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Taxation Crib Sheet Notes

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Income Tax

1. Calculate Total Income a. Aggregate of all income from all source which charge to Income Tax a.i. Employment a.ii. Property Income a.iii. Trading profits a.iv. Dividends a.iv.1. Tax credit of 10% at source so need to gross up a.iv.1.a. Dividends X 10/9 = GROSS dividends a.v. Interest a.v.1. Taxed 20% at source so need to gross up a.v.1.a. Interest X 5/4 = GROSS interest

2. Deduct any allowable reliefs to give NET INCOME a. Interest on money borrowed to buy a share in a partnership b. Interest on a loan to invest in a close trading company c. Interest on a loan to personal representatives to pay inheritance tax

3. Deduct personal allowance to give TAXABLE INCOME a. For 2011/12 it is PS7,475 b. Where income is greater than PS100,000 the personal allowance is reduced by PS1 per every PS2 of income above the limit b.i. 7475 - ((net income - 100,000)/2) = adjusted personal allowance

4. Calculate tax payable on taxable income a. Employment Income = Income - (gross savings + dividend income) a.i. 20% for anything between 0 - PS35,000 a.ii. 40% between 35,001 - 150,000 a.iii. 50% for over 150,000 b. Interest b.i. 10% for 0 - 2560 b.ii. 20% for 2561 - 35,000 b.iii. 40% for 35,001 - 150,000 b.iv. 50% for over 150,000 c. Dividends - always taxed last as the upper-most slice of income c.i. 10% if taxed at the basic rate c.ii. 32.5% if taxed at the higher rate c.iii. 42.5% if taxed at the additional rate

5. Add together the values to calculate the total tax liability subtracting what has already been paid a. 10% dividends have been paid b. 20% gross interest has been paid c. Any PAYE contributions

6. When is payment due by?
a. Half instalment on 31 Jan of the current tax year b. Half instalment on 31 July of the next tax year c. Balance remaining/rebate on 31 Jan of next tax year

Trading Profit Trading profit = Chargeable receipts - deductible expenditure - capital allowances For partnerships allocate trading profit between the partners according to the way in which income profits were shared under their agreement for that accounting period The property & income of a LLP are treated as the property & income of the members of the LLP

1. Chargeable Profits a. Must derive from trade b. Must be income in nature

2. Deductible expenditure a. Must be income in nature b. Must be wholly & exclusively used for the purposes of trade b.i. Cannot be used for providing entertainment or gifts in connection with a trade b.i.1. Subject to limited exceptions b.ii. Cannot have a dual purpose b.iii. Dividends are not deductible c. Deduction cannot be prohibited by statute d. Examples of deduction d.i. Salaries d.ii. General overheads d.iii. Marketing costs d.iv. Health insurance for employees d.v. Pre-trading expenditure d.v.1. Stock d.vi. Business rates d.vii. Stationary/postage

3. Capital allowances a. Allow the depreciation of capital assets to be brought into account for taxation purposes and offset against income profit b. Claim allowances where a person carries on a qualifying activity and incurs qualifying expenditure b.i. Plant & machinery have a writing down allowance of 20%
b.i.1. Long life assets have a less generous writing down allowance of 10%
b.i.1.a. Assets which last for 25 years or longer b.i.1.a.i. Integral appliance - part of the fabric of the building such as lifts or air conditioning units b.i.2. If plant & machinery are sold, it will be necessary to compare the written-down value of the asset at time of sale with the actual sale price. If a profit results, this may be the subject of a balancing charge and form a chargeable receipt in the accounting period in which the sale takes place. If a loss result there may be a balancing allowance - a deduction from chargeable receipts b.i.2.a. If assets are part of a pool then sale proceeds are deducted from the value of the pool so there is generally no balancing allowance or charge until trade is discontinued or the whole pool is sold b.ii. AIA = annual investment allowance of up to PS100,000 b.ii.1. Fresh, qualifying expenditure b.ii.2. Anything over the PS100,000 threshold can be added to the pool and written down b.iii. Energy saving

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