ICAEW Principles of Taxation (ICAEW) flashcards

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

Tax year (income tax)

The period 6 April to the following 5 April for which income tax is charged. Rates, bands and allowances are set annually by the Finance Act.

Personal allowance taper

The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000. It is fully withdrawn once adjusted net income reaches £125,140.

Adjusted net income

Total income less gross gift aid and pension contributions, plus certain deductions. It determines entitlement to the personal allowance and to tax-free childcare.

Personal savings allowance

A nil-rate band on savings interest: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nil for additional rate taxpayers. It uses up the relevant band.

Dividend nil-rate band

The first £500 of dividend income is taxed at 0%. It still counts towards total income and uses up the basic or higher rate band before other dividends are taxed.

Order of income taxation

Non-savings income is taxed first, then savings income, then dividends. Each later category is stacked on top of earlier income to determine the applicable rate band.

Scottish income tax bands

Scottish taxpayers pay starter, basic, intermediate, higher and top rates on non-savings, non-dividend income. Savings and dividend income use UK-wide rates.

Wholly and exclusively rule

A trading expense is deductible only if incurred wholly and exclusively for the purposes of the trade. Dual-purpose expenditure is generally disallowed in full.

Capital versus revenue

Revenue expenditure affects the income tax computation; capital expenditure is not deductible as a trading expense but may qualify for capital allowances or relief on disposal.

Trading loss relief (s.64)

A trading loss may be set against total income of the same tax year and/or the previous year, in a claim made by the loss relief claim deadline.

Carry-forward trade loss

A trading loss may be carried forward indefinitely against future profits of the same trade, provided the trade continues and the loss is not relieved elsewhere.

Class 1 primary contributions

Employee national insurance on earnings between the primary threshold and upper earnings limit. Above the upper earnings limit no primary contributions are payable.

Class 4 national insurance

Paid by the self-employed on taxable profits between the lower and upper profits limits. A separate Class 2 charge may apply for small profits.

Statutory residence test

A statutory test using automatic UK and overseas tests, the sufficient ties test and split-year treatment to determine UK residence for a tax year.

Remittance basis

Available to certain non-UK domiciled individuals, taxing only overseas income and gains remitted to the UK. A remittance basis charge may apply after seven years of residence.

Gift aid relief

A donation to a qualifying charity is treated as paid net of basic rate tax. The charity reclaims the basic rate and the donor may claim higher or additional rate relief.

Pension contributions relief

Relief at the individual's marginal rate is given on contributions up to the annual allowance, subject to the tapered annual allowance for high earners.

Corporation tax scope

Charged on the taxable profits of UK-resident companies and on UK-source profits of non-resident companies, including trading profits, property income and chargeable gains.

Marginal relief (corporation tax)

Where profits fall between the small profits rate limit and the main rate limit, marginal relief reduces the main rate charge so the effective rate rises gradually.

Capital allowances: plant and machinery

Tax relief for capital expenditure on plant and machinery, given through the annual investment allowance, writing-down allowances, first-year allowances or the super-deduction where available.

Annual investment allowance

A 100% allowance on qualifying plant and machinery expenditure up to a fixed annual limit. Most expenditure qualifies, but cars are excluded.

Writing-down allowance

A reducing-balance allowance on the tax written-down value of a pool, typically 18% for the main pool and 6% for the special rate pool.

Capital gains tax: annual exempt amount

A per-person allowance that exempts the first slice of net chargeable gains each tax year. Gains above it are taxed at rates depending on the asset and the taxpayer's band.

CGT residential property rates

Gains on residential property are taxed at 18% within the basic rate band and 24% above it, with the annual exempt amount deducted first.

Business asset disposal relief

A reduced 10% CGT rate on qualifying gains on the disposal of a business or shares in a personal trading company, subject to a lifetime limit.

VAT registration threshold

A person must register for VAT if taxable turnover exceeds the statutory threshold in any rolling 12-month period, or if it is expected to exceed it in the next 30 days.

VAT output and input tax

Output tax is charged on taxable supplies made; input tax is VAT incurred on purchases. The difference is paid to or reclaimed from HMRC on the VAT return.

VAT standard and reduced rates

Standard rate applies to most goods and services; a reduced rate applies to specified supplies such as domestic fuel; zero-rated supplies are taxable but at 0%.

VAT exempt supplies

Supplies outside the scope of VAT, such as certain finance, insurance, education and healthcare. Exempt supplies give no input tax recovery and do not count towards registration.

Inheritance tax: nil-rate band

The first slice of a chargeable estate is taxed at 0%. The unused percentage of a deceased spouse's nil-rate band may be transferred to the survivor.

IHT: potentially exempt transfer

A lifetime gift to an individual that becomes chargeable only if the donor dies within seven years. Taper relief reduces the tax on the excess over the nil-rate band.

IHT business relief

Relief of 100% or 50% on qualifying business property, reducing the value chargeable to inheritance tax. It applies to relevant business property held for the qualifying period.