ICAEW Principles of Taxation (ICAEW) cheat sheet
ICAEW Principles of Taxation · Keep the key ideas within reach.
Principles of Taxation
Tax is a compulsory levy imposed by statute; the annual Finance Act gives Parliament authority to impose income tax, corporation tax, capital gains tax, VAT and other charges for the year.
Income tax is charged on total income after allowable deductions and reliefs; the tax year (year of assessment) runs 6 April to 5 April. Rates and bands for the current year must be checked - do not assume prior-year figures.
Income tax bands in England, Wales and Northern Ireland are progressive: a basic rate band, a higher rate band and an additional rate above that; Scotland has its own starter, basic, intermediate, higher and top rate bands for non-savings, non-dividend income.
Personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000, so it is fully withdrawn at £125,140; the allowance is also withdrawn by the personal allowance taper where the individual is not UK resident or not domiciled, subject to the statutory residence tests.
Savings income is taxed after non-savings income and dividend income last; the personal savings allowance is £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nil for additional rate taxpayers.
The dividend nil-rate band of £500 taxes the first £500 of dividend income at 0%; dividend rates above that are lower, ordinary and upper rates (currently 8.75%, 33.75% and 39.35% for the relevant band).
National insurance contributions for employees: primary Class 1 on earnings between the primary threshold and upper earnings limit, plus Class 1 secondary (employer) above the secondary threshold; Class 2 and Class 4 apply to the self-employed.
Allowable deductions for trading income follow the wholly and exclusively rule (ITTOIA 2005 s.34); capital expenditure is excluded by the capital/revenue distinction and relieved instead through capital allowances.
Trading losses can be relieved against total income of the same year or the previous year (s.64), carried forward against future trading profits (s.83), or set against capital gains where the loss arises on the disposal of the business (terminal loss relief).