SECTION 1 Types of taxes:
BASIC PRINCIPLES Direct taxes:
Direct taxes = taxes imposed by reference to a taxpayer’s circumstances.
Round down each individual figure to the nearest £ at each stage of the Eg. Income tax, CGT, IHT and corporation tax.
calculation. Always do this unless the question instructs you otherwise.
Indirect taxes:
Applicable law: tax legislation is amended every year by the Finance Acts Indirect taxes = taxes imposed by reference to transactions.
once the Government’s annual Budget comes into force. The current tax Eg. VAT and SDLT.
rates have been introduced by the Finance Act 2021. – FYI: you will not
be asked about the Finance Act or any other legislation in the exam. The distinction between income and capital:
Bring this tax rate summary with you to each SGS: When working through your problem question, start by collecting all
your figures and highlight them.
Each figure will fall into one of four categories:
INCOME TAX * Income receipts
* Capital receipts
* Income expenditure
Rates: 2021/2022 * Capital expenditure
Basic rate 20% £0-£37,700
Higher rate 40% £37,701-£150,000 Work out which category each of the figures will fall into. – any amount
Additional rate 45% over £150,000 will fall into one of these categories and cannot fall into more than one
category.
Rates on saving income: 2021/2022
Starting rate 0% for first £5,000 Income receipts:
Basic rate 20% Receipt of money that originates from regular income generation.
Higher rate 40%
Additional rate 45%
Example:
* Salary Other income that will fall in this
Rates on dividend income: 2021/2022 category:
Dividend nil rate 0% for first £2,000 * Trading profits of a
business will be the * Pension earnings
Basic rate taxpayers 7.5% * Interest on savings
Higher rate taxpayer 32.5% income of the owner
* Interest charged on loans * Dividend
Additional rate taxpayers 38.1% * Benefits in kind given to
will be the income of the
lender (whether paid you by the company you
Allowances: 2021/2022 work for (health insurance,
Personal Allowance £12,570 monthly/quarterly)
* Rental income paid to a company car and low-
(reduced by £1 For every £2 of interest or interest-free
net income above £100,000) landlord will be the
income of the landlord. loans of more than
£10,000).
Personal Savings Allowance
(once starting rate is applied for
savings) Capital receipts:
Basic rate taxpayer 0% for first £1,000
Higher rate taxpayers 0% for the first £500 Falls into this category if there is an income receipt and that income is
Additional rate taxpayers nil due to a transaction that not part of a regular activity. Capital receipts
are ‘one-off’ transactions.
Example:
CAPITAL GAINS TAX * Selling your car if you don’t sell cars as part of a business.
* Selling a painting if you don’t sell paintings as part of a business.
Income expenditure:
Rates: 2021/2022 If the expense is incurred due to the day-to-day trading activities of a
Standard rate 10% business, it will be classed as income expenditure.
Higher rate 20%
Entrepreneur’s Relief rate 10% Example:
* Payment of rent (for business premises)
Annual Exemption £12,300 * Paying bills (eg. staff wages, heating, lighting, rent or
marketing/stationery expenses)
* Paying for repairs of business premises/business vehicle etc.
CORPORATION TAX Capital expenditure:
If you spend money on a new capital asset or enhancing an existing asset
as part of the business, it is ‘capital’ expenditure. Capital expenditure is
Corporation tax rate 2021/2022 a ‘one-off’ transaction.
19%
Example:
2020/2021 * Buying new large equipment/machinery
19% * Buying new property
* Spending money on enhancing existing equipment/machinery/
premises
* Paying bills (eg. staff wages, heating, lighting, rent or
Capital allowances: marketing/stationery expenses)
Annual investment allowance is 100% on expenditure on plant & * Paying for repairs of business premises/business vehicle etc.
machinery up to £1,000,000. Capital allowances for the remaining
expenditure on plant & machinery at 18% on a reducing balance Assessment of tax:
basis. Super-deduction allowance is available as 130% first-year
allowance for qualifying plant & machinery expenditure in tax year Tax assessment for individuals – based on the Tax year
2021/22. Tax assessment for companies – based on the Financial year (although
companies may chose a different period for tax assessment purposes,
VAT: called the accounting period)
Standard rate – 20%
Registration threshold – £85,000 Both the tax year and financial year are different to the calendar year.
De-registration threshold – £83,000
Tax year: starts 6 April, ends 5 April the next year.
Financial year: starts 1 April, ends 31 March the next year.
BLP Tax Workbook Notes | Page 1 of 12
, How is tax collected? interest/interest-free loans above £10,000. Benefits in kind must be
1. HMRC collects tax from individuals and businesses via the self- included in the individual’s Total Income.
assessment system.
2. Some cases income tax is deducted at source, meaning that the Trivial benefits in kind (but not cash/cash vouchers) with up to a £50 cost
payer of a taxable sum deducts the tax and accounts for it to to the employer are exempt from tax.
HMRC on the recipient’s behalf before the net amount is paid
out. The recipient therefore receives the sum net of tax. One Property and trading income allowances:
example of this is the Pay As You Earn (PAYE) system. The There is a separate £1,000 allowance for income from property and
employee receives the wage/salary net of income tax. trading income. Individuals can deduct the allowance from their gross
income or deduct their allowable expenses, whichever is higher.
SECTION 2 In the SGS/the assessment, you will not be asked to deduct either of
INCOME TAX these allowances from property/trading income.
ASSESSMENT/COLLECTION OF INCOME TAX: NET INCOME:
Deduction at source: Net Income = total income less any available tax relief.
Employed individuals with uncomplicated tax affairs are not required to
complete a self-assessment tax return because their tax is collected via Total Income – Pension contributions – Interest on Qualifying Loans =
the PAYE system (the tax is deducted at source – receives income net of Net Income
tax).
Pension contributions and Interest on Qualifying Loans are subject to Tax
Self-assessment: Relief, so they are deducted before taxing income.
Directors and self-employed people are always required to complete a
self-assessment tax return. In this case, it is up to the individual to Qualifying loans:
calculate the tax bill and not HMRC. 1. loans to buy an interest in, contribute capital or make a loan to a
partnership
2. loans to buy shares in (or make a loan to) a ‘close’ company
PERSONAL TAX CALCULATION: 3. loans to buy shares in an employee-controlled company
4. loans to buy shares in an employee-controlled company or invest
Step 1: Calculate the total income. in a co-operative.
Step 2: Calculate the net income. This is total income minus pension
contributions and interests paid on qualifying loans. Pension contributions:
Step 3: Calculate the taxable income. This is net income minus personal One may pay contributions into a pension scheme – either an
allowance. occupational pension scheme (set up by their employer) or a personal
pension scheme. Both types must be deducted from the Total Income.
Step 4: Split the Taxable income into different categories.
Add up all income coming from dividends = Dividend Income. TAXABLE INCOME:
Add up all interest coming from savings = Savings Income.
Taxable income – Savings Income – Dividend income = Non-savings Taxable Income = net income less personal allowance.
Income
Step 5: Apply the tax bands and calculate the tax liability. Net Income - Personal Allowance (£12,570) = Taxable Income
If Net income is £100,000 or less:
Net income – £12,570 = Taxable income
TOTAL INCOME:
If Net income is more than £100,000:
Total income = taxpayer’s gross income from all sources Personal allowance is reduced by £1 for every £2 of Net Income above
£100,000.
Add together all the receipts from all the sources of income of the tax-
payer. If income has been received after deduction of tax at source (net £12,570 - (Net Income - £100,000) = Reduced allowance
of tax), include the gross amount in this calculation. 2
Not income: Gifts, Trivial benefits in kind max. £50 (except cash), capital If the reduced allowance is a negative number, then no allowance, and
receipts from one-off sales which are capital receipts, Net income will equal the Taxable income.
Income: Salary, pension earnings, interest on savings, dividend, rental TAX RATES:
income, Benefits in kind (health insurance, company cars and low-
interest/interest-free loans above £10,000). If the taxpayer has different types of income, split their income
Exempt income: Gambling/betting wins, Interest on ISA / NISA savings according to the different types:
accounts, Income from a Trust Fund or Junior ISA, Damages and 1. Savings Income
compensation for Personal injury, Redundancy pay-outs or damages 2. Dividend income
max. £30,000. 3. Non-savings Income
Savings: Add up all income coming from dividends = Dividend Income.
Interest on savings is generally taxable but personal savings allowance Add up all interest coming from savings = Savings Income.
may apply. Taxable income – Savings Income – Dividend income = Non-savings
Income
Personal savings allowance: Measuring jug method:
For basic rate taxpayers - their first £1,000 – taxed at 0%
For higher rate taxpayers - their first £500 – taxed at 0%
For additional rate taxpayers – no allowance. Dividend income:
Dividends: £5,000 – Tax at 45%
Companies pay dividends out of profits that have been charged to £6,600 – Tax at 40%
corporation tax. To account for this, the dividend allowance has been £150,000
introduced on 6 Ap 2016.
Rates for dividends (tax year 2021/22): Savings income:
For all taxpayers - their first £2,000 – taxed at 0% £100,000 – Tax at 40%
For basic rate taxpayers – above £2,000 – taxed at 7.5% £5,700 – Tax at 20%
For higher rate taxpayers - above £2,000 – taxed at 32.5% £37,700
For additional rate taxpayers – above £2,000 – taxed at 38.1%
Benefits in kind: Non-savings income:
Employees may receive benefits in kind in addition to their salary. £32,000 – Tax at 20%
Benefits in kind include health insurance, a company car and low-
BLP Tax Workbook Notes | Page 2 of 12
BASIC PRINCIPLES Direct taxes:
Direct taxes = taxes imposed by reference to a taxpayer’s circumstances.
Round down each individual figure to the nearest £ at each stage of the Eg. Income tax, CGT, IHT and corporation tax.
calculation. Always do this unless the question instructs you otherwise.
Indirect taxes:
Applicable law: tax legislation is amended every year by the Finance Acts Indirect taxes = taxes imposed by reference to transactions.
once the Government’s annual Budget comes into force. The current tax Eg. VAT and SDLT.
rates have been introduced by the Finance Act 2021. – FYI: you will not
be asked about the Finance Act or any other legislation in the exam. The distinction between income and capital:
Bring this tax rate summary with you to each SGS: When working through your problem question, start by collecting all
your figures and highlight them.
Each figure will fall into one of four categories:
INCOME TAX * Income receipts
* Capital receipts
* Income expenditure
Rates: 2021/2022 * Capital expenditure
Basic rate 20% £0-£37,700
Higher rate 40% £37,701-£150,000 Work out which category each of the figures will fall into. – any amount
Additional rate 45% over £150,000 will fall into one of these categories and cannot fall into more than one
category.
Rates on saving income: 2021/2022
Starting rate 0% for first £5,000 Income receipts:
Basic rate 20% Receipt of money that originates from regular income generation.
Higher rate 40%
Additional rate 45%
Example:
* Salary Other income that will fall in this
Rates on dividend income: 2021/2022 category:
Dividend nil rate 0% for first £2,000 * Trading profits of a
business will be the * Pension earnings
Basic rate taxpayers 7.5% * Interest on savings
Higher rate taxpayer 32.5% income of the owner
* Interest charged on loans * Dividend
Additional rate taxpayers 38.1% * Benefits in kind given to
will be the income of the
lender (whether paid you by the company you
Allowances: 2021/2022 work for (health insurance,
Personal Allowance £12,570 monthly/quarterly)
* Rental income paid to a company car and low-
(reduced by £1 For every £2 of interest or interest-free
net income above £100,000) landlord will be the
income of the landlord. loans of more than
£10,000).
Personal Savings Allowance
(once starting rate is applied for
savings) Capital receipts:
Basic rate taxpayer 0% for first £1,000
Higher rate taxpayers 0% for the first £500 Falls into this category if there is an income receipt and that income is
Additional rate taxpayers nil due to a transaction that not part of a regular activity. Capital receipts
are ‘one-off’ transactions.
Example:
CAPITAL GAINS TAX * Selling your car if you don’t sell cars as part of a business.
* Selling a painting if you don’t sell paintings as part of a business.
Income expenditure:
Rates: 2021/2022 If the expense is incurred due to the day-to-day trading activities of a
Standard rate 10% business, it will be classed as income expenditure.
Higher rate 20%
Entrepreneur’s Relief rate 10% Example:
* Payment of rent (for business premises)
Annual Exemption £12,300 * Paying bills (eg. staff wages, heating, lighting, rent or
marketing/stationery expenses)
* Paying for repairs of business premises/business vehicle etc.
CORPORATION TAX Capital expenditure:
If you spend money on a new capital asset or enhancing an existing asset
as part of the business, it is ‘capital’ expenditure. Capital expenditure is
Corporation tax rate 2021/2022 a ‘one-off’ transaction.
19%
Example:
2020/2021 * Buying new large equipment/machinery
19% * Buying new property
* Spending money on enhancing existing equipment/machinery/
premises
* Paying bills (eg. staff wages, heating, lighting, rent or
Capital allowances: marketing/stationery expenses)
Annual investment allowance is 100% on expenditure on plant & * Paying for repairs of business premises/business vehicle etc.
machinery up to £1,000,000. Capital allowances for the remaining
expenditure on plant & machinery at 18% on a reducing balance Assessment of tax:
basis. Super-deduction allowance is available as 130% first-year
allowance for qualifying plant & machinery expenditure in tax year Tax assessment for individuals – based on the Tax year
2021/22. Tax assessment for companies – based on the Financial year (although
companies may chose a different period for tax assessment purposes,
VAT: called the accounting period)
Standard rate – 20%
Registration threshold – £85,000 Both the tax year and financial year are different to the calendar year.
De-registration threshold – £83,000
Tax year: starts 6 April, ends 5 April the next year.
Financial year: starts 1 April, ends 31 March the next year.
BLP Tax Workbook Notes | Page 1 of 12
, How is tax collected? interest/interest-free loans above £10,000. Benefits in kind must be
1. HMRC collects tax from individuals and businesses via the self- included in the individual’s Total Income.
assessment system.
2. Some cases income tax is deducted at source, meaning that the Trivial benefits in kind (but not cash/cash vouchers) with up to a £50 cost
payer of a taxable sum deducts the tax and accounts for it to to the employer are exempt from tax.
HMRC on the recipient’s behalf before the net amount is paid
out. The recipient therefore receives the sum net of tax. One Property and trading income allowances:
example of this is the Pay As You Earn (PAYE) system. The There is a separate £1,000 allowance for income from property and
employee receives the wage/salary net of income tax. trading income. Individuals can deduct the allowance from their gross
income or deduct their allowable expenses, whichever is higher.
SECTION 2 In the SGS/the assessment, you will not be asked to deduct either of
INCOME TAX these allowances from property/trading income.
ASSESSMENT/COLLECTION OF INCOME TAX: NET INCOME:
Deduction at source: Net Income = total income less any available tax relief.
Employed individuals with uncomplicated tax affairs are not required to
complete a self-assessment tax return because their tax is collected via Total Income – Pension contributions – Interest on Qualifying Loans =
the PAYE system (the tax is deducted at source – receives income net of Net Income
tax).
Pension contributions and Interest on Qualifying Loans are subject to Tax
Self-assessment: Relief, so they are deducted before taxing income.
Directors and self-employed people are always required to complete a
self-assessment tax return. In this case, it is up to the individual to Qualifying loans:
calculate the tax bill and not HMRC. 1. loans to buy an interest in, contribute capital or make a loan to a
partnership
2. loans to buy shares in (or make a loan to) a ‘close’ company
PERSONAL TAX CALCULATION: 3. loans to buy shares in an employee-controlled company
4. loans to buy shares in an employee-controlled company or invest
Step 1: Calculate the total income. in a co-operative.
Step 2: Calculate the net income. This is total income minus pension
contributions and interests paid on qualifying loans. Pension contributions:
Step 3: Calculate the taxable income. This is net income minus personal One may pay contributions into a pension scheme – either an
allowance. occupational pension scheme (set up by their employer) or a personal
pension scheme. Both types must be deducted from the Total Income.
Step 4: Split the Taxable income into different categories.
Add up all income coming from dividends = Dividend Income. TAXABLE INCOME:
Add up all interest coming from savings = Savings Income.
Taxable income – Savings Income – Dividend income = Non-savings Taxable Income = net income less personal allowance.
Income
Step 5: Apply the tax bands and calculate the tax liability. Net Income - Personal Allowance (£12,570) = Taxable Income
If Net income is £100,000 or less:
Net income – £12,570 = Taxable income
TOTAL INCOME:
If Net income is more than £100,000:
Total income = taxpayer’s gross income from all sources Personal allowance is reduced by £1 for every £2 of Net Income above
£100,000.
Add together all the receipts from all the sources of income of the tax-
payer. If income has been received after deduction of tax at source (net £12,570 - (Net Income - £100,000) = Reduced allowance
of tax), include the gross amount in this calculation. 2
Not income: Gifts, Trivial benefits in kind max. £50 (except cash), capital If the reduced allowance is a negative number, then no allowance, and
receipts from one-off sales which are capital receipts, Net income will equal the Taxable income.
Income: Salary, pension earnings, interest on savings, dividend, rental TAX RATES:
income, Benefits in kind (health insurance, company cars and low-
interest/interest-free loans above £10,000). If the taxpayer has different types of income, split their income
Exempt income: Gambling/betting wins, Interest on ISA / NISA savings according to the different types:
accounts, Income from a Trust Fund or Junior ISA, Damages and 1. Savings Income
compensation for Personal injury, Redundancy pay-outs or damages 2. Dividend income
max. £30,000. 3. Non-savings Income
Savings: Add up all income coming from dividends = Dividend Income.
Interest on savings is generally taxable but personal savings allowance Add up all interest coming from savings = Savings Income.
may apply. Taxable income – Savings Income – Dividend income = Non-savings
Income
Personal savings allowance: Measuring jug method:
For basic rate taxpayers - their first £1,000 – taxed at 0%
For higher rate taxpayers - their first £500 – taxed at 0%
For additional rate taxpayers – no allowance. Dividend income:
Dividends: £5,000 – Tax at 45%
Companies pay dividends out of profits that have been charged to £6,600 – Tax at 40%
corporation tax. To account for this, the dividend allowance has been £150,000
introduced on 6 Ap 2016.
Rates for dividends (tax year 2021/22): Savings income:
For all taxpayers - their first £2,000 – taxed at 0% £100,000 – Tax at 40%
For basic rate taxpayers – above £2,000 – taxed at 7.5% £5,700 – Tax at 20%
For higher rate taxpayers - above £2,000 – taxed at 32.5% £37,700
For additional rate taxpayers – above £2,000 – taxed at 38.1%
Benefits in kind: Non-savings income:
Employees may receive benefits in kind in addition to their salary. £32,000 – Tax at 20%
Benefits in kind include health insurance, a company car and low-
BLP Tax Workbook Notes | Page 2 of 12
