TAX SUMMARY
Direct or Indirect?
Direct Taxes: Imposed by reference to a tax payers’ circumstances:
Income Tax
Capital Gains Tax (CGT)
Inheritance Tax (IHT)
Corporation Tax
Indirect Taxes: Paid on value of transactions:
Value Added Tax (VAT)
Stamp Duty Land Tax (SDLT)
Income or Capital Receipt?
Income Receipts – How I generate money on a regular basis:
o Gross salary
o Trading profits (income receipts – income expenditure)
o Bank interest
o Rent
o Dividend income
o Contributions to pension
Capital Receipts – Not integral to regular activity (“one-off”):
o Sale of business premises (including fees)
o Capital gains
o Gifts
o Inherited assets
o Sale of shares
Income or Capital Expenditure?
- Income: Integral part of day to day trading, e.g. bills, wages, general repairs.
- Capital: Asset that forms part of the infrastructure or enduring benefit, e.g. machinery, property,
expenditure to enhance a capital asset.
- Some income expenditure can be offset against income receipts to reduce the overall tax bill: Income
Receipts – Income Expenditure = Trading Profits
- Relief for capital expenditure can only be deducted from the proceeds of sale of a capital asset: Cost
of selling shop – Cost of buying shop = taxable amount
- Capital allowances: A proportion of the costs of capital expenditure can be offset against trading
profits (income receipts) each year during the lifetime of the asset – tax allowable depreciation –
spread the cost by deducting a proportion of the capital expenditure from income receipts over a
period of time. These allowances are deducted when calculating trading profits.
Special rules:
Payment of dividends by a company are not tax deductible (not expenses – just sharing out of profits).
Dividends received by companies are not taxable (but dividends received by individuals are).
Capital allowances: Depreciation (setting aside money over a period of time to pay for something the
company knows it will need to replace) is an expense deductible against gross profit BUT is not deductible
for tax purposes, instead dealt with under capital allowances - deduct from income receipts.
Direct or Indirect?
Direct Taxes: Imposed by reference to a tax payers’ circumstances:
Income Tax
Capital Gains Tax (CGT)
Inheritance Tax (IHT)
Corporation Tax
Indirect Taxes: Paid on value of transactions:
Value Added Tax (VAT)
Stamp Duty Land Tax (SDLT)
Income or Capital Receipt?
Income Receipts – How I generate money on a regular basis:
o Gross salary
o Trading profits (income receipts – income expenditure)
o Bank interest
o Rent
o Dividend income
o Contributions to pension
Capital Receipts – Not integral to regular activity (“one-off”):
o Sale of business premises (including fees)
o Capital gains
o Gifts
o Inherited assets
o Sale of shares
Income or Capital Expenditure?
- Income: Integral part of day to day trading, e.g. bills, wages, general repairs.
- Capital: Asset that forms part of the infrastructure or enduring benefit, e.g. machinery, property,
expenditure to enhance a capital asset.
- Some income expenditure can be offset against income receipts to reduce the overall tax bill: Income
Receipts – Income Expenditure = Trading Profits
- Relief for capital expenditure can only be deducted from the proceeds of sale of a capital asset: Cost
of selling shop – Cost of buying shop = taxable amount
- Capital allowances: A proportion of the costs of capital expenditure can be offset against trading
profits (income receipts) each year during the lifetime of the asset – tax allowable depreciation –
spread the cost by deducting a proportion of the capital expenditure from income receipts over a
period of time. These allowances are deducted when calculating trading profits.
Special rules:
Payment of dividends by a company are not tax deductible (not expenses – just sharing out of profits).
Dividends received by companies are not taxable (but dividends received by individuals are).
Capital allowances: Depreciation (setting aside money over a period of time to pay for something the
company knows it will need to replace) is an expense deductible against gross profit BUT is not deductible
for tax purposes, instead dealt with under capital allowances - deduct from income receipts.
