g cost removed from purchases then add back the profit element If it hasn't e.g. still inc in purchases then add back the selling price

Answer 9

Too remote from purpose of trade or has a dual purpose*though a trade off between the two can be allowed eg only taxed on some

Answer 10

Withdrawal of business funds that are disallowable expenses eg.owner salary, drawings or excess of any unreasonable payments to family members

Answer 11

Most payments to staff are allowable eg wages bonuses redundancies and cost of providing benefits, pensions (note these are allowed when paid rather than on accrual basis) If earnings are not paid within 9 months of the year end then they are deductible in the period in which they are paid Also account for appropriations.

Answer 12

Movements in specific provisions are allowable but general are disallowable Write off of trade debts is allowable but non-trade disallowable so needs adding back (unless already included!)

Answer 13

Some may be allowable for CGT but not for trading Repairs and maintenance are allowable, even if element of improvement due to improved industry standards.

Answer 14

Trade or professional association subs are usually allowables as they are typically for trade purposes Donations depend on nature of organisation eg small donations to charities are allowable as are stock or asset gifts, national charities are disallowable but tax relief may be available under gift aid subs and donations to political parties not allowed

Answer 15

client dis employee allowed deduction on profit for tax purposes gift of trade samples to customers is allowable other gifts to customers are not unless <50 pa per recipient, not food,drink, tobacco or vouchers for goods, or carry conspicuos (clear) advertisement for business gifts to employees are allowed with no limit (unlike benefits in kind)-though may be subject to income tax charge

Answer 16

allowable if for purposes of trade, if for capital exp typically disallowable execeptions to this inc: fees/costs of obtaining long term finance, registering for patents or renewing a short term lease (sub 50 years) HOWEVER initial lease legal fees are not

Answer 17

costs for hiring, renting or retiring ppe are allowable but a flat rate disallowance of 15% of car lease payments where CO2 is above 50g/km also disallowance for any private use Note: If you have leased a car with private its easier to work out allowable expense first being 85% of business proportion of the lease cost and then disallowance is the remainder

Answer 18

For car with emissions over 50g/km

Answer 19

-fees/costs of obtaining long term finance -registering for patents -renewing a short term lease (sub 50 years) HOWEVER initial lease legal fees are not

Answer 20

fines generally disallowable but parking fines incurred by an employee (not owner) whilst on work business are allowable interest on borrowings for trade (eg overdraft in business account) is allowable interest on late tax is disallowable IDE of VAT is allowable if relating to allowable expenditure

Answer 21

If they havent been included then we don't need to do anything as they are already essentially "added back" to the net profit figure given If they have been accounted for/recorded they need adding back as of course they are disallowable expenses therefore need taxing.

Answer 22

It is exempt so would not be table income

Answer 23

Tax equivalent of depreciation

Answer 24

Writing down allowance like depn-charged on reducing balance basis Annual investment allowance-set available amount on certain assets in the year in which they are purchased First year allowance-extra allowance on aquisition mainly to stimulate purchase of certain ppe eg better environmental options Balancing adjustments-equivalent to a profit or loss on disposal

Answer 25

Balancing charge applied if an asset is sold for more than its tax carrying value Allowance if sold for less than tax cv

Answer 26

Plant and machinery ie assets with which the business operates rather than in which the business operates in eg environment From case law building alterations incidental to plant installation and machinery, licences to use comp software also qualify commercial structures and buildings qualify for SBA but this is non examinable

Answer 27

Given on balance of the main pool at the end of the period of account WDA claimed a CA and deducted from pool, remaining pool then brought forward as TWDV for next year

Answer 28

Offers tax relief at 100% up to a max of 200k Can be used against any assets allocated to the main pool excluding assets qualifying for 100% FYA and cars Unused AIA cannot be carried forward and if expenditure exceeds availabe AIA then the balance eligible is 18% WDA by transferring the balance to the main pool before calculating WDA for the period

Answer 29

WDA and AIA are time apportioned based on accounting period not referencing to ownership Remember AIA is on 100% of asset the time apportioning relates to the cap 200k FYAs are never time apportioned, always full allowance

Answer 30

Before giving WDA deduct the lower of the disposal proceeds or original cost If the item is not sold proceeds are assumed to be: market value on date of transfer (if moved to owner private use) scrap value/compensation if asset is scrapped or destroyed If the asset being disposed qualified for AIA or FYA in year of acquisition the deduction is made from the main pool or a single asset pool

Answer 31

If the main pool balance on which WDA is to be claimed is less than 1k the whole amount can be claimed NOT available for private assets And the 1k limit is time apportioned for periods not equal to 12 months (not given in tax tables for exam!)

Answer 32

-set up a seperate column per asset and calc as normal only for business portion

Answer 33

No FYA WDA or AIA are available add any additions, deduct any disposals at market value at date it leaves the business

Answer 34

incorrect, usually but not always eg cost of shares

Answer 35

Car with emissions of 45 g/km costing £14,000 on 10 June 2021 with 20% private use by one of the employees

Answer 36

-Current year basis e.g taxed in year AC period ends eg AC accounts end 30th april 2020 will be taxed in the tax year 2020/21 -Opening year rules (first tax year and second onwards) -Cessation of trade rules

Answer 37

Goes from time apportioned from start of trade to the start of the new tax year but may need time apportioning!! Called actual basis! E.g. if start trade 1st July 20X1 would be 9 months till 31st March X2 (go off nearest month and this is closest to 5th April)

Answer 38

-First need to decide if there is a period of accounting (POA) ending in 2nd tax year, if not tax ACTUAL TAX YEAR -If there is HOW LONG? If EXACTLY 12 months tax that period of account If LESS than 12 tax first 12 months of trading e.g. from date of commencement If MORE than 12 tax last 12 in the long POA Golden rule is that HMRC tax 12 months of profits

Answer 39

Individual for each partner so would be different for ongoing ceasing and joining partners thus basis rules would differ.

Answer 40

Same as given self-assessment dates in tax tables as are the same.

Answer 41

class 2 and class 4 aged 16 to retirement (65 age in exam) class 2 is payable by 31 jan following end of the tax year at flat rate of 3.05/week if annual small profits threshold of 6515 is exceeded class 4 is payable via payment on account/balancing payment with income tax at 9% on profits between 9568-50270 and 2% thereafter A trader should register with HMRC for NIC and income by 31 jan following the end of the tax year in which trade commences Remember to round to the nearest pound at each stage in workings

Answer 42

-Class 4 NICs and income tax they do//Class 2 NICs or CGT no -Due dates are: 31st Jan in tax year, 2nd 31 july following the end of the tax year -Each is calculated based on 50% of the previous year's tax payable by self-assessment Exclusions If amount is less than 1k or less than 20% total income tax and class 4 liability -***Basically have income liability from previous year subtract PAYE add class 4 NICs and split

Answer 43

unpaid income tax or self-employed NICs, and CGT basically add income tax liability from previous year less tax from source eg PAYE add any NICs and CGT to give TOTAL tax liability AND THEN remove any payments on account (from class 4 NICs and income tax) in PREVIOUS year and result will be the balancing payment

Answer 44

PENALTIES ONLY ON POAs NOT BALANCING CHARGE A penalty may be charged and depend on length of delay and amount unpaid at 5% and additional 5% after 6 months -Also late payment interest for unpaid tax and penalties (running from due date to date paid HMRC DOES NOT count day day or day of payment in this) payment is interest rate*days/365*amountoftax

Answer 45

-Primary are employee class1 (paid 16 to retirement), secondary are employer class1s(16+) -Charged on cash earnings (before deductions) plus vouchers exchangeable for cash, goods or services and calculated each time employee is paid -primary calculated at 12% between 184 and 967/week (797 and 4189/month) and 2% after, secondary 13.8% on earnings over 170/week or 737/month -NOTE secondary 0% and then is 13.8% for 967/week (4189/month) for under 21 or apprentices under 25 -due date 19th of each month or 22nd for electronic payment, (employers with 250+ employees must be electronic whilst others have the option) CAN be paid quarterly if average month total PAYE (income tax and NICs) less than or equal to 1500

Answer 46

Due date 19th of each month or 22nd for electronic payment, (employers with 250+ employees must be electronic whilst others have the option) CAN be paid quarterly if average month total PAYE (income tax and NICs) less than or equal to 1500

Answer 47

Income tax and NICs

Answer 48

For class 1 primary NICs IF employee paid evenly throughout the year (if any bonuses etc must be done monthly/quarterly) Annual limits are 12% between 9568-50270 pa and 2% after Can be used regardless for secondary at 13.8% on above 50270 pa for under 21 and apprentices under 25, or over 8840pa for others

Answer 49

APPLY AFTER CALC!!! 4k pa per employer NOT employee-if liability is less no NICs are paid Not available for companies with 1 director and no other employees or those with class 1 secondaries greater than or equal to 100k in previous tax year Include in exam unless told otherwise or not available

Answer 50

-Class 1a only paid by employer on value of benefits exc voucherss exchangeable for cash, goods or services (liable to class 1)-charged at 13.8% of value of assessable benefit-calculated same as for income tax -no employment allowance allowed paid annually by 19th July (22nd electronic) following end of the year

Answer 51

850 The employment allowance can only be set against the employer’s class 1 secondary NIC liability. It is not available against the employee’s class 1 primary NICs, nor against the employer’s class 1A liability on taxable benefits. (£15,000 - £8,840)*13.8%=850 Cant claim allowance against tax not payable therefore only 850 can be claimed.

Answer 52

Individual or companies but! companies pay corporation tax on their gains NOT CGT

Answer 53

Charged on gains arising on chargeable disposals of chargeable assets by chargeable persons

Answer 54

Include: the sale or gift of whole or part of an asset/loss or destruction of an asset Do not include: gifts to charities,disposals on death, disposals between spouses or civil partners -For disposals under contract date of disposal is: when the contract is made or if conditional is the date all conditions are met.

Answer 55

All assets are chargeable unless specifically exempted, such as: -cash -motor cars inc vintage -gilt edged securities and qualifying corporate bonds -national savings certificates/premium bonds -prizes and bettings -assets in an ISA -certain chattels Note annual exempt up to 12300 which cannot be rolled forward

Answer 56

CGT depends on income amount for higher/additional CGT is 20% for basic CGT is 10%

Answer 57

Must be a self-assessment and payment both due by 31st Jan following the end of the tax year

Answer 58

Chargeable gains-12300(annual exempt amount)=taxable gains take gains-taxable income to determine which band to charge to e.g. gain 33900, taxable income 27855 then 37700-27855=9845*0.1 and 33900-12300=21600 therefore 21600-9845=1175*0.2

Answer 59

-Allowable selling costs are permitted to be deducted from gross sale proceeds. -They can include expenses such as advertising costs, auctioneer’s or estate agent’s fees, or other legal costs incurred in connection with the sale.

Answer 60

Assuming the disposal was by way of an arm’s length sale, then the disposal proceeds will be the actual sum received for the sale of the asset. Market value must, however, be used to replace actual proceeds if the disposal was a gift, in which case there will be no actual disposal proceeds.

Answer 61

Cost of acquisition is generally the amount paid for the asset that is now being disposed of. However: If the asset was received by way of a gift, then the acquisition cost will be the market value at the date it was gifted If the asset was inherited, the acquisition cost will be the market value at the date of death of the person from whom it was inherited (also known as the probate value).

Answer 62

Incidental costs of acquisition are further amounts of expenditure incurred at the time the asset was acquired, for example legal fees, estate agent’s fees, surveyor’s fees, stamp duty or other associated legal fees. This gets added to the cost of acquisition since they form part of the allowable expenditure on the asset that is now being disposed of.

Answer 63

Enhancement expenditure is the cost of subsequent improvements to the asset after it was acquired (for example, the cost of an extension to a building) and any associated professional or legal fees (for example, an architect’s fees). Enhancement expenditure does not include the cost of ongoing repairs, since this just represents maintenance of the asset in its current state and condition, rather than any significant improvement or enhancement.

Answer 64

-Tangible moveable property e.g. a picture or table Note must be moveable hence buildings are not chattels, tangible therefore shares are not chattels -Two types wasting and non wasting -wasting have expected life not exceeding 50 years year as non-wasting is more, wasting are exempt from CGT non-wasting have special rules examples of wasting include caravans boats animals plant and machinery, non-wasting antiques jewellery and paintings

Answer 65

gross proceeds <=6k cost<=6k---->exempt gross proceeds>6k cost>6k---->taxed as usual gross proceeds <=6k cost>6k--->marginal loss is restricted: gross proceeds deemed to be 6k gross proceeds>6k cost<=6k marginal gain is restricted to lower of: normal gain OR (5/3*grossproceeds-6k)-essentially a limit on marginal gain NOT used for deductions NOTE: Gross are sales proceeds before deducting any incidental costs of disposal whilst cost is original acquisition cost

Answer 66

Group of similar complementary items worth more together than seperate, where only part of the set is disposed of the acquisition cost needs divided as: cost*A/(A+B) where A=disposal B=retained MARKET VALUE Same formula used for large assets if broken up and sold in parts eg part of land

Answer 67

-Special rules apply if two or more assets forming part of a set which were owned by the same person are disposed of to the same person or those connected with one another -Disposals treat as one for 6k rule and restriction on marginal gains tax (5/3 rule) -If disposals were made in diff tax years a gain is calculated on the total figures and is then apportioned to each individual disposal based on sale proceeds. treat as same as in cost of the pair

Answer 68

-Integrity -Objectivity -Confidentiality -Professional competence and due care -Professional behaviour -Professional scepticism

Answer 69

-Tax avoidance is using any legal method to reduce an entity's tax burden, even if the method is not following the intent of the law eg artificially using foreign jurisdictions with lower tax rates -Tax avoidance not always effective-promoters of TA schemes are now required to disclose details to HMRC to close loopholes quickly and courts may disregard elements of transactions that have no commerical purpose ie where they have been designed with purpose of avoiding tax, -the general anti-abuse rule (GAAR) enables HMRC to challenge abusive tax avoidance arrangements -TA still seen as morally questionable refer to PCRT Tax planning is a form of TA used legally and as intended to minimise tax but pay the correct amount eg claiming marriage allowance -Tax evasion is illegally seeking to pay less tax than is due by deliberate misleading and carries criminal prosecution main forms are suppression of info and submitting false info

Answer 70

A person is engaged in money laundering if: -conceal disguise convert transfer or removes (from the UK) criminal property (including proceeds of tax evasion) -enters into or becomes concerned about and arrangement he/she knows or suspects facilitates the acquisition, retention use or control of criminal property (inc tax evasion proceeds) -acquires uses or has possession of criminal property inc tax evasion proceeds

Answer 71

-Proceeds of Crime Act 2002 (POCA) as amended by Serious Organised Crime and Police Act 2005 (SOCPA) -Money Laundering Regulations 2017 ICAEW supports ESCBs economic crime plan.

Answer 72

Register with an appropriate supervisory body Appoint an MLRO Establish internal procedures to reduce risk Verify identity of clients and retain relevant documents for 5 years are termination of client relationship Maintain records of all transactions undertaken for each client for 5 years after completion of transactions

Answer 73

up to 14 years for main money laundering offences up to 5 for failure to report an offence up to 2 years for tipping off

Answer 74

First accounts are six months ended 5 April 2022 with future accounts to 5 April

Answer 75

Partners individually The partnership is not taxable in its own right; rather it is an amalgamation of individuals effectively taxed as sole traders. Neither are partners taxed jointly. Every individual is liable to capital gains tax independently. As the asset is owned by all the partners, each partner must declare their share of any gain on their own self-assessment return

Answer 76

False. Wasting chattels are always exempt from CGT. The £6,000 rule applies to non-wasting chattels.

Answer 77

exempt-nonwasting chattels are always exempt.

Answer 78

-The gift of an antique table valued at £40,000 to Gordon’s daughter on his death

Answer 79

A racehorse purchased as an investment by Max A caravan, purchased by David for use on family holidays An asset used only for business purposes and eligible for capital allowances is specifically treated as a non-wasting chattel. Goodwill is not a chattel as it is not tangible moveable property.

Answer 80

A gift of antique jewellery worth £25,000 by Robert, to his daughter as a wedding gift Disposal to an art gallery is an exempt disposal. A registered charity is an exempt person. Gilt-edged securities are an exempt asset.

Answer 81

-Decrease The gain arising on the sale of the racehorse is exempt. -No effect

Answer 82

Sale for £5,000 of the goodwill of a trading business by Jack Goodwill is not a chattel so not subject to the exemption where gross sales proceeds and cost are less than £6,000. Cash, cars and premium bonds are all exempt assets.

Answer 83

£2,133 Cost for first disposal: £4,000 × £7,000/(£7,000 + £8,000) = £1,867 Cost for second disposal: £4,000 - £1,867 = £2,133

Answer 84

Paid by UK companies on worldwide income and accounting period gains A company is resident in the UK if it is incorporated in the UK, or it is centrally managed and controlled in the UK The total income and gains are known as taxable total profits (TTP) Accounting periods cannot exceed 12 months if more it is split into 2 APs of first 12 months and then the remainder.

Answer 85

Not necessary to make adjustments for appropriations and dividends paid are not allowable deductions from profit whilst received are exempt but may impact corp tax dates

Answer 86

130% on new unused machinery purchases by companies, assumed to be exercised, and not time apportioned like FYA

Answer 87

Rental income from UK properties is taxable on an accruals basis. Interest payable on a loan to acquire or improve property is not an allowable expense against property income. Instead relief is given under 'loan relationship' rules.

Answer 88

-For companies all interest is taxed on accruals basis-used to determine whether interest is payable/receivable is classified as trading or non-trading -If classed as trading it is allowable or taxable as part of trading income//if non-trading it is allowable or taxable as part of NTLR. -Interest receivable (trading only is trade is lending money e.g. banks//non-trading any other interest receivable e.g. by trading companies on deposits or from investments in bonds or government stocks AND on repayments of corp tax (repayment interest) -Interest payable (trading would be overdraft interest or payable on loans to purchase ppe AND on loans/debentures to fund daily operations)

Answer 89

-Used to determine when tax is due for payment -TTP and exempt ABGH distributions (dividends received from other companies (UK and overseas). Dividends from 51% subsidiaries are not included -Limit at 1.5m for accounting period, if shorter than 12m limit needs time apportioned, if profits exceed limit company classed as large and tax is payable by installments*** if not needs to be one payment 9 months and a day after the end of an AP (found in tax tables) -***UNLESS tax liability is less than or was not large in previous AP and less than or equal to 10m this year-this is scaled down for short APs and divided by the number of related 51% group companies at end of previous AP---NOT GIVEN IN TAX TABLES If over 20m is very large companie which changes installment dates to 3 6 9 12

Answer 90

-Augmented profits is divided by number of related 51% group companies at the end of the previous AP. Related 51% group if: one of the companies is under control of the other, or they are both under common control of another company -Control in this case mean directly or indirectly owning or being eligible to more than 50% of the company's issued ordinary shares, voting power, distributable income or assets on wind up -Dividends from 51% subsidiaries are not exempt ABGH but includes UK and overseas

Answer 91

Only 2 W Ltd and Y Ltd Z Ltd is dormant therefore not included X Ltd is only 40% so is not included, even if not they would not be until the next AP as control would be assumed part way through the year

Answer 92

-Must be within 3 months of first AP stating when trade began, HMRC will issue a tax return request shortly after accounting year end and if not the company must notify HMRC within 12 months of period edn that is has TTP or will face a penalty -Tax return is known as CT600 and must be submitted online as well as pay electronically, companies cannot ask HMRC to calculate their tax and must submit their tax computations and accounts supporting in the 'inline extensible business reporting language (iXBRL) -HMRC has the right to amend obvious errors within 9 months of filing date, and can conduct an inquiry though must notify of intention, if late this is a quarter day following th 12 month anniversary of the actual filing date (12 months after the filing date if on time) -The company has the right to amend the return for any reason within 12 months of the due filing date or make a claim for overpayment relief within 4 years of the end AP

Answer 93

-6 years from AP end and 6 years -5 years from 31st Jan the following tax year -1 year from 31st Jan the following tax year -6 years Max of 3k per tax year or AP can be charged for failure but can be reduced by HMRC

Answer 94

-The designated senior accounting officer (SAO) of a large company is personally responsible for certifying each year that the company's accounting systems can produce accurate tax information (large as in over 200m turnover OR gross assets in excess of 2 billion) -The name must be notified to HMRC otherwise 5k penalty, the SAO may also be charged a 5k penalty fir failure to provide an accurate annual certificate or establish adequate AC system

Answer 95

Repayment interest is paid by HMRC on any overpayments and is taxable as non-trading loan relationship income: it runs from the later of the due date, date of actual payment to date of repayment Interest paid on late corp is automatically charged but deductible as a non-trading loan relationship expense and runs from date due to date of payment inclusive

Answer 96

Then sales are treat as being inclusive of VAT hence cost to business

Answer 97

1/6 for 20% 1/21 for 5% reduced rate

Answer 98

exempt cannot have VAT costs claimed back but 0% exempt can

Answer 99

Historic- A trader must register for VAT if, at the end of a calendar month, taxable supplies exceed £85,000 for the last 12 months, unless taxable supplies for the next 12 months are expected to be less than £83,000. Both of these thresholds are given in your tax tables. Registration will be effective from the end of the next month, and the trader must notify HMRC of the need to register within 30 days of the end of the month in which the threshold is exceeded. Future prospects- Future prospects test A trader must register for VAT if there is an expectation that taxable supplies will exceed £85,000 during the next 30 days. The trader must notify HMRC of the need to register within 30 days of the start of the 30-day period. Registration will be effective from the start of the 30-day period; i.e. the trader must start charging the VAT from the date it is realised that the test has been met.

Answer 100

The basic tax point for goods sold under normal terms is the date the goods are despatched. The basic tax point for a service is the date on which the service is performed. The basic tax point for goods sold on sale or return is the earlier of the date the goods are adopted by the customer and 12 months after the date of despatch.

Answer 101

If payment is before despatch, the tax point moves to the actual tax point, which is the date payment is received. The invoice date will be the actual tax point if the invoice is issued before the basic tax point or within 14 days after the basic tax point. Due to this second rule, the tax point for most business expenses is usually the invoice date.

Answer 102

The basic tax point for services is when the service is performed. This is taken to be the date that all work has been completed except for invoicing. In this case Carrie completed the work on 2 December, so this is the basic tax point. The invoice was issued more than 14 days later, so the 14 day rule does not apply. Note actual tax point would be invoice day if within 14 days

Answer 103

If a sole trader takes goods out of the business for his or her own use, this is a deemed supply on which the sole trader must account for VAT.

Answer 104

If goods are gifted, this is a deemed supply on which the trader must account for VAT.

Answer 105

VAT is always calculated on the amount the customer eventually pays, so if a prompt payment discount is offered, the VAT charged on the supply will vary according to whether or not the prompt payment discount is taken.

Answer 106

If the business buys diesel or petrol, some of which is used for private mileage by its employees, then there is a deemed supply on which the business must account for VAT.

Answer 107

In sellers books Must be at least 6 months overdue Must be claimed before 4 years of due date. Allows output VAT to be input and provides relief on bad debts (as tax points are based on mark of payment may be down as being paid by customer when they fail to hence leaving business out of pocket)

Answer 108

must be acquired for business purposes and still held at registration for services must have been supplied for business purposes for goods must be claimed within 4 years and for services must be 6 months.

Answer 109

-cars (unless 100% for business eg driving school) -non-business items -VAT items for which no VAT receipt is held -business entertaining (two exceptions: staff entertaining, entertaining foreign customers)

Answer 110

By registering for VAT the business can begin to recover input VAT on its purchases at an earlier stage. Members of the public are likely to see an increase in selling prices rather than a decrease since the business would now have to charge 20% VAT on its prices. If a business is VAT registered it has to comply with all the VAT administration rules at an earlier stage – this is likely to increase administrative effort rather than reduce it. Once a business has registered for VAT, VAT returns are compulsory – they are not optional. Available Answers It could recover input VAT at an earlier stage (2 Marks)

Answer 111

Feedback: Farida will exceed the registration threshold on 30 April 2021 when her supplies in the 10 months since she commenced trading are £85,200. She must notify HMRC that she has exceeded the registration threshold within 30 days (i.e. by 30 May 2021) and will be registered from the start of the following month (i.e. 1 June 2021). Available Answers Farida must notify HMRC by 30 May 2021 that she has exceeded the registration threshold. (Correct) Farida will be registered with effect from 1 June 2021. (Correct)

Answer 112

Incorrect Where a business ceases to trade HMRC must be notified within 30 days. However, deregistration is effective from the day the taxable supplies cease, not at the end of the 30 day period.

Answer 113

85k though smaller may use voluntarily Has to be returned quarterly on software compatible and able to take straight from business records has to be kept for 6 years

Answer 114

85k though smaller may use voluntarily Has to be returned quarterly on software compatible and able to take straight from business records has to be kept for 6 years

Answer 115

Can be less detailed if less than 250 or modified for retail supplies over 250 but generally: -can be issued electronically and copy must go to customer and retain seller -requires invoice number (unique and follow on) -contain name and business address of supplier -VAT reg number of supplier -tax point date (if not invoice date) -name and business address of customer -description of type of supply -description of goods/services -price exc vat -rate of tax for each set of goods -amount payable exc vat -cash discounts if applicable -amount of VAT and must include none if zero-rated DOES NOT NEED -date of order -customer VAT registration or order number -method of delivery

Answer 116

Small errors are defined by the limit which is the higher of either 10k or 1% turnover exc VAT capped at 50k (ie if this is more than 10k this is now the limit in which the error is judged against-only small if it is below this limit) Reporting in next period is fine provided was not careless or deliberate Those which exceed or were deliberate require reporting in a form (VAT652)-penalties apply

Answer 117

Any with over 2.3m VAT liability Have to make payments on account these are 1/24th of annual liability at the end of months 2 and 3 of every quarter Any additional is due one month after quarter end.

Answer 118

If an error made by HMRC has caused: output VAT to be overpaid, or input VAT to be under claimed a trader will receive repayment interest from HMRC. You will be given the applicable interest rate in the question if needed. Interest runs from the later of: the date of payment to HMRC, and the due date for payment, up to the date of repayment.

Answer 119

Interest on unpaid VAT A trader may be charged interest if: HMRC raises an assessment for underpaid output VAT, or HMRC raises an assessment for over claimed input VAT, or the trader voluntarily discloses an error not classified as small. You will be given the applicable interest rate in the question if needed. Interest runs from the due date up to the date of payment.

Answer 120

A VAT return must be submitted electronically seven calendar days after the last day of the month following the end of the return period, ie, 7 April 2022. The partnership income tax return has to be submitted online by the later of 31 January following the tax year or three months from receiving the return – in this case by 3 February 2023. Eagle Ltd has one year from the end of the period of account to submit its corporation tax return, ie, by 31 December 2022

Answer 121

Dividends from other companies (UK and overseas). Dividends from 51% subsidiaries are not included

Answer 122

51% related companies

Answer 123

If tax liability is less than 10k If they weren’t a large company in prior year with AUGMENTED PROFITS less than or equal to 10m Note the 10m is scaled for short AC periods and divided by the number of 51% company’s at the end of the PREVIOUS AC PERIOD

Answer 124

Within 3 months of AC beginning HMRC usually then submits a return request but if not a company must notify within 13 months of period end that it has taxable profits or will face a penalty

Answer 125

Without 9 months of actual filing date for corp tax

Answer 126

Feedback: 15% of the lease charges are disallowed for a car with CO2 emissions in excess of 50g/km. Therefore the disallowable amount = (£4,700 × 15%) = £705 If you picked £1,485 you disallowed 15% on both cars. If you picked £4,700 you disallowed all of car 1. If you picked £780 you disallowed 15% of car 2. Available Answers £705 (2 Marks)

Answer 127

Feedback: Non-trading loan relationships = £53,000 – £13,000 – £11,000 = £29,000 Trading expenses = £39,000 For companies, all non-trading interest is included as non-trading loan relationships. Thus the interest on the loans to acquire a rental property and a subsidiary company are non-trading loan relationships. Unless a company's trade is financial, all interest receivable is taxable as a non-trading loan relationship. Allowable interest for trading purposes is the loan used to purchase a factory. Available Answers Non-trading loan relationship income - £29,000 / Trading deduction - £39,000 (2 Marks)

Answer 128

Feedback: Tutorial note An accounting period starts on the earlier of when a company starts to trade or obtains a taxable source of income. The first accounting period therefore starts when the company opens the interest bearing bank account on 1 June 2021. The date of incorporation is not relevant. An accounting period (AP) ends on the earliest of 12 months after the beginning of the AP, the end of the company’s period of account and the date the company begins or ceases to trade. The first accounting period therefore ends when the company starts to trade. Available Answers 1 June 2021 to 30 June 2021 (2 Marks)

Answer 129

Flowertot plc has paid a dividend to its shareholders of £4,600: Dividends paid to shareholders are an appropriation of profits and not an allowable deduction for trade purposes. As a result the dividend paid must be added back.

Answer 130

890k+15k rental=905k*0.19 for corp tax percentage Tutorial note Property income is always taxable on the accruals basis for companies. Dividends received are not taxable and should not be included in the calculation of the TTP. Available Answers 171950.00 (2 Marks)

Answer 131

Feedback: Submarine Ltd is a very large company as its taxable total profits, and therefore augmented profits, are in excess of £20,000,000. Instalments are due on the 14th day of months 3, 6, 9 and 12 of the accounting period for a very large company. The accounting period starts 1 January 2021 so the instalments are due on 14 March 2021, 14 June 2021, 14 September 2021 and 14 December 2021. If Submarine Ltd had only been a large company (rather than very large) the first of the four quarterly instalments would have been due on the 14th day of month 7, 14 July 2021. If Submarine Ltd had been neither large nor very large, its corporation tax would have been due 9 months and 1 day after the end of the accounting period, 1 October 2022. Available Answers 14 March 2021 (2 Marks)

Answer 132

An employer can use voluntary payrolling to report all benefits excluding employer provided living accommodation and beneficial loans.

Answer 133

Feedback: Leo included £550 relating to the write off of a loan to an employee who left the business some time ago: The loan write off is not trade related as it is not part of its trade to lend money, and it is not part of employee remuneration. The loan write off cannot be taxed as a benefit on the employee as he left the business some time ago. As it would originally have been deducted in arriving at the draft taxable trading profits figure, it needs to be added back to eliminate it.

Answer 134

FALSE If a trader believes the value of taxable supplies in the coming 12 months are going to be below the deregistration threshold, the trader MAY deregister for VAT.

Answer 135

Feedback: A new business will calculate its instalments based on an estimate of the VAT liability for the year. Available Answers A new business cannot join the scheme as instalments must be based on last year's VAT liability (2 Marks)

Answer 136

Available Answers £4,017 (2 Marks)

Answer 137

Feedback: Trade debts recovered are taxable as trading income and therefore do not require adjusting in the adjustment of trading profits computation. Dividends received are not taxable, profits on sales of capital assets are dealt with through the capital allowances computation and/or a chargeable gain, and interest receivable is taxed as interest income, therefore these all require adjusting in the trading profits computation. Available Answers Trade debts recovered (Correct)

Answer 138

Feedback: An accounting period cannot be longer than 12 months. If the period of account is longer than 12 months it must be divided into 2 accounting periods – the first one being 12 months long and the second one covering the remainder of the period of account. Available Answers 1 January 2020 to 31 December 2020 and 1 January 2021 to 30 June 2021 (2 Marks)

Answer 139

Feedback: A replacement printer is an entirely new capital asset. Legal fees in relation to a capital purchase are also disallowed as capital. The other items are allowable revenue expenditure. Available Answers A replacement printer (Correct) Legal fees in relation to the purchase of a new building (Correct)

Answer 140

Feedback: With CO2 emissions of 40g/km the car is entitled to a WDA of 18%: WDA = (16,000 x 18%) = £2,880 If you picked £16,000 you gave the car the FYA at 100%, but this is not a new zero emission car. If you picked £8,000 you gave the car the AIA and time apportioned the AIA for the length of ownership in the period. Remember cars are not eligible for the AIA and the AIA and WDA are only time apportioned for the length of the accounting period not when the asset was purchased. If you picked £1,440 you only gave the car six months of allowances. As noted above, the AIA and WDA are only time apportioned for the length of the accounting period not when the asset was purchased. Available Answers £2,880 (2 Marks)

Principles of Tax Flashcards

(164 cards)