Taxation

Question 1

what is the effect of business asset disposal relief?

Answer 1

10% capital gains tax instead of 20%

Question 2

what counts as a business asset for business asset disposal relief?

Answer 2

1. all or part of the trading business- must have been owned for a t least 2 years prior to disposal.
2. assets in a business that used to trade- owned for 2 years and assets disposed of within 3 years of the business ceasing to trade.
3. shares in a trading company- trading company for 2 years and shares held for 2 years.
   (person must hold at least 5% of ordinary voting shares)
4. disposes of shares in a company that used to trade- shares owned for 2 years and share disposed of 3 years.
   (person disposing must hold at least 5% of ordinary voting shares)

Question 3

requirement for rollover relief?

Answer 3

any gain made is carried forward and rolled into the cost of a qualifying replacement asset.

purchase of the replacement can be 12 months before and 3 years after the sale.

Question 4

when must companies pay HMRC its corporation tax?

Answer 4

if less than £1,500,000 , within 9 months and one day of the end of the accounting period.

Question 5

how to calculate income tax?

Answer 5

1. Calculate total income.
2. Calculate net income (minus pension contributions or interest paid on qualifying loans)
3. Taxable income (deduct personal allowance).
4. Apply rax rates in order of non-savings, savings then dividend.
   (apply basic rate first then work upwards)

Question 6

what are the allowances for personal savings and dividend income?

Answer 6

for savings= £1000 for basic rate
- £500 if higher rate.

for dividend = £500 for everyone.

Question 7

how to calculate chargeable gain and capital gains tax?

Answer 7

1. Chargeable gain= consideration received- allowable expenditure.
2. capital losses and set off
3. annual exemption - £3000.
4. tax. 10% for basic rate. 20% for higher.
5. may be reliefs that revert 20% to 10%.

Question 8

what counts as allowable expenditure for chargeable gains?

Answer 8

initial expenditure- cost price of the asset.
disposal expenditure
subsequent expenditure- enhances its value (not essential repairs) and expenditure establishing, preserving or defending title to the asset.

Question 9

what is the lifetime allowance for business asset disposal relief?

Answer 9

£1,000,000 at a reduced rate of 10%

Question 10

how to calculate the amount of VAT paid to HMRC for each transaction?

Answer 10

difference between input tax and output tax.

Question 11

what are the types of supply for VAT?

Answer 11

• standard= 20%
• reduced- 5% e.g domestic heating
• exempt- education, sale of land and buildings
• zero rated- public policy reasons.

Question 12

how to calculate corporation tax?

Answer 12

Income profits= income receipts- deductible expenditure- capital allowances - trading losses.
plus
Chargeable gains= sale proceeds - allowable expenditure- indexation allowance- capital/trading losses.

tax is 25%

Question 13

what are capital allowances (taken off income receipts to get income profits)?

Answer 13

• plant and machinery.
  1. annual investment allowance of 1 million.
  2. written down allowance- reduced by a further 18%.

Question 14

how can capital and trading losses be used when calculating chargeable gains?

Answer 14

capital losses- first carry across for the same accounting year then can carry forwards (only offset against chargeable gain)

trading- carry across first, can go back to the previous year (if on same trade) then can carry forward indefinitely.