Taxation revision notes PDF

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Taxation revision notes Income

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Extra notes: -

Personal allowance = £11850 (Income over £100000 – PA reduces by £1 for every additional £2 earned) Blind persons allowance = £2390 – transferable to spouse/civil partner. Savings has an allowance of £5000 if no personal allowance for Income. If income is less than £11850, the extra allowance is carried over to savings. Gift aid – extends basic tax amount (Gift Aid Amount x 100/80).

Proportional income tax is one which the income tax is a constant proportion of income. Progressive income tax is one where as income increases, the individual pays a greater proportion of their income.

Pros and cons of current tax system: -

Gain from UK public sector – healthcare, education, transport links i.e. roads.

Employment income

Tax treatment: Employed vs Self Employed Bonuses: - Employee – taxed at earlier of: when bonus received or when they become entitled to it. - Directors: taxed at earlier of: when bonus received, become entitled to it or when the bonus is charged to company accounts BIK (Benefits In Kind) – where an employee receives a benefits because of zir employment. Exempt benefits: - Trivial benefits in kind £250, the full amount is taxed. - Annual parties or functions – no more than £150. - Meals in house.

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Long service awards not in cash – More than 20 years, limited to £50 per year Rewards for suggestions. Relocation costs – excess over £8000 taxed. Child care Working at home – (up to £4/week or £18/month) if you must work at home Car parking near work Counselling Air miles/loyalty points Internet access Job related accommodation Laptops (Has to be used for private use less than 40% of the time) One phone only Running costs for car

Not exempt benefits -

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Assets owned by company by provided to employee for private use = cost of asset x 20% If asset is sold: benefit from transfer (choose the bigger) = (i) excess over market value (ii) excess of untaxed benefits based on MV price = (Cost-annual benefit – No. of years (cost x 20% x %private use)) – price sold for) Laptop: More than 40% private use = 20% x cost of laptop x private use Accommodation = Annual value Accommodation additional benefit = (cost of property + improvements made before tax year - £75000) X ORI. Use market value when first provided to that employee if more than 6 years ago) Motor cars – % x (list price + accessories – employee capital contribution (limited to £5000)). Diesel cars = +4% Contribution to running costs – deductible from car benefit. Fuel benefit: £23400 x % Allowable expenses – must be wholly, exclusively and necessarily incurred in the performance of duties of employment. Travel expenses: If paid lower rates, employees can claim allowable expense. Extra passenger = £0.05 More than one phone Payments for private incidental expenses are exempt up to £10/night when spent outside the UK on work. Everyday clothing.

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Beneficial loan – if rate of interest is less than ORI = Loan amount x (difference between rate and ORI)

National insurance contributions

Assumption: salary was earned evenly through the year. -

If individual receives a bonus – work out NI for 51 weeks (average income) and 1 week NI for average income + bonus.

When calculating employer NI contribution – work out employment income. (Weekly income - £162) x 13.8% = weekly NI paid by employer.

Pension contributions – EET - Deduct from employment income workings

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Deductible for tax purposes when made, income and capital gains accruing within the pension scheme are exempt, income in retirement is taxed as a form of employment income. £40000 limit pa. Reduced by £1 for every £2 of income above £150000, but with a floor of £10000. Lifetime = £1030000 Can take your pension from 55 years old, at retirement you can take a tax-free lump sum of up to 25% of pension pot. Taxed at marginal rate of income tax. Carry-forward of unused allowances for up to 3 years

Taxable Trading Profits and property income Badges of trade -

Profit seeking motives Repeated no of transactions Asset – advantage by sale Similar trading interests Changes to asset – improvements Way sale was carried out Source of finance – borrowed? Sold/traded quickly Method of acquisition

Tax year runs from 6th April to 5th April – falls into tax accounting period. Disallowable items: ADD - Capital expenditure - Depreciation - Donations to political parties - Pension contributions - Fund drawings from the company - Entertaining customers/suppliers - Fines unless on business - Gifts less than £50 – no food, drink, tobacco or voucher for previous goods - Legal fees for acquisitions, renewal of long lease >50 years. - Political subscription - Theft by an employee who had control over the business - Accounting/consultancy fees re personal taxation - Car insurance – cost x private element - Car - Increase in general provision of impairment of trade receivables - Gym - Repairs to make property useable - Lease premium

Less: -

Commissions Bank interest Capital allowances Profit on disposal Lease premium deduction

Capital allowances Land/buildings – the setting in which the trade of the business occurs Plant and machinery – the apparatus the business uses for its trade. ECA’s (100%) – environmentally beneficial in Energy tech criteria list or water tech criteria list. Motor cars up to 50g/km AIA – allowance of 100% expenditure on plant and machinery up to £1 million Special Rate Pool (8%) – long life assets (useful life for >25 years). Integral features of a building (electrical systems, cold water systems, lifts, space and water heating systems). Thermal insulation. Motor cars with >110g/km.

Main Pool (18%)– other plant and machinery. Motor cars with between 50g/km and 110g/km -

Small pools allowance = £1000 to clear it to zero

Disposals limited to original cost only. Property income -

Let a room or rooms in their own home for up to £7500 If >£7500 – either pay tax on excess or pay tax on gross rent less expenses

Furnished holiday lettings – cannot be more than 155 days if exceeds 31 continuous day, available for more than 210 days and actually let for 105 days. - Claim CGT reliefs for traders - Entitled to plant and machinery capital allowances – furniture, equipment and fixtures - Profits count as earnings for pension purposes Lease >50 years = lease premium is capital gain. If less than 50 years, then income tax will be payable on: P – (P X (L – 1) X 2%) Property allowance – profits from property...