Tax Flashcards
(18 cards)
How is personal allowance tapered for income above £100,000?
For income above £100,000, the personal allowance must be tapered so that a person loses £1 of allowance for every £2 of income above £100,000. E.g., If someone has £23,000 of income over £100,000, £11,500 must be deducted from the £12,500 allowance, leaving only £1,000. Therefore, the taxable income is £100,000 + £23,000 - £1,000 = £122,000.
Who needs to register for self-assessment and what is the personal savings allowance for higher rate taxpayers?
People who trade as sole traders, partners, company directors, and those with interest or dividend income higher than tax-free thresholds must register for self-assessment. A person in the higher rate tax band has a personal savings allowance of £500.
What determines the tax point for VAT when payment is made before supply?
If the payment is made and the invoice is issued before the good or service is supplied, the tax point is the earlier of the payment or invoice date.
How are payments on account calculated?
Payments on account are always calculated using 50% of the prior year’s income tax payable figure.
How is income tax liability calculated for an electrician with trade and dividend income?
The electrician has total income of £105,000, minus £3,500 loan interest relief, resulting in £101,500. This triggers a taper of the personal allowance by £750, leaving £11,750. After deducting this from the non-savings income, £69,750 is taxable. £37,500 is taxed at 20%, the rest at 40%. £18,000 of dividends are taxed at 32.5%. Income tax liability = £26,250.
Can higher rate taxpayers use the full capital gains annual exemption?
Yes, all UK taxpayers can use the full capital gains annual exemption, even those in the higher rate band.
When must businesses register for VAT under historic and future tests?
Businesses must register for VAT if turnover exceeds £90,000 in the past 12 months (historic test) or if the turnover for the coming month is expected to exceed £90,000 (future test).
How is capital gains tax calculated on sale and reinvestment of trading properties?
If a business asset is sold and reinvested in another within one year before or three years after the sale, roll-over relief applies
Do companies pay capital gains tax on their chargeable gains?
No, companies pay corporation tax on their total profits, including chargeable gains. They do not pay capital gains tax.
When must companies (not large) pay their corporation tax?
Companies that are not large (generally, with profits under £1.5 million) must pay their corporation tax nine months and one day after the end of the accounting period.
When are tax payments due in the first year of trade?
In the first year of trade, no payments are required until the 31st of January following the end of the tax year in which trading began.
What is the correct order for claiming capital loss relief?
Current year capital losses must be set off against capital gains for the same year before subtracting the annual exemption.
When is relief from overlap profits available?
Relief from tax on overlap profits is available only at cessation or if the taxpayer changes their accounting date to a month closer to 5 April.
Do companies pay tax on dividend income or get the annual capital gains exemption?
No, companies do not usually pay tax on dividend income and they do not receive a deduction for the annual capital gains exemption.
Can VAT be recovered on business entertaining or private expenses?
No, VAT cannot be recovered on business entertaining, cars, or any private proportion of other expenses.
Can businesses voluntarily register for VAT?
Yes, businesses can voluntarily register for VAT regardless of their turnover or business structure.
What are the tax implications of a close company making a loan to a participator?
A close company must pay 32.5% of the loan amount to HMRC, refundable 9 months and 1 day after the accounting period in which the loan is repaid or waived. If written off, it is taxed as dividend income for the participator and is not deductible for the company.
