Income Tax

How do you tax a foreign dividend with 5% WHT?

Gross up by 100/95 in comp

What if you can get a cash dividend but take stock alternative how is this taxed?

Calculate the value of both options. If the diff between the two values is more than 15% of the value of the new shares, this value is deemed to be dividend

How are dividends and income from joint shareholding split assuming no election made?

Rent = 50%

Dividends = underlying ownership (assuming close company)

What is the married couples allowance?

Tax relief for couples where one partner was born before 6 April 1935. Relief is restricted to 10%

When can you transfer tax allowance for married couples and civil partners?

Where the recipient is not liable to tax above BR.

when do you reduce the marriage allowance?

For income over 37,700 the marriage allowance is reduced by £1 for every £2.

so (X - 37,700) * 0.5

What is the quirk with the married couples allowance when marriage took place before 5 December 2005?

It is the husband’s income that is used for calculating any restriction

What is the reducer for marriage couples allowance?

Tax reducer at 10%

What is the reducer for the marriage allowance ?

20% of £1,260

is your state pension taxable?

Yes as NSI

what do you do with discretionary trust income?

gross up by 100/55

What is qualifying loan interest for an employee

Has to be plant or machinery and interest qualifies for year of the loan and next three years.

What are the rules with qualifying interest on buying shares?

Any shares in a close company if borrower is employee

Shares in a close company for non employee has to be a material interest

How does qualifying interest payments work?

deduct from total profit

Types of qualifying loans on which interest can be deducted?

Plant or machinery by an employee to use asset (not car) in employment. Has to qualify for CA. TY in which loan was made and next 3 years

Shares in close company rule

Loan to buy interest in co-operative or employee-controlled company

Loan to buy into partnership

Tax effects of a borrower recovering capital on funds invested?

Capital recovered is deemed to repay the loan and interest relief restricted.

Scottish tax rates?

NSI = check tax tables

SI and DI are same as UK

How does Gift Aid affect tax relief for Scottish?

Only BR band and above are adjusted. Starter Rate band stays the same

What is the initial penalty for a late return?

£100

What is the penalty for return being 3 months late?

£10 per day for maximum of 90 days

What are additional penalties for a return which is more than 12 months late

2 × 5% * tax liability

How long does tax payer have to amend return?

12 months from due date

How long does HMRC have to amend?

9 months from the date of receipt

How long do HMRC have to issue an enquiry notice?

12 months from date of receipt

When do you have to notify HMRC to register for self-assessment

5 October following end of TY in which income relates to

What is the penalty for late notification / disclosure to HMRC?

Prompted disclosure = between 35 - 70% of potential lost revenue (IT unpaid at relevant date)

What does the rate of a penalty depend on?

Quality of disclosure - including timing, nature and extent

Explain responsibilities under self-assessment

Obligation to notify HMRC that you are chargeable to IT

Notify them by 5 Oct following end of relevant tax year

If not penalties could be incurred

Online return by 31 Jan following end of TY unless HMRC is slow in issuing notice to file - if late then deadline is 3m from date of issue of notice

Paper return by 31 Oct following end of TY but again has to be later

Penalties for deliberate and concealed?

30% - 100%E

Penalties for deliberate but not concealed

20 - 70%

Penalties for not deliberate?

0% - 30%

Who calculates tax liabilities upon filing of a return?

Online return = HMRC

Paper = HMRC can do it if you don’t want to

Penalty for submitting return more than 6m late?

Additional 5% or £300 if greater.

What happens if your return is incorrect?

No penalty if you took reasonable care

If not then penalty 0 - 30%

Deliberate but not concealed = 20-70%

Deliberate and concealed = 30-100%

What if a partnership return is filed late?

Each partner subject to £100 penalty

When are penalties due on payments on account?

only on balancing payments paid and only if more than 30 days after due date

When are no payments on account required?

If the tax due for previous year is less than £1k

If more than 80% of tax liability deducted at source

In what order are tax repayments identified?

Balancing payment

POA allocated equally between the two

Tax deducted at source

When is interest charged on POA if taxpayer reduces POA?

HMRC charges interest from original payment on account due date until the balancing payment

When are bonuses taxed

The earlier of the date of entitlement and date of receipt

What does the suffix L mean?

Person entitled to normal PA

How do you figure out the numbers before suffix on a tax code?

Take net allowances and remove the last number

What does a K code represent?

Negative code - benefits not included in payroll exceed allowances for the year

What do u need to remember with a K PAYE code?

To take off the last digit and deduct 1

What is the full payment submission?

details of payments made to employees are reported to HMRC, produced automatically by payroll software.

The FPS will also report details of tax and NICs withheld

What is a P60?

Provided to each employee at end of every year showing income for tax and NIC purposes .

Sent to employees by 31 may following end of tax year.

What is a P45?

Where employee is leaving, showing details of pay and tax from start of TY and tax code.

A new employee should give u a P45 from old employer

What dividends are exempt from tax?

VCT

Tax treatment of a non-qualifying life policy?

The gain on policy is chargeable to IT. Gain is treated as top slice and carried a notional 20% credit

Formula for tax charge on life policy premium part surrender?

Cost 5%

When is an individual not caught by accrued income scheme?

Not UK-resident or nominal value of holding doe not exceed £5k

what is the nominal value of stock?

the value at which it will be redeemed

What if stock is sold close to payment dayr?

Person who owns stock at cut-off date will receive the interest even if they sell it between cut off date and int payment date.

What is the ex-div date?

The cut-off date of stock

What if person sells stock before ex-div date?

it is sold come-div - buyer entitled to next interest payment

What if sold after ex-div date?

buyer is not entitled to next int payment and seller will receive next int payment

What is a pecuniary legacy?

specified sum of money that the beneficiary is entitled to (and no more). Not entitled to the interest and therefore no tax liability

What if there is a delay in paying legacy?

Executors pay int once period of 12m elapsed, taxed as it arises

What if beneficiary receives legacy of income producing asset?

ben. is entitled to the income arising with effect from date of death.

Income paid to executors who will include on their TR and pay tax.

Beneficiary is then taxed on the gross income

What does the R185 do?

certifies the income that has been distributed and tax paid.

If I receive R185 how does this go on my tax return?

Gross up all the income and put into my comp

Pay tax on it

Deduct the tax figures shown in the R185

What is the max amount of EIS investment?

£1m, or £2m for knowledge intensive company

when can directors be eligible for EIS relief?

if they are unpair director in 2 year period before issue and 3 years after issue

or if not connected before issue and become one (and are paid reasonable remuneration)

what can you do with EIS loss?

IT relief equal to 30% proceeds clawed back

What is the max investment in SEIS?

£200k

Investor conditions for SEIS?

Not connected (by associates, own more than 30%, spouse, ancestor)

What is IT withdrawal for SEIS sold within 3 years?

Lower of:

Proceeds * 50%

Amount of relief originally obtained

When is the only time a taxpayer can set capital loss against income?

s.131 - sale of EIS shares or those in qualifying trading company give rise to loss.

What are the rules with non-reporting offshore funds?

Disposal at profit is subject to IT and not CGT

For loss, it remains a capital loss

If a fund only invests in interest-bearing assets what are implications of transparent and non-transparent?

Transparent - dividend taxable as interest

Non-transparent - taxed as miscellaneous NSI

Are dividends from EIS company taxable?

Yes

Explain Gift Aid donation implications

Gross up and extend bands

Can carry back donation and claim on PY tax return if donation is made before submission of return - this would give cash flow benefit

Tax implications on transfer of quoted shares to charity?

Relevant amount is MV of shares at date of transfer. This is a £ for £ deduction against income on the tax year the donation is made.

NO option to carry back

Tax implications on gifting shares to charity?

They are exempt from CGT.