TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used in answering the questions.
Income tax
Normal Dividend
rates rates
Basic rate £1 – £31,785 20% 10%
Higher rate £31,786 to £150,000 40% 32·5%
Additional rate £150,001 and over 45% 37·5%
A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income.
Personal allowance
Personal allowance £10,600
Transferable amount £1,060
Income limit £100,000
Residence status
Days in UK Previously resident Not previously resident
Less than 16 Automatically not resident Automatically not resident
16 to 45 Resident if 4 UK ties (or more) Automatically not resident
46 to 90 Resident if 3 UK ties (or more) Resident if 4 UK ties
91 to 120 Resident if 2 UK ties (or more) Resident if 3 UK ties (or more)
121 to 182 Resident if 1 UK tie (or more) Resident if 2 UK ties (or more)
183 or more Automatically resident Automatically resident
Child benefit income tax charge
Where income is between £50,000 and £60,000, the charge is 1% of the amount of child benefit received for every £100 of income over £50,000.
Car benefit percentage
The relevant base level of CO2 emissions is 95 grams per kilometre.
The percentage rates applying to petrol cars with CO2 emissions up to this level are:
50 grams per kilometre or less 5%
51 grams to 75 grams per kilometre 9%
76 grams to 94 grams per kilometre 13%
95 grams per kilometre 14%
Car fuel benefit
The base figure for calculating the car fuel benefit is £22,100.
Individual savings accounts (ISAs)
The overall investment limit is £15,240.
Pension scheme limits
Annual allowance – 2014–15 and 2015–16 £40,000
– 2012–13 and 2013–14 £50,000
The maximum contribution that can qualify for tax relief without any earnings is £3,600.
Authorised mileage allowances: cars
Up to 10,000 miles 45p
Over 10,000 miles 25p
Capital allowances: rates of allowance
Plant and machinery
Main pool 18%
Special rate pool 8%
Motor cars
New cars with CO2 emissions up to 75 grams per kilometre 100%
CO2 emissions between 76 and 130 grams per kilometre 18%
CO2 emissions over 130 grams per kilometre 8%
Annual investment allowance
Rate of allowance 100%
Expenditure limit £500,000
Cap on income tax reliefs
Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income.
Corporation tax
Rate of tax 20%
Profit threshold £1,500,000
Value added tax (VAT)
Standard rate 20%
Registration limit £82,000
Deregistration limit £80,000
Inheritance tax: tax rates
£1 – £325,000 Nil
Excess – Death rate 40%
– Lifetime rate 20%
Inheritance tax: taper relief
Years before death Percentage reduction
Over 3 but less than 4 years 20%
Over 4 but less than 5 years 40%
Over 5 but less than 6 years 60%
Over 6 but less than 7 years 80%
Capital gains tax
Rates of tax – Lower rate 18%
– Higher rate 28%
Annual exempt amount £11,100
Entrepreneurs’ relief – Lifetime limit £10,000,000
– Rate of tax 10%
National insurance contributions (Not contracted out rates)
Class 1 Employee £1 – £8,060 per year Nil
£8,061 – £42,385 per year 12%
£42,386 and above per year 12%
Class 1 Employer £1 – £8,112 per year Nil
£8,113 and above per year 13·8%
Employment allowance £2,000
Class 1A 13·8%
Class 2 £2·80 per week
Small profits threshold £5,965
Class 4 £1 – £8,060 per year Nil
£8,061 – £42,385 per year 9%
£42,386 and above per year 2%
Rates of interest (assumed)
Official rate of interest 3%
Rate of interest on underpaid tax 3%
Rate of interest on overpaid tax 0·5%
On 1 July 2014, Sameer made a cash gift of £2,500 to his sister.
On 1 May 2015, he made a cash gift of £2,000 to a friend.
On 1 June 2015, he made a cash gift of £50,000 to a trust.
Sameer has not made any other lifetime gifts.
In respect of Sameer’s cash gift of £50,000 to the trust, what is the lifetime transfer of value for inheritance tax purposes after taking account of all available exemptions?
£50,000 minus the balance of the 2015–16 AE of £1,000 (3,000 – 2,000 PET) minus the balance of the 2014–15 AE of £500 (3,000 – 2,500) = £48,500.
On 31 March 2016, Angus sold a house, which he had bought on 31 March 2002.
Angus occupied the house as his main residence until 31 March 2007, when he left for employment abroad.
Angus returned to the UK on 1 April 2009 and lived in the house until 31 March 2010, when he bought a flat in a neighbouring town and made that his principal private residence.
What is Angus’ total number of qualifying months of occupation for principal private residence relief on the sale of the house?
168 – (72 – 18) = 114 months.
Abena has made the following gross contributions to her personal pension scheme over the past three tax years:
Tax year £
2012–13 52,000
2013–14 37,000
2014–15 28,000
What is the maximum gross contribution which Abena can make to her personal pension scheme for the tax year 2015–16 without giving rise to an annual allowance charge?
£40,000 (2015–16) + 2012–13 £0 (contribution exceeds £50,000) + 2013–14 £13,000 (50,000 – 37,000) + 2014–15 £12,000 (40,000 – 28,000) = £65,000.
Triangle Ltd is registered for value added tax (VAT) and uses the annual accounting scheme.
For the year ended 31 December 2015, the net VAT payable by Triangle Ltd was £73,500.
For the year ended 31 December 2014, the net VAT payable by Triangle Ltd was £47,700.
What monthly payments on account of VAT must Triangle Ltd make in respect of the year ended 31 December 2015 prior to submitting its VAT return for that year?
47,700 x 90%/9 = £4,770.
Lili Ltd commenced trading on 1 January 2015. The company incurred the following expenditure prior to 1 January 2015:
Lili Ltd can deduct the research into competitors incurred on 6 June 2010 (£12,000) and the donation to the local school on 15 December 2014 (£2,000), i.e. a total of £14,000. It cannot deduct the initial market research as it was incurred more than seven years before the commencement of trade, nor the costs of entertaining customers and suppliers as this is disallowable expenditure under the normal rules.
Paloma has been trading for a number of years. Her tax adjusted trading profit for the year ended 31 May 2015 was £48,000 and for the year ended 31 May 2016 was £43,200.
What is the amount of class 4 national insurance contributions (NIC) payable by Paloma for the tax year 2015–16?
((42,385 – 8,060) x 9%) + ((48,000 – 42,385) x 2%) = £3,201.
Which of the following statements is/are true?
(1) Corporation tax is a direct tax on the turnover of companies
(2) National insurance is a direct tax suffered by employees, employers and the self-employed on earnings
(3) Inheritance tax is a direct tax on transfers of income by individuals
(4) Value added tax is a direct tax on the supply of goods and services by businesses
Corporation tax is a tax on the profits of companies, not the turnover. Inheritance tax is an tax on the transfer of assets not income. VAT is an indirect tax not a direct tax.
Which of the following statements concerning self-assessment tax returns for individuals is true?
If a taxpayer submits a paper return on time, they can ask HMRC to calculate the tax due. Tax returns submitted electronically automatically calculate the tax due.
In certain circumstances an individual is automatically not resident in the UK.
Which of the following two individuals, if either, is automatically not resident in the UK for the tax year 2015–16?
Eric, who has never previously been resident in the UK. In the tax year 2015–16, he was in the UK for 40 days.
Fran, who was resident in the UK for the two tax years prior to the tax year 2015–16. In the tax year 2015–16, she was in the UK for 18 days.
Eric – less than 46 days and not previously resident.
Fran – resident during the previous three years, so to be automatically not resident she must be in the UK for less than 16 days.
Max is employed by Star Ltd. On 6 April 2014, Star Ltd provided Max with a camera for his personal use. The camera had a market value of £2,000 on 6 April 2014.
On 6 April 2015, Star Ltd gave the camera to Max for free. The camera had a market value of £1,400 on 6 April 2015.
What is Max’s taxable benefit in respect of the camera for the tax year 2015–16?
The market value when first made available less the taxable benefit in respect of the private use in 2014–15 (2,000 – (2,000 x 20%) = £1,600), as this is higher than the market value at the date of transfer (£1,400).
Cora made a cash gift of £300,000 to her niece on 30 April 2010.
She then made a cash gift of £500,000 to her nephew on 31 May 2011.
Both of these amounts are stated after deducting available exemptions.
Cora subsequently died on 31 October 2015.
What amount of inheritance tax was payable as a result of Cora’s death in respect of the cash gift of £500,000 to her nephew?
190,000 ((500,000 – 25,000 (325,000 – 300,000)) at 40%) less 40% (4 – 5 years) = £114,000.
Rajesh is a sole trader. He correctly calculated his self-assessment payments on account for the tax year 2015–16 and paid these on the due dates.
Rajesh paid the correct balancing payment of £1,200 for the tax year 2015–16 on 30 June 2017.
What penalties and interest may Rajesh be charged as a result of his late balancing payment for the tax year 2015–16?
Interest will be charged from 1 February 2017 to 30 June 2017:
1,200 x 3% x 5/12 = £15
A penalty will be imposed since the payment is more than 30 days late:
1,200 x 5% = £60
Oblong Ltd has had the following results:
102,800 – 10,100 – 79,400 – 6,800 = £6,500.
Putting an asset into joint names with a spouse (or a partner in a registered civil partnership) prior to the asset’s disposal can be sensible capital gains tax (CGT) planning.
Which of the following CANNOT be achieved as a direct result of using this type of tax planning?
The CGT due date will be the same whether the asset is split between spouses (or civil partners) or not.
Eva’s income tax liability and class 4 national insurance contributions (NIC) for the tax year 2015–16 are £4,840. Her income tax liability and class 4 NICs for the tax year 2014–15 were £6,360.
What is the lowest amount to which Eva could make a claim to reduce each of her payments on account for the tax year 2015–16 without being charged interest?
4,840/2 = £2,420.