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The cash basis works the same for both property and trading income.
Capital allowances on plant and machinery is not an allowable deduction, with the exception of cars.
Other expenditure on plant and machinery is simply an allowable deduction against income (as if it were a revenue expense).
Income tax deducted under PAYE is calculated AFTER the deduction is made for the employee’s occupational pension contributions.
NO deductions are allowed from CASH remuneration for calculating employees’ NIC.
No. PAYE accounts for tax and NIC and is paid to HMRC.
Pension contributions are paid into a pension scheme.Net income + gross gift aid donation + gross personal pension contribution = ANI
THIS IS NOT CORRECT.
ANI = Net income LESS gross gift aid LESS gross PPCs
Does the personal personal contribution also include employer’s contribution or is it just the employee’s contribution towards the personal pension scheme?
JUST THE EMPLOYEE’S GROSS PPCs.
THE ONLY TIME THE EMPLOYER’S CONTRIBUTION TO ANY SCHEME HAS A MONETARY EFFECT IS IN THE CALCULATION OF TPI.
I have a few doubts in this chapter.
1. The occupational pension that we deduct directly from our employment income is the employee’s contribution only or is it both employee plus the employer’s?
EMPLOYEE’S CONTRIBUTION ONLY.
2. Total pension inputs (TPI) include employer’s contribution too (both personal and occupational). In Illustration 3, the question talks about personal pension contributions. So can a question come up that also includes employer’s contribution towards occupational pension therefore making it’s way into the addition of more tax liability?
YES.
3. How is the exempt benefit accounted for under employment income?
It’s mentioned that we have to put a zero if it comes up in a question but if the TPI exceeds annual allowance, then we have to pay the charge. So how is it accounted for under the benefit under employment income?IT’S AN EXEMPT BENEFIT SO THE AMOUNT TO INCLUDE IN THE CALCULATION OF EMPLOYMENT INCOME IS ZERO.
IN THE CALCULATION OF TPI YOU WOULD INCLUDE THE AMOUNT PAID BY THE EMPLOYER.
Unincorporated businesses have two options for the amount of the expense to claim as a trading deduction:
1. Claim the business use proportion of capital allowances and running costs.
2. Claim the fixed rate mileage allowance.
So if a car costing £10,000 with CO2 emissions of 45g/km, does 9,000 miles per year, 6,000 of which are for business, and incurs running costs of £3,000, under option 1 the claim would be:
CAs: £10,000 x 18% x 6,000/9,000 =£1,200 and
Running costs (fuel, insurance, servicing etc): £3,000 x 6,000/9,000 = £2,000Which gives a total deductible expense of £(1,200 + 2,000) = £3,200.
Under option 2 the CAs and running costs are ignored and the claim would simply be 6,000 x 45p= £2,700.
These options apply whether the trader is using the cash or the accruals basis.
Thank you Lilia, I appreciate your lovely words and I’m glad I’ve fired up your enthusiasm for tax!
If your post is unrelated to the original post, you should open it as a new post as it makes it easier for other students to search and find it.
If the amendment is made by HMRC and the taxpayer does not agree, then the 30 day rule applies.
Yes, but only for individuals, not companies. The treatment of goodwill for companies is very different but that’s not on your syllabus.
It’s not usually examined computationally in a rollover relief context, but in an objective test question you may be asked something like ‘which of the following are/are not qualifying assets for rollover relief’.
The tax rules around goodwill are very complicated due to the intangible nature of the asset, but all you need to know is that goodwill is generally not a qualifying asset for gift relief.
If a gain remains after a gift relief claim does not qualify for BADR, then it would be taxed at the normal rates of 18%/24%.
The dates are important because, in the case of Investors’ relief, it determines whether it’s potentially available. In other cases, you may be asked for the relevant dates in the exam.
I assume you’re referring to Example 4 in Chapter 14?
The point is, that when rollover relief is being claimed, the reduced base COST is for CGT purposes only when the asset is eventually sold (so that the gain will be higher). If the asset also qualifies for SBAs, SBAs would be claimed on the full qualifying cost for SBAs, not the base cost.
So if the full cost of the building in question qualified for SBAs, and it was used in the trade for 48 months exactly, SBAs claimed over the 4 years would be 3% x £320,000 x 4 = £38,400 which would be ADDED to the proceeds of SALE for the purposes of calculating the gain when it’s sold, and the cost to deduct would be the CGT base cost as calculated above. So both the SBAs being clawed back (which increases the proceeds) and the rollover relief claim (which reduces the cost) would result in the eventual gain being higher.
SBAs is only for buildings where the contract for the build (or the purchase unused from a builder) was entered into on or after 29 October 2018, so older buildings would not qualify (although if they are extensively renovated/extended etc and the contract for the renovation/extension was entered into on or after 29 October 2018, then the cost of the renovation/extension would qualify but not the original cost).
Yes, there is, but it appears that the link is broken. I will look into this for you.
A chattel is an asset that you can physically touch and physically move.
Shares are not chattels.
Charitable donations under the gift aid scheme attract tax relief at the taxpayer’s highest marginal rate of tax, i.e. the rate of tax that they would pay on an extra £1 of income (or, looking at it the other way round, the rate of tax they would save on £1 less of income).
A basic rate taxpayer’s marginal rate of INCOME tax is 20%, for a higher rate taxpayer it’s 40% and for an additional rate taxpayer it’s 45%.
The vast majority of taxpayers are basic rate taxpayers (BRT), so for them, paying the donation net of basic rate tax means that if they want a charity to receive £1,000, they actually pay £800 (80%) net to the charity. As charities don’t pay tax on donations, they claim the tax suffered at source back from HMRC, so HMRC gives the charity the other £200 (20%), so that the charity receives £1,000 (gross). The BRB can be extended by the the gross donation but for INCOME tax there is no point in doing so, as the taxable income falls within the existing BR band anyway, so extending it will not make any difference to the income tax liability; i.e. if your taxable income is £20,000, then it’s taxed at 20% regardless of whether your BRB is £37,700 or £38,700.
HMRC assumes that most taxpayers are basic rate taxpayers, but for a higher rate taxpayer (whose marginal rate of income tax is 40%), they deserve 40% tax relief, so 20% tax relief is given at source (as per a BRT) but they then get the extra 20% tax relief they deserve by extending the BR band by the gross donation, so that more income is taxed at 20% and less at 40%, giving an extra 20% of tax relief on the donation (i.e. reducing their income tax liability by 20% of the gross donation) so that they get 40% relief overall (20% at source and a further 20% through the calculation of income tax). The extra 20% is simply the difference between taxing an amount at 20% or taxing it at 40%.
For an additional rate taxpayer (whose marginal rate of income tax is 45%), they deserve 45% tax relief, so 20% tax relief is given at source (as per a BRT) but they then get the extra 25% tax relief they deserve by extending the BR and HR band by the gross donation, so that more income is taxed at 20% and less at 45%, giving an extra 25% of tax relief on the donation (i.e. reducing their income tax liability by 25% of the gross donation) so that they get 45% relief overall (20% at source and a further 25% through the calculation of income tax). The extra 25% is simply the difference between taxing an amount at 20% or taxing it at 45%.
Although for a BRT there is no point in extending the BR band by the gross donation for INCOME tax, if the taxpayer has taxable gains, then it is worth extending the band as that will result in them paying less CGT. So if taxable income is £(45,270 – 12,570) = £32,700 and the BRB is £(37,700 + (2,400 x 100/80) = £3,000) = £40,700, taxable income is still taxed at 20% BUT there is more BRB available for gains (£40,700 – £32,700) = £8,000 so we pay CGT at 18% on £8,000 of gains rather than on £5,000 of gains (the extra £3,000 which is the gross gift aid donation extension) giving a CGT saving of (24% – 18%) = 6% of £3,000 = £180, giving us total tax relief on the gross gift aid donation of 20% at source (IT) and 6% (CGT) = 26% (£600 IT at source (£3,000 gross – £2,400 paid net)) and £180 through the calculation of the CGT liability (£3,000 x 6% (24% – 18%)) = £600 + £180 = £780.
780/3,000 = 26%.
I hope this has clarified things for you.
Congratulations, @dangkhoa.nhhtd on passing your TX-UK exam; I’m really pleased for you!