ICAEW Principles of Taxation (ICAEW) flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Progressive tax

A tax where the average rate rises as the tax base increases, so higher-income taxpayers pay a larger proportion of their income, such as UK income tax bands.

Regressive tax

A tax that takes a larger proportion of income from lower-income than higher-income taxpayers, often because it is a flat amount on a good consumed by all.

Formal incidence

The legal liability to pay a tax, which may fall on one party even though the economic burden is borne by another through price adjustment.

Effective incidence

The party who ultimately bears the economic burden of a tax after shifting occurs, for example consumers bearing VAT through higher prices.

Fiscal neutrality

The principle that a tax should not distort taxpayer choices between alternatives such as work and leisure, saving and spending, or debt and equity finance.

Statutory residence test

The UK test determining individual residence through automatic overseas tests, automatic UK tests, and the sufficient ties test applied in sequence.

Personal allowance taper

The reduction of the personal allowance by one pound for every two pounds of adjusted net income above one hundred thousand pounds, reaching nil at 125,140 pounds.

Dividend nil rate band

A band of dividend income taxed at zero per cent before dividend rates apply, set at five hundred pounds for the 2024/25 UK tax year.

Personal savings allowance

A zero-rate band on savings income of one thousand pounds for basic rate taxpayers, five hundred for higher rate, and nil for additional rate.

Class 1 NICs

National insurance contributions paid by employees and employers on earnings from employment, split into primary employee and secondary employer contributions.

Class 4 NICs

National insurance contributions paid by the self-employed on trading profits between the lower and upper profits limits, assessed through self assessment.

Annual investment allowance

A one hundred per cent first-year deduction for qualifying plant and machinery purchases, subject to a cap and shared across associated companies.

Writing down allowance

The annual capital allowance on the reducing balance of a plant and machinery pool, typically eighteen per cent for the main pool.

Taxable total profits

A company's trading and property profits plus non-trading loan relationship credits and chargeable gains, less qualifying charitable donations.

Group relief

The surrender of current-year trading losses by one company to another within a seventy-five per cent group, set against the claimant's profits.

Quarterly instalment payments

Advance corporation tax payments required from large companies whose profits exceed the threshold divided by the number of associated companies.

Close company

A company controlled by five or fewer participators or by participators who are directors, subject to special attribution and loan rules.

Annual exempt amount

The amount of capital gains an individual may realise tax-free each tax year, set at three thousand pounds for 2024/25.

Business asset disposal relief

A capital gains tax relief taxing qualifying gains on disposals of a business at an effective ten per cent, up to a one million pound lifetime limit.

Principal private residence relief

Exemption from capital gains tax on gains arising from the disposal of a taxpayer's only or main home, subject to occupation conditions.

Holdover relief

A relief deferring capital gains tax where business assets or certain gifts are transferred, with the gain held over to the recipient.

Nil rate band

The threshold of chargeable estate value below which inheritance tax is not charged, set at three hundred and twenty-five thousand pounds.

Residence nil rate band

An additional inheritance tax threshold of one hundred and seventy-five thousand pounds where the main home passes to direct descendants, tapered above two million pounds.

Potentially exempt transfer

A lifetime gift that becomes exempt from inheritance tax if the transferor survives seven years, otherwise cumulated against the nil rate band.

Taper relief inheritance tax

A reduction in inheritance tax on lifetime transfers made three to seven years before death, ranging from twenty to eighty per cent of the tax.

Business property relief

One hundred per cent inheritance tax relief on qualifying unquoted trading business interests held for at least two years before transfer.

VAT registration threshold

The level of taxable turnover at which a business must register for VAT, set at ninety thousand pounds in a rolling twelve-month period.

Input tax

VAT charged on purchases and expenses incurred for business purposes, recoverable against output tax subject to valid evidence and partial exemption rules.

Option to tax

An election allowing a business to charge VAT on supplies of land or buildings that would otherwise be exempt, enabling input tax recovery.

Pension annual allowance

The maximum tax-relieved pension contribution in a tax year, set at sixty thousand pounds and tapered for high earners.

Benefits in kind

Non-cash rewards from employment taxed on their cash equivalent value, with company cars using CO2-based percentages of list price.

Individual savings account

A tax-exempt savings vehicle where income and capital gains are free of UK tax, with an annual subscription limit of twenty thousand pounds.

Double taxation relief

Relief for tax paid in two jurisdictions on the same income or gain, given by credit against UK tax or by exemption under a treaty.