Week 2 - Income Tax Basics Flashcards
(35 cards)
What is grossing up and how do you calculate?
All figure in income aggregation must be gross
Net Amount x (100/100-Tax Rate)
Tax liability difference for UK and Non UK resident
UK resident liable for income tax on global income
Non-UK, only liable for income only made in UK
Automatic treatment of Non-UK resident
In UK for less than 16 days in the tax year
UK resident but work for 90+ days abroad
In UK <46 days but not a resident in previous three years
Automatic treatment UK resident
In UK for 183 days
Only house owned is in UK
Full time work in the UK
When residency rules don’t apply, status will be based on which ties?
In UK for 90+ days in either 2 tax years House in UK used in tax year Spouse/Civil Partner or child in UK Substantive work in the UK More time in UK than any other country in tax year
Exempt from taxation
Scholarship grants
Dividends from initial investment in venture capital trust (up to 7.5K)
Pension lump sum (25%)
Lottery and Premium Bond winnings
Penalty for missing self-assessment deadline
£100 + £10 a day up to £900
No tax paid after 3 months, 5% of tax due or £300, whichever is higher
Key dates for the filing of a return
31st October after tax year for paper return
31st January after tax year for online filing
Treatment of only income being saving income
£5,000 tax free allowance instead of £12,570
Dividend treatment
£2,000 tax free allowance
Basic Rate - 7.5%
Higher - 32.5%
Additional - 38.1%
Married couple allowance
Transfer 10% of allowance (1257) to spouse but transferor must be maximum a a basic band rate payer
MCA
Additional allowance for older married couples and registered civil partners
Terms of MCA
Reduces tax liability between 353-912.50 a year
Income above 30,400 reduces MCA by £1 for every £2 over
(X-30,400)/2
Cannot be reduced below 353
What are charges on income?
Recurring, legally enforceable liability of the taxpayer allowed as a deduction from total income to give adjusted total income
When are “charges on income” made?
After basic band deductions are made
Gross up in tax calculation and then deduct tax withheld to determine tax payable
patent royalties
INCLUDES:
Payments made for proper commercial reasons in connection with individual trade, profession or vocation
Charges to income paid in gross w/o deduction
Copyright royalties
Payments of eligible interest
What is gift relief
Tax relief given on business’ on gifts to charity
Requirements of gift relief
Donor receives no benefit, or, is less than the benefit to charity
Taxpayer pays enough tax to cover the tax reclaimed by the charity - if taxpayer doesn’t, they will have to pay additional tax
Impact of donation on tax payer
Increases basic rate band by grossed up value of the gift
X * (100/100-20)
How can charity claim?
25p for every £1 donated
£80 donation
80*0.25 = £20
80 + 20 = £100
Child benefit
A tax free benefit payable to parents irrespective of their taxable income
If adjusted net income exceeds 50K, and they receive child benefit, the benefit is taxed and gradually removed - gone at 60K
Child benefit formula
1 - (Child benefit amount x tax bracket rate)
Occupational pension scheme
Contribution from employer and employee. No limitation on employer contribution but will count towards employees lifetime and annual allowance
When employee makes a contribution into occupational pension scheme, relief is given at source and employer contributes before calculating PAYE
Personal Pension Scheme
Unlike OPS, contribution taken at net value
Basic tax rate relief given at source with HMRC paying equivalent amount to the basic rate reduction
20/80* Amount contributed
