Tax Adviser Certification flashcards

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

Residence vs source

Residence status subjects a person to tax on worldwide income; non-residents are taxed only on locally sourced income, often at different rates and without personal allowances.

Marginal rate

The rate applied to the next unit of taxable income. It differs from the average rate, which equals total tax divided by total taxable income.

Average tax rate

Total tax liability divided by total taxable income, expressed as a percentage. It is always lower than or equal to the marginal rate under progressive brackets.

Tax deduction vs credit

A deduction reduces taxable income before the rate is applied; a credit reduces tax payable directly. A credit is more valuable whenever the marginal rate is below 100%.

Chargeable gain formula

Disposal proceeds minus allowable acquisition cost minus allowable improvement expenditure minus incidental costs of disposal. The result is taxed at the applicable capital gains rate.

Capital allowances

Tax depreciation granted in place of accounting depreciation. It creates a timing difference between accounting profit and taxable profit, reversing over the asset's life.

Trading loss carry-back

Losses are set first against current-year profits, then carried back typically twelve months, then carried forward against future profits of the same trade.

Terminal loss relief

On cessation of a trade, losses of the final period may be carried back against profits of earlier periods, usually for a limited number of years.

Arm's length principle

Related-party transactions must be priced as unrelated parties would agree. Adjustments increase taxable profit and may trigger penalties and corresponding relief abroad.

Allowance taper

Personal allowances are reduced once income exceeds a threshold. In the taper band the effective marginal rate can exceed the headline top statutory rate.

Withholding tax on dividends

Tax deducted at source on distributions. It may be reduced by a double tax treaty and is usually creditable in the recipient's residence country.

Tax base

The amount to which the tax rate is applied after deductions, exemptions and reliefs. It is not the same as gross income or accounting profit.

Permanent establishment

A fixed place of business or dependent agent through which a non-resident carries on business, giving the source country taxing rights over attributable profits.

Deferred tax

An accounting provision for tax expected to be paid or recovered in future periods because of temporary differences between carrying amounts and tax bases.

Group relief

Surrender of current-year losses between companies of the same group, subject to ownership and continuity conditions. It accelerates use of losses.

VAT output tax

Tax charged by a registered business on its taxable supplies. It is calculated as taxable value multiplied by the applicable rate and reported on the return.

VAT input tax

Tax paid on purchases used for taxable business supplies. It is recoverable only with valid tax invoices and only to the extent of taxable use.

Place of supply, goods

Generally where the goods are located at the time of supply, or where transport to the customer begins. It determines which jurisdiction charges VAT.

Place of supply, B2B services

Generally the jurisdiction where the business customer is established. The supplier usually does not charge local VAT and the customer accounts for it.

Reverse charge mechanism

The recipient self-assesses output tax and claims an equal input tax. Net cash effect is zero if fully recoverable, but partial exemption creates a real cost.

Exempt vs zero-rated

Zero-rated supplies are taxable at 0% and allow full input tax recovery. Exempt supplies are outside the scope of tax and give no recovery right.

Partial exemption

Applies when a business makes both taxable and exempt supplies. Input tax must be apportioned using a standard method, with a special method if approved.

Registration threshold

A turnover limit above which registration is compulsory. Tests use rolling twelve-month historical turnover and a forward look at expected future turnover.

Distance sales threshold

A cumulative cross-border sales limit for B2C supplies. Once exceeded, the supplier must register in the destination jurisdiction and charge the local rate.

Tax invoice requirements

Must show supplier and customer identification, unique invoice number, date, description of supplies, taxable value, rate and tax amount. Required for input tax claims.

VAT return period

The interval for reporting output and input tax, commonly monthly, quarterly or annually. Payment is due by the return filing deadline.

Late payment interest

Interest accruing daily on unpaid tax from the original due date until settlement. It is separate from fixed penalties for late filing.

Import VAT

Tax charged when goods enter the jurisdiction, based on customs value plus duty and transport costs. It is often recoverable as input tax by the importer.

Non-recoverable input tax

Input tax on business entertainment, private use or exempt activity cannot be reclaimed and becomes a real cost in the profit and loss account.

Credit notes

Issued to reduce the taxable value after a return, discount or cancellation. They adjust output tax and the customer's input tax in the relevant period.

VAT group registration

Companies under common control may register as a single taxable person. Supplies between members are disregarded, simplifying returns and cash flow.

Option to tax

Election to make otherwise exempt property supplies taxable, allowing input tax recovery on acquisition and refurbishment costs, subject to conditions.

Penalty for error

A civil penalty assessed on the tax understated, scaled by the behaviour: careless, deliberate or deliberate-and-concealed, with disclosure reductions.