Notes created using BPP materials and statute for the purpose of assisting existing BPP LPC students in BPP LPC exams only. They are
intended to be used as a supplemental tool to aid revision in conjunction with BPP materials, not as a replacement for them.
Annual exemption For CGT: Tax allowance for individuals only
Annual investment Special type of capital allowance
allowance
Available tax Certain payments which reduce a taxpayer’s Total Income eg interest on certain
reliefs loans/pension contributions
Business Asset Tax relief available to individuals in certain circumstances to reduce their chargeable
Disposal Relief gains
Capital allowances Tax allowances (deductions) for capital expenditure available to businesses
CGT Tax paid by individuals on their taxable chargeable gains
Corporation tax Tax paid by companies on their TTP
Deduction of tax at In some circumstances the payer of certain sums must deduct tax when making
source payments ie PAYE
Dividend Band of tax free dividend income available to individuals for income tax purposes
allowance
Gross sums Total sum before tax is levied
Net sums Amount left after tax has been paid/deducted
Indexation Tax allowance for indexation available to companies in calculating their CG
allowance Takes into account inflation based on RPI so a company is not taxed on CG arising
solely due to inflation
Investors’ Relief Tax relief available to individuals in certain circumstances to reduce their chargeable
gains
Net income Total income less available tax relief
TTP Taxable Total Profits, chargeable to corporation tax
Total of a company’s total income profits and chargeable gains
Tax year 6 April – 5 April
Individuals are assessed to tax by ref to tax year
Financial year 1 April – 31 March
Companies are assessed to tax by ref to financial year
,Tax
INTRO TO TAX
Taxes covered on the LPC:
• Direct Taxes → imposed by ref to a taxpayer’s circumstances
o Income Tax
o Capital Gains Tax
o Inheritance Tax
o Corporation Tax
• Indirect Taxes → imposed by ref to transactions
o Value Added Tax
o Stamp Duty Land Tax
Companies → CT, PAYE, NICs, VAT, SD
Partnerships → IT, CGT, NICs, VAT, SD
LLPs → IT, CHT, NICs, VAT, SD
Sole traders → IT, CGT, NICs, VAT, SD
Income receipts = receipt which is the product of how the taxpayer generates money on a regular basis eg
rent paid by a tenant is landlord’s income
Capital receipts = receipt which is the product of a transaction not integral to such regular activity – ‘one-off’
transactions eg buying the property
Income expenditure = expense incurred as an integral part of day-to-day trading eg heating costs
Capital expenditure = if the expense brings into existence a capital asset as part of the infrastructure of the
business eg property
Income receipts – Income expenditure = TRADING PROFITS
→ reduces overall tax bill
Capital allowances
= tax allowable depreciation
A prop of cost of some capital assets (capital expenditure) can be deducted from trading profits (income
receipts) each year during the life of the asset
Tax relief for capital expenditure usually only given at the time when the capital asset is sold/gifted
2
, Tax
INCOME TAX
Round down figures to nearest £ at each stage of calculation
Work out which figures represent income receipts, capital expenditure and income expenditure – money will
be one or the other, not both
STEP 1: Calculate TOTAL INCOME
Add up all sources of income = TOTAL INCOME
Exempt • Gambling/lottery wins
income • Interest on ISAs/NISAs
• PI claim damages
• Redundancy pay-outs/damages max £30k
Not income • Gifts
• Trivial benefits in kind max £50 (except cash/cash vouchers)
• Capital receipts from one-off sales
Income • Salary
• Pension earnings (NOT contributions)
• Interest on savings
• Dividends
• Rental income
• Benefits in kind – health insurance, company cars, low-interest/interest-free loans
above £10k, trivial benefits over £50 or under £50 if in cash/cash vouchers
STEP 2: LESS TAX RELIEFS → PENSION AND INTEREST ON QUALIFYING LOANS
Total Income – Pension contributions – Interest on Qualifying Loans = NET INCOME
Pension contributions/Interest on Qualifying Loans are subject to Tax Relief so they are deducted
Qualifying loans:
• Loans to buy an interest in, contribute capital or make a loan to a partnership
• Loans to buy shares in (or make a loan to) a ‘close’ company
• Loans to buy shares in an employee-controlled company or invest in a co-operative
3
intended to be used as a supplemental tool to aid revision in conjunction with BPP materials, not as a replacement for them.
Annual exemption For CGT: Tax allowance for individuals only
Annual investment Special type of capital allowance
allowance
Available tax Certain payments which reduce a taxpayer’s Total Income eg interest on certain
reliefs loans/pension contributions
Business Asset Tax relief available to individuals in certain circumstances to reduce their chargeable
Disposal Relief gains
Capital allowances Tax allowances (deductions) for capital expenditure available to businesses
CGT Tax paid by individuals on their taxable chargeable gains
Corporation tax Tax paid by companies on their TTP
Deduction of tax at In some circumstances the payer of certain sums must deduct tax when making
source payments ie PAYE
Dividend Band of tax free dividend income available to individuals for income tax purposes
allowance
Gross sums Total sum before tax is levied
Net sums Amount left after tax has been paid/deducted
Indexation Tax allowance for indexation available to companies in calculating their CG
allowance Takes into account inflation based on RPI so a company is not taxed on CG arising
solely due to inflation
Investors’ Relief Tax relief available to individuals in certain circumstances to reduce their chargeable
gains
Net income Total income less available tax relief
TTP Taxable Total Profits, chargeable to corporation tax
Total of a company’s total income profits and chargeable gains
Tax year 6 April – 5 April
Individuals are assessed to tax by ref to tax year
Financial year 1 April – 31 March
Companies are assessed to tax by ref to financial year
,Tax
INTRO TO TAX
Taxes covered on the LPC:
• Direct Taxes → imposed by ref to a taxpayer’s circumstances
o Income Tax
o Capital Gains Tax
o Inheritance Tax
o Corporation Tax
• Indirect Taxes → imposed by ref to transactions
o Value Added Tax
o Stamp Duty Land Tax
Companies → CT, PAYE, NICs, VAT, SD
Partnerships → IT, CGT, NICs, VAT, SD
LLPs → IT, CHT, NICs, VAT, SD
Sole traders → IT, CGT, NICs, VAT, SD
Income receipts = receipt which is the product of how the taxpayer generates money on a regular basis eg
rent paid by a tenant is landlord’s income
Capital receipts = receipt which is the product of a transaction not integral to such regular activity – ‘one-off’
transactions eg buying the property
Income expenditure = expense incurred as an integral part of day-to-day trading eg heating costs
Capital expenditure = if the expense brings into existence a capital asset as part of the infrastructure of the
business eg property
Income receipts – Income expenditure = TRADING PROFITS
→ reduces overall tax bill
Capital allowances
= tax allowable depreciation
A prop of cost of some capital assets (capital expenditure) can be deducted from trading profits (income
receipts) each year during the life of the asset
Tax relief for capital expenditure usually only given at the time when the capital asset is sold/gifted
2
, Tax
INCOME TAX
Round down figures to nearest £ at each stage of calculation
Work out which figures represent income receipts, capital expenditure and income expenditure – money will
be one or the other, not both
STEP 1: Calculate TOTAL INCOME
Add up all sources of income = TOTAL INCOME
Exempt • Gambling/lottery wins
income • Interest on ISAs/NISAs
• PI claim damages
• Redundancy pay-outs/damages max £30k
Not income • Gifts
• Trivial benefits in kind max £50 (except cash/cash vouchers)
• Capital receipts from one-off sales
Income • Salary
• Pension earnings (NOT contributions)
• Interest on savings
• Dividends
• Rental income
• Benefits in kind – health insurance, company cars, low-interest/interest-free loans
above £10k, trivial benefits over £50 or under £50 if in cash/cash vouchers
STEP 2: LESS TAX RELIEFS → PENSION AND INTEREST ON QUALIFYING LOANS
Total Income – Pension contributions – Interest on Qualifying Loans = NET INCOME
Pension contributions/Interest on Qualifying Loans are subject to Tax Relief so they are deducted
Qualifying loans:
• Loans to buy an interest in, contribute capital or make a loan to a partnership
• Loans to buy shares in (or make a loan to) a ‘close’ company
• Loans to buy shares in an employee-controlled company or invest in a co-operative
3
