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71 Cards in this Set
- Front
- Back
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Sole traders describe
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Self employed
personally liable for debts and liabilities of their business No contract of employment with employer May provide services for others under 'contracts for services' Ch3 A1 |
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What is the tax treatment of a sole trader?
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There is no tax on an unincorporated business which makes profits; instead
tax levied on individual owner(s) Ch3 A1 |
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How are profits made by a sole trader treated?
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Gains made in the normal trade of the business is liable to INCOME TAX
Ch3 A1 |
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How are capital gains made by a sole trader treated?
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Capital gains of business are treated as gains made by the individual, and thus. liable to CGT
e.g. sale of property or machinery Ch3 A1 |
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How often do sole traders pay income tax?
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Sole traders pay income tax TWICE a year directly to HMRC
Ch3 A1 |
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How do employees of sole traders pay income tax and NI?
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Income tax is paid under PAYE, and NI is paid under both classes 2 and 4 (subject to a level of profits above the minimum threshold).
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Can you separate a sole traders personal liability from that of the business?
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No they are one and the same, but we must separate the taxation of employees from the business.
Ch3 A1 |
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John, a sole trader, employs Martin. How does Martin pay tax and NI?
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Martin pays income tax under PAYE, and Class 1 NI, even though John pays tax and NI in a different way.
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Andy works for Eddie, a sole trader, and is liable for employee's Class 1.What is Eddie liable for?
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The employer is liable to pay secondary Class 1 NI.
Cha 3 A1 |
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Britannia Carpets is the business name of sole trader John Wilson. What are John's tax liability
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The business profits of Britannia Carpets /John Wilson are liable for income, CGT and Classes 2 and 4 NI. However, John must collect the income tax and Class 1 NI from any employee's wages (under PAYE) and pay secondary Class 1NI as the employer
Cha 3 A1 |
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What would be the situation if John Wilson trading as Britannia Carpets took on a partner to help him run the business?
Would this change any of the taxation implications for either John Wilson or Britannia Carpets, now the situation is John Wilson and Fred Smith trading as britannia Carpets? |
Tax & NI situation the same. John 'self-employed' in the partnership.
He'll pay income tax on partnership's profits directly to HMRC. He'll pays tax on HIS share of the partnership's profits - usually 50% unless other spilt agreed. Same figure used to calculate John's liability to Class 4 NI (as well as flat-rate Class 2 NI) Ch3 A2 |
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Is a partnership a separate legal person from the partners?
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No. It is merely the sum of the partners.
Ch3 A2 |
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What is each partner's liability
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Each partner has unlimited liability for the trade debts of the partnership.
Each partner pays income tax and NICs on their share of partnership profits. Each utilises their own personal allowances. Each partner solely liable for this tax and cannot be held liable for any other partner's tax Ch3 A2 |
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What type of partnership was introduced in 2001?
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The Limited Liability Partnership Act 2000.
Ch3 A3 |
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Why is a limited liability partnership more attractive to professional firms than, say a traditional partnership?
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Because, like a company, partners in an LLP are not individually liable for the LLPs debts
Ch3 A3 |
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How is an LLP similar to a traditional partnership?
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Partners are still self-employed
They pay income tax and NI on their share of the profits Ch3 A3 |
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How is an LLP similar to a company?
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LLPs are separate legal persons
Subject to similar registration and accounting requirements Ch3 A3 |
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How would HMRC treat a limited company and why?
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HMRC cannot look to individuals to pay tax on the company's profits - they must look only at the limited company itself, because
they have a legally separate identity from the proprietors Ch3 A4 |
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What are some of the features of owning a limited company?
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Proprietors own the limited company through the shares
Company responsible for its own debts to the limit of its assets Ch3 A4 |
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Under what circumstances, if any, are the managers, directors or shareholders company liable for debts?
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If they are guilty of unlawfully trading
e.g. continuing to trade despite knowing the company was insolvent with the intention of defrauding creditors Ch3 A4 |
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Companies cannot trade until...?
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They are registered with the Registrar of Companies
Ch3 A4 |
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How often must limited companies supply information and accounts to Companies House?
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Yearly
Ch3 A4 |
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What happens to information that limited companies supply to Companies House?
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It is made available to the public
Ch3 A4 |
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What word describes the changing from a partnership into a limited company?
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Incorporation
Ch3 A4 |
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What is the difference between a limited company and a public limited company from a taxation point of view?
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There is no difference
Ch3 A4 |
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How do public and and private limited companies advertise their shares?
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Public limited companies advertise on the Stock Exchange
Private Limited companies can only do so by private agreement Ch3 A4 |
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Name a major taxation difference between a limited company and an unincorporated business (i.e. businesses which are not companies)?
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Limited companies pay neither income tax nor CGT.
However, they do pay corporation tax on ALL forms of profit made by the company (including CGT) Ch3 A4 |
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For tax purposes directors are classified as 'office holders', which means...?
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- Their earnings are chargeable to tax as employment income
- They are liable to Class 1 NICs - They are taxed on an annual cumulative basis instead of monthly deductions - They no longerpay income tax directly to HMRC on salary from business - Neither they nor the company is liable to NI on business profits |
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What are the requirements for Public companies (PLCs)?
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- Must have at least 2 directors and 2 shareholders
- Must state that they are public - Need an extra cert from Registrar of Companiesafter Incorporation before they can start trading. To acquire this PLCs.. - Must have alloted shares with nominal value of ate least £50,000 and company must have received at least a quarter of nominal value £12,500 plus whole of any premium - Co. secretary has to be a member of a professional body or a person whoom the directors recognise as being qualifoed - Must always lay accounts and reports before a general meeting of shareholders and hold AGMs (private companies can opt out) - Must file accounts within 7 months of end of accounting period - Not allowed to waive requirement of audited accounts or to provide abbreviated accounts - release info that might affect share price Ch3 A5 |
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An ordinary power of attorney...
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Only grants power while the individual is mentally capable of handling their own affairs
Ch3 B |
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When is an ordinary power of attorney withdrawn?
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On mental incapacity
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When is an ordianryu power of attorney automatically revoked?
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- On death
- Bankruptcy - Expiry of a specified time - When the donor cancels it Ch3 B |
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When did the Mental Incapacity Act 2005 come into full force?
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1 October 2007
Ch3 B |
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Why was the Enduring Powers of Attorney Act 1985 introduced?
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To enable a person holding a power of attorney to continue to act in the event of mental incapacity of the donor.
Ch3 B |
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What is the main difference between an enduirng power of attorney and an ordinary power of attorney?
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While the individual has mental capacity an EPA confers the same power as an ordinary power of attorney. If mental incapacity occurs, an EPA continues, unlike an ordianry power of attorney.
Ch 3 B |
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How can 2 attroneys act?
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Jointly or severally
Ch3 B |
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An individual lacks capacity if...?
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they are unable to make a decision for themselves due to an impairment of, or disturbance in, the functioning of the mind or brain (permanent or temporary)
Ch3 B1 |
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An individual is unable to make a decision for themselves if they cannot:
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- understand the relevant information
- retain that information evaluate that information inmaking the decison; or - communicate that information Ch3 B1 |
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In order to qualify as an EPA, what requirements need to be met?
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- It had to be established before 1 October 2007
- It had to be established while the individual had full mental capacity - The individual was aged 18 or over and was not bankrupt - It satisfied the conditions of the Enduring Powers of Attorney Act 1985 - The attorney registers the EPA with the Court of Protection when they believe the indivdual has lost, or is starting tolose their mental capacitry Ch3 B1 |
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What do EPAs NOT cover?
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An individual's attitude to health care provision, e.g. treatments they wish / do not wish to receive
Ch3 B1 |
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In general terms, what does the Enduring Power of Attorney Act 1985 forbid the attorney form doing?
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Making gifts.
Ch3 B1 |
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The EPA can be revoked bythe donor at any time, exceot when?
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When the EPA is registered,
Ch3 B1 |
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Once an EPA is registered when can the power be revoked?
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When consent is given by the Court of Protection.
Ch3 B1 |
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What did the Mental Capacity Act 2005 introduce?
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The lasting power of attorney
Ch3 B1A |
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The LPA allows the donor to give the attorney power to make decisions about?
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personal health and welfare (such as long term care treatment), and
property and financial affairs Ch3 B1A |
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If an LPA is to cover both welfare and fiancial matters, how many LPAs are required?
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Two; Health and Welfare LPA, and
Property and Affairs LPA Ch3 B1A |
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What conditions must donor and attorney meet to effect an LPA?
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Donor - over 18 and have capacity
Attorney - over 18 and not bankrupt Ch3 B1A |
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The LPA must comply with what and be registered where?
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The LPA must comply with regulations made under the Act, and
be registered with the Office of the Public Gaurdian AT OUTSET. Ch3 B1A |
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The LPA must state what?
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That the donor and attorney have read the prescribed information and the attorney understands their duties
Ch3 B1A |
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What does the certificate provider confirm?
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That the donor understands the LPA and that there has been no fraud or undue pressure
Ch3 B1A. |
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If the LPA includes power to make decisions about welfare, what does it extend to?
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Giving or refusing consent for medical treatment
Ch3 B1A. |
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When can an LPA be revoked?
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- On the donor's bankruptcy, (but not as regards welfare)
- Death or bankrupcty of the attorney - Dissolution of marriage or civil partnership between donor and attorney - Attorney's incapacity Ch3 B1A |
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For a binding contract to exist what conditions must be fulfilled?
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- Offer
- Accpetance - Intention - Power to contract, and - Consideration Ch3 C1 |
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Explain the conditions that are needed to fulfill a binding contract?
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Offer - insurance company offering to insure
Acceptance - Applicant agreeing to the terms Intention - to create legally binding.. Power to contract - both parties must have this Consideration - both parties must pay or stand to pay something to the other Ch3 C1 |
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What is the main aim of the Family Law Reform Act 1969?
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To protect minors from their own inexperience, which may lead them into agreements which are disadvantageous
Ch3 C1A |
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Contracts made by minors fall into 3 categories. What are they?
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binding (provided it is for the minor's benefit)
binding unless repudiated, e.g. lease or partnership. Minor my cancel contract during their minority or shortly after NO BINDING - |
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Are contracts made by the mentally disordered valid?
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Yes, although they can be avoided if they were unable to understand the nature of the agreement and the other party was aware of this inability.
Ch3 C1A |
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When can a mental patient ratify a contract which previuosly did not bind them?
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After they are cured or recover from their illness
Ch3 3 C1A |
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When can a drunken person avoid a contract?
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Wheb they were so confused at the time that they did not understand what they were doing and the other party knew this.
Ch3 C1A |
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When does a contract enetred into by a drunken person stand?
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When the effects of drink have worn off.
Ch3 C1A |
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The letter of acceptance is, at law, a counter offer, which the proposer can accept by paying the first premium.
The legal authority for this is? |
Canning v Farquhar (1886).
Canning proposed for life assurance. Insurer notified him his app was accepted at stated premium, but ins would not take effect till first premium paid. Before Canning paid [remium he fell over and injured. Premium sent in, but refused by insurer. Canning died and claim made. Ch3 C1A |
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If a material fact has been disclosed by client to IFA, but IFA does not dislcose it to insurer, is the insurance contract valid?
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No. This is non-disclosure and the contract is void. Insurance companies are not responsible for the acts of IFAs.
Ch3 D |
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State 3 facts under the Law of agency between an IFA and the client
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- The IFA is the agent of the client and owes a duty of care to the client
- The IFA owes no duty of crae to the insurer, but must comply with the relevant FSA rules - The client is responsible for the acts of the IFA Ch3 D |
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How does thge law of agency work with an employee or self-employed rep of an insurer?
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They are the agent of the insurer and the insurer is responsible for the agent's acts or ommissions. So, of a client dsicloses a material fact to an insurer's agent and the agent does not pass this on to insurer's underwriters, there has been no non-disclosure and the contract is valid.
Ch3 D |
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Name the 3 ways in which property can be owned?
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Freehold
Leasehold Commonhold Ch3 E1 |
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What does freehold mean?
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Both building and land it stands on ios owned until owner selss it or dies
Ch3 E1 |
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What does leasehold mean?
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It means land that the land on which it stands is not owned outright by the buyer. It is leased from the person 'who owns the freehold rights at a 'rent'.
Ch3 E1 |
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At the end of the term, the land and th building or buildings on it....
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Revert to the freeholder.
Ch3 E1 |
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Why was commonhold introduced by the Commonhold and Leasehold Reform Act 2002?
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To provide an alternative to leasehold and eventually to replace it.
Ch3 E1 |
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State the features of a commonhold owenership?
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Owners of flats under commonhold are called unit-owners
They own their flats in perpetuity They are members of a Commonhold Association. The Commonhold Association owns the land, the building and the common parts. Unit holders have a vote in the operation of the Association, which is responsible for management, maintenance and repair Ch3 E2 |
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If a property is owned leasehold, most mainstream lenders will only consider lending if the lease has at least?
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25 years to run after completion of the mortgage term (many could require as much as 40 years).
Ch3 E2 |
