TAX Flashcards
(47 cards)
Between which dates do a corporate tax financial year run?
1st April - 31 March
Between which dates does an individual financial tax year?
6 April - 5 April
Hos is income tax collected?
- PAYE (pay as you earn)
- Self-assessment
- Budget payment plans
Name the non-taxable incomes
- certain state benefits (disability living allowance, housing benefits)
- ISA
- working tax credit
- premium bond wins
- first 28 weeks of incapacity benefit
- maternity allowance
- war widow’s pension
Can you carry over personal allowance to the next tax year?
No
What is a qualifying loan for tax relief?
Certain interest payments can be deducted, but the of the loan must be qualifying for the interest payment to be deductible. e.g. Mortgages or loans to buy property for once personal use is not qualifying. However, loans to buy rental property may qualify.
Loans in general that does qualify:
- loans to buy shares in borrowers company
- loans to buy share in partnership
- loan to buy machinery for use in trading
- loans by personal representative (PA) to pay inheritance tax
What is the the limit to all uncapped income tax reliefs?
Those seeking to claim income tax reliefs of more than 50.000 pounds are restricted to 25% of their income for the year in question or 50.000 pounds which ever is the greater.
Reliefs that are already capped e.g relief for pension contributions will not be affected.
What is the gift aids scheme?
It is for gifts of money given by tax payers to charities or to community armatures sports clubs (CASC). The tax payer payed with money that he has already paid tax on and can therefore reclaim the “basic tax” from HMRC on its gross equivalent.
The current “basic tax rate” is 20%.
Higher earners can also claim back if they pay 40 or 45 % of income in tax.
Tell me more about the National Insurance
You pay national insurance on earnings up to retirement age. Builds rights to social security benefits including state pension. The amount depends on how much you pay and whether you are self employed.
How are partnerships taxed?
Unlike a company a partnership is not a separate legal person, but a group of individuals each of whom is taxed on his own share of the partnership profits or losses. Each partner should include his share in profits in his own tax return and is liable for tax on his share only. However, the partnership should submit tax return on the total partnership profits which is later divided between the members.
Note that a true salary to a partner is deductible as an expense, with tax being deducted at sours under the PAYE procedure.
While a mere employee of the partnership who receives a salary will not be a legitimate delectable expense.
Similarly, where a loan is extended by a partner to the partnership the interest payable on the loan is a deductible expense. While interest payable to a partner regarding a partners contribution to capital to the firm is not a a deductible expense. Such payment being regarded as part of the agreed method of allocating profits among the partners.
Can you set off loss from e.g. an ISA to gains on other accounts?
No you cannot. ISA’s, National Savings and investments, child trust funds, tax-free bank and building Society accounts and tax relief on pension savings are tax free, but you cannot set-up losses to other investments.
Which entities pay corporation tax?
Companies and unincorporated associations such as members clubs.
Partnerships no not pay corporation tax. Instead each partner payed income tax on this share of the profits of the partnership.
How are companies taxed?
Companies pay corporation tax, but not income tax or capital gains tax.
Corporation tax is payable on profits from UK resident companies, even it the profit was made outside the UK. If the company is not based in the UK, but operates here e.g. through a branch (permanent establishment) it will only pay corporation tax on any taxable profits arising from its UK activities.
What is the the tax year called for a company paying corporation tax and between which dates does it run?
For corporation tax purposes the tax year is called the financial year.
The UK government’s own financial year runs from 1st April to 31 March.
Companies pay corporation tax on taxable profits for each corporation tax accounting period.
A corporation tax accounting period is different from e.g. VAT accounting period and Companies House accounting reference period.
The companies corporation tax accounting period is normally 12 moths long. This period, normally (but not always) matches the companies 12 month’s financial year. The companies financial year begins and ends with the dates covered by its annual reports and accounts as submitted to companies house (statutory accounts or audited accounts).
Om with more than 12 months if e.g newly formed or changed its financial year end.
However, the accounts tax period cannot be more than 12 months. In such event, you must file two company tax returns because you will have two corporation tax accounting periods.
What are taxable profits for companies paying corporation tax?
- profits from taxable income such as trading profits and investment profit (except dividend income which is taxed differently)
- Capital gains (known as chargeable gains for corporation tax purposes.
What is chargeable gains for corporation tax purposes?
Its the same as “capital gains”, but companies do not pay capital gains tax
Between which dates does a companies financial year run?
Limited companies are required to submit annual accounts to Companies House including a profits and loss account. When you start a new company the financial year automatically runs to the end of the month a year after the company is incorporated. e.g company incorporated on 10 June, the financial year ends 30 June the following year. Can chose a different financial year end if you wish.
When should a company file the return and pay the tax due?
Deadline to pay the corporation tax is before the deadline to file the company tax return.
- Pay within 9 moths and 1 day after the end of its corporation tax accounting
- file by 12 months after the end of its corporation tax accounting period.
Do companies always pay corporation tax once a year?
No, if a company’s profits for an accounting period are at an annual rate of more than 1,5 million pounds it must normally pay corporation tax for that period in quarterly installments in the 7th, 10th, 13th and 16th months after a full accounting period starts all of which is due before the deadline to file the company tax return. Company tax returns must be submitted to HMRC online and pay electronically.
How do you calculate corporation tax?
Corporation tax is charges on both all of the taxable income and the chargeable capital gains of a company, which together makes up its profits.
Exceptions and reliefs, lessen the company’s tax burden.
Income profits are thus defined as trading receipts and/or chargeable receipts less deductible or allowable expenses less capital allowances.
Define “Charge on income”
Payments that a company makes that can be deducted from profits or capital gains chargeable to corporation tax which have accrued during an accounting period.
Main example = charity (gift aid). Non trade charges on income and can therefore be deducted from total profits and capital gains. Paid from the companies gross profits.
Note that compared to individuals- not reclaim tax on the gift or submit gift aid declaration.
How can a corporation deduct from trades, income from Land in the UK and capital?
No deductions allowed against profits from trades or income from land in the UK for expenses not incurred wholly and exclusively for the trade or rental business.
No deductions are available for capital (i.e deductions are only available for revenue items).
Since no capital deductions are allowed, depreciation of capital assets is not tax deductible, although tax depreciation (know as capital allowances) is available instead for expenditures on some capital assets. There are various kinds of capital allowances i.e. plants and machinery.
Plants - no statutory definition - but the legislation designate integral features (electrics, water, heating etc), expenditures on safely and personal security assets. Buildings and structures cannot be plants.
Plants defined by 100 years of case law. It is in essence business apparatus which can in practice include may fixtures and fittings in buildings.
Are dividends and transfer to reserves allowable deductions from corporate tax?
Capital allowances may also be deducted when calculating taxable profits; however appropriations of profit, such as dividends and transfers to reserves are not allowable as deductions.
When can you deduct business expenses?
A business expense can only be offset against Corporation Tax if it is judged to have been incurred solely for business purposed.
Office machinery, equipment and furniture and motor is entitled to a “writing down allowance”.
Raw materials, stock and trade and buildings are excluded.
