Taxation (TX-UK) FA2025 Review

Vocabulary flashcards covering the fundamental concepts of UK individual and corporation tax, IHT, CGT, and VAT for the FA2025 syllabus.

Progressive taxation

A social justice effect where the proportion of tax raised rises as income rises, such as UK income tax.

Regressive taxation

A social justice effect where the proportion of tax paid falls as income rises, such as duties on cigarettes.

Ad Valorem principle

A tax calculated as a percentage of the value of the item, for example, Value Added Tax (VAT).

Direct taxation

Taxes paid directly to the Government based on income and profit, such as Income tax or Corporation tax.

Indirect taxation

Taxes collected via an intermediary who passes them to the government, such as VAT paid to a supplier.

Personal Allowance (PA)

A tax-free amount available to UK taxpayers, set at $£12,570$ for the $2025/26$ tax year.

Adjusted Net Income (ANI)

Net income less gross gift aid donations and gross personal pension contributions used to determine the tapering of the Personal Allowance.

Marriage Allowance

A transferable amount of the Personal Allowance between basic rate or non-taxpayer spouses, fixed at $£1,260$ for the $2025/26$ tax year.

Rent a room relief

A tax exemption for individuals letting a furnished room in their main residence, with a limit of $£7,500$ p.a.

Badges of Trade

A set of tests summarized by the mnemonic SOFIRM (Subject matter, Ownership length, Frequency, Improvement, Reason, Motive) used to identify trading activity.

Annual Investment Allowance (AIA)

A $100\%$ capital allowance for the first $£1,000,000$ of expenditure on plant and machinery in a $12$ month period.

Special Rate Pool

A capital allowance pool for integral features (lifts, lighting, heating), long-life assets, and cars with $CO_2$ emissions over $50$ grams per km, eligible for a $6\%$ WDA.

Structures and Buildings Allowance (SBA)

A capital allowance giving tax relief for qualifying commercial buildings at an annual straight-line rate of $3\%$ over $33.3$ years.

Terminal loss relief

Relief for trading losses incurred in the final $12$ months of trading, which can be carried back against profits of the previous $3$ years on a LIFO basis.

Employment Income Benefit - Car

A taxable benefit calculated as the list price of the car multiplied by a percentage based on its $CO_2$ emissions.

Annual Allowance (Pensions)

An overall annual limit for total gross pension contributions, set at $£60,000$ for the $2025/26$ tax year.

Class 1 NIC (Employee)

National Insurance Contributions paid by employees at a rate of $8\%$ on earnings between $£12,571$ and $£50,270$ and $2\%$ on the excess.

Annual Exempt Amount (AEA)

A tax-free allowance for individuals for Capital Gains Tax, set at $£3,000$ for the $2025/26$ tax year.

Business Asset Disposal Relief (BADR)

A CGT relief for individuals disposing of a business, taxing the first $£1,000,000$ of qualifying lifetime gains at a rate of $14\%$.

Gift Holdover Relief

A relief allowing the capital gain on the gift of business assets to be deferred and deducted from the donee's base cost.

Augmented Profits

The sum of a company's taxable total profits (TTP) and dividends received from non-associated companies, used to determine the rate of Corporation Tax.

Indexation Allowance

A relief for companies (not individuals) to reduce capital gains by the effects of inflation, frozen at December $2017$.

Potentially Exempt Transfer (PET)

A lifetime gift by an individual to another individual which becomes exempt from IHT if the donor survives for $7$ years.

Chargeable Lifetime Transfer (CLT)

A transfer made during lifetime into a trust, which is immediately chargeable to IHT at a rate of $20\%$ if paid by trustees or $25\%$ if paid by the donor.

Nil Rate Band (NRB)

The cumulative amount that can be transferred for IHT purposes without incurring a tax charge, currently frozen at $£325,000$.

Voluntary VAT Registration

Registering for VAT even if supplies are below the $£90,000$ limit, beneficial for traders making zero-rated supplies or dealing with VAT-registered customers.

Tax Point

The time of supply for VAT, determining when output VAT must be accounted for to HMRC.

Flat Rate Scheme

An optional VAT scheme for small businesses (turnover $\le £150,000$) that applies a fixed percentage to gross turnover to calculate VAT liability.

Taper Relief (IHT)

A reduction in death tax on lifetime gifts where the donor survives for at least $3$ years but less than $7$ years, ranging from $20\%$ to $80\%$ relief.

Qualifying Charitable Donations (QCDs)

Charitable payments by companies that are deductible from total profits on a paid (gross) basis to arrive at Taxable Total Profits.

Economic Factors

Taxation policies influence key economic indicators such as employment levels, inflation, and imports/exports.

Progressive Taxation

The proportion of tax raised increases as income rises (e.g., UK income tax).

Regressive Taxation

The proportion of tax paid falls as income rises (e.g., flat duties on cigarettes).

Proportional Taxation

The proportion of tax remains constant regardless of income level (e.g., income tax in Latvia/Lithuania).

Ad Valorem Principle

Tax calculated as a specific percentage of the item's value (e.g., Value Added Tax).

Direct Taxation

Paid directly to the government based on income and profit (e.g., Income Tax, Corporation Tax).

Indirect Taxation

Collected via an intermediary (e.g., VAT, where a consumer pays a supplier who then remits it to the government).

Tax Evasion

Illegal actions taken to evade taxes, such as suppressing information or providing false information.

Tax Avoidance

Legal reduction of tax burdens using allowances, exemptions, and reliefs.

Professional and Ethical Standards

Accountants must uphold standards of the ACCA, maintaining an objective outlook and professional service levels.

Child Benefit Income Tax Charge (CBTC)

Applies if a partner's Adjusted Net Income exceeds £60,000, leading to a charge of 1% of benefit for every £200 of excess income.

Gift Aid

Contributions treated as being paid net of 20% basic rate tax, with relief for higher and additional rate taxpayers.

Residence Rules

UK residents pay tax on worldwide income; non-residents pay on UK-sourced income only.

Residence Rules

UK residents pay tax on worldwide income; non-residents pay tax on UK-sourced income only.

Economic Factors

Taxation policies influence key economic indicators such as employment levels, inflation, and imports/exports.

Progressive Taxation

The proportion of tax raised increases as income rises (e.g., UK income tax).

Regressive Taxation

The proportion of tax paid falls as income rises (e.g., flat duties on cigarettes).

Proportional Taxation

The proportion of tax remains constant regardless of income level (e.g., income tax in Latvia/Lithuania).

Ad Valorem Principle

Tax calculated as a specific percentage of the item's value (e.g., Value Added Tax).

Direct Taxation

Paid directly to the government based on income and profit (e.g., Income Tax, Corporation Tax).

Indirect Taxation

Collected via an intermediary (e.g., VAT, where a consumer pays a supplier who then remits it to the government).

Tax Evasion

Illegal actions taken to evade taxes, such as suppressing information or providing false information.

Tax Avoidance

Legal reduction of tax burdens using allowances, exemptions, and reliefs.

Professional and Ethical Standards

Accountants must uphold standards of the ACCA, maintaining an objective outlook and professional service levels.

Child Benefit Income Tax Charge (CBTC)

Applies if a partner's Adjusted Net Income exceeds £60,000, leading to a charge of 1% of benefit for every £200 of excess income.

Gift Aid

Contributions treated as being paid net of 20% basic rate tax, with relief for higher and additional rate taxpayers.

Residence Rules

UK residents pay tax on worldwide income; non-residents pay on UK-sourced income only.

Allowable Losses

Losses that can be deducted from taxable income to reduce tax liability.

Trading Losses

Losses incurred from business activities that can often be carried forward or back to offset against profits in other years.

Capital Losses

Losses realized when a capital asset is sold for less than its purchase price, which can be used to offset capital gains.

Set-Off of Losses

The process of using losses from one source of income to reduce taxable profits from another, in certain conditions.

Non-trade Income Losses

Losses from other types of income, such as property income, may have specific rules on how they can be offset.

Loss Relief

Provisions allowing taxpayers to claim losses against other income or gains to reduce overall tax liability.

Qualifying Losses

Losses that meet specific criteria set by tax law to be deductible for tax purposes.

Loss Carryforward

The ability to apply losses from one year to future years' taxable income to lower future tax burden.

Loss Carryback

The ability to apply losses from one year to past years' taxable income to obtain a tax refund.

Profit and Loss Account

A financial statement that summarizes revenues, costs, and expenses to determine net income or loss.

Disallowable Expenditure

Business expenses that cannot be deducted from taxable income, such as personal expenses, capital expenditures, and certain fines or penalties.

Examples of Disallowable Expenditure

• Personal expenses: costs not incurred for business purposes.
• Capital expenditures: costs related to assets that provide long-term value (e.g., buying machinery).
• Fines and penalties: amounts paid for violating laws or regulations.

Allowable Expenses for Landlords

Expenses that landlords can deduct from their income to reduce their tax bill, including agent commissions, utility bills, maintenance and repairs, and specific insurance policies.

Key Allowable Expenses

• Property Maintenance: General repairs (e.g., fixing leaky pipes, replacing broken windows).
• Bills & Services: Council tax, water rates, gas, electricity, and cleaning/gardening costs if paid by the landlord.
• Insurance: Landlord liability, buildings, and contents policies.

Disallowable Expenditure

Business expenses that cannot be deducted from taxable income, such as personal expenses, capital expenditures, and certain fines or penalties.

Examples of Disallowable Expenditure

• Personal expenses: costs not incurred for business purposes.
• Capital expenditures: costs related to assets that provide long-term value (e.g., buying machinery).
• Fines and penalties: amounts paid for violating laws or regulations.

Private Telephone Calls

You can only claim for the cost of calls relating to your property rental business.

Clothing

For example, if you bought a suit to wear to a meeting relating to your property rental business, you cannot claim for the cost as wearing the suit is partly for your rental business and partly to keep you warm—no identifiable part is for your property rental business.

Personal Expenses

You cannot claim for any expense that was not incurred solely for your property rental business.