UK Tax Environment Hnd Assignment Help

INTRODUCTION

My name is Vivien; recently I am a tax practitioner of L & T consultancy firm which provides taxation advice for private clients. I am going to meet a new client who named Julia Gillard, she is an UK resident, and she was born on 16th December, 1970. She has received correspondence from HMRC department to proclaim her income earned from employment (Marketing Director) ans self- employment (Graphic Designer). After reading, she does not understand clearly about the authority requirements, so now as a tax practitioner I will prepare various documents and explain to her what she does not clear.

In this presentation, I will help Julia to identify, also calculate her relevant income, expenses, allowances, her tax payable, advice her on payment dates and finally I will help her to complete relevant documentation and tax return.

I will explain UK Tax Environment Hnd Assignment Help.

UK Tax Environment Hnd Assignment HelpPrepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

1.1 THE UK TAX ENVIRONMENT:

For any country in the world, tax is the main source of the state revenue, and it is the most important

thing of a country, and UK is not an exception. In UK, every citizen has a responsibility in paying tax 2

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 for the gorvernment if they have income. In order to help my client to understand clearly, in this section I will explain some basic information about UK Tax System.

UK Tax Environment:

In UK, everyone who has income must pay tax for the gorvernment through tax department, and the tax authority of UK called HMRC, which stand for Her Majesty’s Revenue & Customs. The main responsibilities of HMRC is making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support, for safeguarding the flow of money to the Exchequer through our collection, compliance and enforcement activities1. In order to do that, HMRC will collect the tax from both of individual (includes UK residence and non UK residence) and corporation, which do the business in UK through direct and indirect tax. HMRC works with help from the UK Treasury so The Tax System of UK can run smoothly. Treasury has responsibility in imposing and collecting the tax.

UK Tax Framework:

1 HMRC 

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

Figure 1: UK tax framework

In the UK Tax Framework, the top one is Treasure, they are responsible for the public finance in UK imposes and collect taxation, and they appoint the Board of Inland Revenue (HMRC). On April 2005, Inland Revenue is a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty. Recently, they administered the Tax Credits schemes, annd Child Tax Credit, the Inland Revenue was also responsible for the payment of child benefit. Therefore, Broad of Inland Revenue must collect income tax of individual and companies based on decentralization system in UK that is they will divide the country into 4 regions and each.

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Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 regions subdivided into districts and each district has a district inspector and the official title of inspector is HM inspector of Taxes.2

UK tax legislation:

Tax Year:

In UK, the tax year or year assessment runs from 6th April of this year to 5th April of the next year. For example, from the scenario, in this assignment, the tax year last from 6thApril 2011 to 5th April 2012.

According to the UK Tax framework, in tax legislation people have to pay tax follwed two types, which are direct tax and indirect tax:

1. Direct Tax:

Direct taxes are caculated based on income, profits or gains and are either deducted at source or paid directly to the tax authorities3. All of those taxes are administered by HM Revenue and Customs (HMRC). The main direct taxes which are payable are include income tax, capital gains tax and corporation tax

2 Source: Taxation Lecture Slide Number 12, 13

3 Source: Taxation lecture session 1 – slide number 10

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

Tax

Suffered by

Source

individual Partnerships

Income & Corporation Taxes Act 1988,

Income tax

Capital Allowance Act 2001, Income

Tax Act 2003

Corporation Tax

Companies

ICTA 1988, CAA 2001 as above

Individual, Partnerships,

Taxation of Chargebale Gains Act 1992

CGT

Companies (which pay

(TCGA 1992) and subsequent Finance

tex on CG in the form of

Acts

corporation tax)

Figure 2: The Main Taxes

Income Tax:

Income Tax is a tax on income. Not all income is taxable and you’re only taxed on ‘taxable income’ above a certain level. Even then, there are other reliefs and allowances that can reduce your Income

Tax bill – and in some cases mean you’ve no tax to pay.

Types of Income:

Income tax charged on income, which is amount of money you earn from employment, self- employment, rental income, pension income, interest on savings, or money from shares.6 Each tax payer will have a different amount of income money, so they will have different taxable amount and tax payable amount. However, in order to caculate the income tax of tax payers.

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 HMRC will caculate through 3 types of income which are saving income,non-saving income and dividend, and it is applied for everyone who pays income tax.

Savings income: savings income is all the income from the investment. It can be the interest on loan and bank or building society accounts.

Non-savings income: Non savings income includes three types of income that employment income (the income from employment), trading income (the income from trades and profession) and the property income (the income from renting out property)

Dividend income: dividend income is the income which related in the investment on dividend.

Tax rate 2011/2012 by tax band:

Each tax payer will have a different amount of income money, so they will have different taxable amount and tax payable amount, the more money tax payer can earn, the more tax they will pay. However, the way to calculate income tax of individual will base on the tax rates and taxable bands which are fixed by HMRC:

Rate

2011-12

2012-13

2013-14

Starting rate for

£0 – £2,560

£0-£2,710

£0- £2,790

savings: 10%*

Basic rate: 20%

£0 – £35,000

£0-£34,370

£0-£32,010

Higher rate: 40%

£35,001 – £150,000

£34,371-£150,000

£32,011- £150,000

Additional rate: 50%

Over £150,000

Over £150,000

N/A

45% from 6 April

Over £150,000

Over £150,000

Over £150,000

2013

Figure 2: Income Tax rates and taxable bands

The 10 per cent starting rate applies to savings income only. If, after deducting your Personal Allowance from your total income liable to Income Tax, your non-savings income is above this limit.

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1then the 10 per cent starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.7

From this figure above, in the year 2011-2012, we can see that if the income of an individual from £0 to £2,560, they need to pay 10% of their income for taxation and it is only apply for the savings income. The income from £0 to £35,000 incur the basic rate of taxation with 20% and from £35,001 to £150,000, individual must pay 40% in their income for the taxation. The addition rate with 50% will impose in person which earn over £150,000, and as a rule of HMRC that when we caculate the non-saving income, we will apply the rate from the basic rate 20%.

Dividend income in relation to the

Dividend Tax

Dividend Tax

Dividend Tax

basic rate or higher rate tax bands

rate applied

rate applied

rate applied

2011/2012

2012/2013

2013/2014

Dividend Income received below

10%

10%

10%

higher rate income tax threshold (£

37, 400)

Dividend Income recieved within

32.5%

32.5%

32.5%

higher rate income tax threshold (£

37, 400 – £ 150, 000)

Dividend income above the higher

42.5%

42.5%

37.5

Source: Taxation Lecture Session 1 – Slide number 17

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 rate income tax threshold (£ 150, 000)

Figure 3: Dividend tax rates

PAYE (Pay As You Earn):

The Pay as You Earn (PAYE) system is a method of paying income tax and national insurance contributions. Your employer deducts tax and national insurance contributions from your wages or occupational pension before paying you your wages or pension.”.

Using the PAYE system, the money that you will receive is your net profit, before paying for taxation and other expenses as national insurance contribution and so on.

Capital Gain Tax:

Capital gain is the profits that an investor receive when they sells their asset or shares for a price that is higher than the purchase price. Capital gains tax is caculated on the gain or profit when they sell, give away or otherwise dispose of something.

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For example: Mr. Alex is an investor, in 2000 he bought some shares in company A with the price at £5,000, in 2012 he sell those shares with the price at £25,000. Caculating we can see that he just made a gain around £20,000, so as a rule of HMRC Alex has to pay on his gain which is £20,000.

The rates for capital gain tax as follows 2011-2012, 2012-2013 and 2013-2014:

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 

18% and 28% tax rates for individuals (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first)

28% for trustees or for personal representatives of someone who has died

10% for gains qualifying for Entrepreneurs’ Relief

Corporation Tax:

Corporation Tax is a tax on the taxable profits of limited companies and other organizations including clubs, societies, associations and other unincorporated bodies.

For an organization such as a company, the Corporation Tax rate depends on how much profit

the company makes and may change on 1 April each year.

RATE

From 1 April

From 1 April

From 1 April

2011

2012

2013

Profits £300,000 or less

20%

20%

20%

(‘small profits’ rate)

Profits above £300,000

26%

24%

23%

Figure 4: Coporation Tax Rate

2. Indirect Tax:

Indirect taxes are taxes on spending and are charged when a taxpayer buys an item.13

Indirect tax is collected from tax payer and an intermediary such as retail shop or company and then the intermediary will pays over the tax that collected to the government. In direct tax includes Value Added

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 Tax (VAT), Customs Duties and The Excise Duties. These taxes also administered by HM Revenue and Customs.

Value Add Tax (VAT):

VAT is a tax that’s charged on most goods and services that VAT-registered businesses provide in the UK. It’s also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries. There are three rates of VAT, depending on the goods or services the business provides. The rates are:

  1. Standard – 20 per cent
  2. Reduced – 5 per cents
  3. Zero – 0 per cent

In addition, in UK there are some goods and services will be reduced rated such as domestic fuel and power, installing energy-saving materials, sanitary hygiene products, children’s car seats and some goods and services that consumer will not pay VAT for these product such as: food – but not meals in restaurants or hot takeaways, books and newspapers, children’s clothes and shoes, public transport14.

Customs Duties and Excise Duties:

If you’re bringing goods for personal use into the UK, or sending or ordering them from abroad, including over the internet, you may need to pay UK Customs Duty, Excise Duty and/or import VAT, and the tax rate that they must to pay depends on the type of goods and where come from.

Custom Duty: Customs Duty is a tax charged on importation of goods produced outside the European Union (EU). You won’t have to pay Customs Duty if you’re

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment travelling from the EU, or buying, ordering or sending goods to the UK from the EU for your own use.

Excise Duty: Excide duty is a tax on certain goods such as alcohol and tobacco.

When you buy excise goods in the UK the price you pay includes this tax15.

The figure below is a presentation about the data on direct and indirect taxes collected from 2006 to

2010:

YEAR

Unit: £ billion

2006-2007

2007-

2008-

2009-2010

2008

2009

143.3

147.3

147.9

134.4

Income Tax

DIRECT

Cappital Gain Tax

3.8

5.3

7.9

2.5

TAX

Corporation Tax

44.3

46.4

43.1

33.3

TOTAL

191.4

199

198.0

170.2

VAT

77.4

80.6

78.4

67.2

Fuel Duties

23.6

24.9

24.6

26.4

Tobacco Duties

8.1

8.1

8.2

8.8

Spirit Duty

2.3

2.4

2.4

2.6

Beer Duties

3.1

3.1

3.1

3.2

INDIREC

Wine Duties

2.4

2.6

2.7

2.9

T TAX

Cider & Perry Duties

0.2

0.2

0.2

0.3

Stamp Duties

13.4

14.1

8.0

7.5

Betting & Gaming Duties

1.4

1.5

1.5

1.4

Customs duties & Levies

2.3

2.5

2.7

2.6

Air Passenger Duty

1.0

2.0

1.9

1.9

TOTAL

135.2

142

133.7

124.8

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

Figure 5: Collected Tax from 2006 to 2010

From the figure number 5, we can see that is a huge amount of money of gorvernment’s budget is come from income tax, which is caculated into saving income, non-saving income, and dividend. In the last year 2009-2010, the total of income tax is around £134.4 billion, it made up around 79% of direct tax. About indirect tax, apart from VAT, HMRC can collect tax from many duties such as fuel duties, tobacco duties, spirit duties, beer duties, etc. However, VAT still made up a large of percentation of indirect tax, in 2009-2010, HMRC collected £67.2 billion from VAT, it made up more than 53% of indirect tax.

Parties Involved

As the above outline, there are three parties involved which are HMRC (Administration), Tax Payer (Individual/Organization) and Tax Practitioner:

16 Source: From the Appendix 1

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

1. HMRC:

In the tax environment of UK, HMRC is considered as the the administration. In 2005, HMRC was established by Act of Parliament as a new department replacing the Inland Revenue and Customs and Excise. Generally, HMRC have responsibility in collecting tax from people and organizations that do business in UK, and they also manage the tax system of UK.

2. Tax Payer:

Tax payer is the one who pays an amount of money as a tax for HMRC. Tax payer could be individual or organization such as company. For organization such as a company, all the company does the business in UK has to pay tax for the HMRC, the company will pay tax based on their profit. For individual, HMRC divide into types of individual which is UK residence, and non UK residence.

UK Residence:

Who is UK Residence?

People who come from another country, and they are in the UK for 183 days or more in a tax year, they will be resident in the UK for that tax year (from 6th April of this year to 5th April of the next year), or people who visit to the UK averaging at least 91 days per tax year.

People who born in UK are UK residence, in case they have UK citizenship, but they leave UK to work full time abroad, they also have to pay tax as nomally.

How UK Resident paying Tax to HMRC?

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 For the UK residents, they have to pay tax which called income tax based on their income, those income includes both of the income arising in the UK and income arising overseas.

For example, there is a man named Tom, and he is a UK residence. He has doing business in UK and he also has worked in Vinamilk which is company located in Vietnam, so once a year he has to pay income tax for HMRC in UK based on the the income he collects in UK and also the income he has from the job in Vinamilk located in Vietnam.

Non UK Residence:

Who is non UK Residence?

Excepting for some cases that I mention in the UK residents section, it is non UK residents, so non UK Residence is a person who present in the UK for less than 183 days during the tax year or they visit to the UK averaging less than 91 days per tax year non UK residents.

How non UK Residence paying Tax to HMRC?

The non UK residentces only have to pay the income tax to HMRN based on their income which generate in UK.

For example, Van is a business woman; and she is Vietnamese. She has a business trip to UK in 2 months which is about 60 days so she is non UK residence because her stay is less than 183 days. In those 2 months, Van earned 1000 pounds from doing business in UK, and 10 million VND from her business in Vietnam, so she has to pay income tax for HMRC in UK just bases on 1000 pounds that she collected in UK, she does not have to Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 pay tax on 10 million VND from her business in Vietnam because she is non UK Residence.

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3. Tax practitioner:

Tax practitioner is the tax agent, lawyer or accountant who helps the tax payer to file the tax return. On the behalf of the tax payers, tax practitioner was hired for doing what related to the taxation of the taxpayer. In working with the HMRC, tax practitioners represent for the tax payer in dealing the matter. The main role and responsibilities of tax practitioner are give the advice to tax payer in their tax obligations, collect information of taxpayer and file in the tax return. They also need to calculate the tax liabilities of tax payer based on their gross income.

1.2 THE ROLE AND RESPONSIBILITY OF TAX PRACTITIONER:

Individuals and companies or organization take responsibility to pay tax for government. However, tax payers need to understand and have basic knowledge about payment tax and tax practitioner is the one who will help taxpayers.

Tax practitioner:

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 Tax practitioner is an accountant, lawyer or tax agent which helps the tax payer to file the tax return accordance to HMRC. In paying the tax, it has a lot of information to cover and the tax payer cannot have enough time or knowledge to do it, so they need a tax practitioner to help them to paying the tax and claim back the tax if it’s necessary.

The role of tax practitioner:

Taxpayer arrange for their accountants to prepare and submit their tax returns .Tax practitioners who help taxpayer deal with the HMRC on behalf of client. Besides that, tax practitioners play important roles to taxpayer because they will make effectiveness on tax and ensure requirement of HMRC. Moreover, Tax Practitioner likewise play important roles between taxpayer and tax collectors because of having to explain and advise tax law for taxpayer and submit information tax of taxpayer to tax collectors as HMRC on their behalf (Course book Taxation, page 146).

The tax practitioners have to have legal responsibilities to obey with the common-lawrules, meet the qualifications and experience like rules and regulation of HMRC. That means the tax practitioners have roles to help taxpayer deal with HR Revenue and Customs to report initially tax payments namely income tax, corporation tax, capital gains tax and so on.

Tax practitioners are able to effect to the tax reporting process in lots of ways. Practitioners can reduce tax liabilities for taxpayer by technical knowledge of tax law and regulations. To give advices for client to perform their obligation in tax, Tax practitioners need to have the knowledge of tax law. In addition, they are able to propose and improve policies to reach perfect reporting tax.

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Tax practitioners play important role between HMRC and taxpayers, they like intermediaries. Because complicated content of law, advise and ‘educate’ taxpayers in tax law matters, and hand in information to HMRC for their clients.

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment

The tax practitioners like tax advisor on business transactions, they are able to help to provide and explain clients with the clear understandings of risks and opportunities. In addition, the tax practitioners need to have any the suitable choices to consult for their clients.

The responsibilities of tax practitioner:

Besides the roles bring for customers in taxation, tax practitioners also take responsibilities about ethical such as:

Complying with the taxation laws in the conduct of their personal affairs. Tax practitioners will advise client to prepare the good tax return by preparing the tax returns competently and honestly so as to it will be true and exactly. Besides that, Tax practitioners are able to comply and advise the issue related to the audit law for companies.

Do not leak out information, which related to client’s issues to third party without client‘s permission.

Certainly, the tax practitioner has an obligation to both the client and the system, but that obligation is to assist the client to comply with the tax laws, paying no more than the law requires.

Keeping up-to-date with changes in taxation laws and practice. The tax practitioners play important because they are intermediaries between taxpayer and HMRC. Therefore, they have to be responsibility to update to explain for taxpayer and send information for HMRC.

1.3THE TAX OBLIGATIONS OF TAX PAYER OR THEIR AGENTS AND THE IMPLICATIONS OF NON-COMPLIANCE:

The tax obligations of tax payer:

 Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 When an individual or organization operates in UK, they have to implement their tax obligation to the UK’s government. And here is the tax obligation of the tax payers:

Honesty: when file the tax return, the tax payer need to honesty in listing the income. They must to fill full and right income that they have. It createS the fair between people in UK in pay the tax. With the right number of income, the HMRC can collect the right taxation of each others because the tax liabilities of them base on their income. Besides, tax payer should be truth in communicate with HMRC for paying their tax.

Cooperation: The tax payer need to coordinate closely to the tax agency, specific is the HMRC Department to give them information if they need to reduce the cost of tax collection.

Submit the documents and pay the tax on time: That means if the HMRC require, tax payer need to submit the document which related to the taxation to them. Besides, they also should pay the tax on time. Pay tax on time can help people avoid the penalties from HMRC and the HMRC department can be easy in collect the tax.

Deadlines for paying Tax:

31st January:

You must pay any tax you owe by 31 January following the end of the tax year. The payment deadline is the same for both of paper and online returns and there are very few exceptions.

For example, for the tax year 2011-12 (ending on 5 April 2012) you must pay any tax you owe by 31st January 2012.

18 HMRC Websites, n.d: http://www.hmrc.gov.uk/sa/deadlines-penalties.htm

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

31st July:

This is your deadline for making any further payments on account.

For example on 31st July 2012, you’d make your second payment on account for the tax year 2011-12.

The implications of non-compliance:

Tax payer need to comply with the HMRC regulatory, if they do not comply, they will face up with some penalties from HMRC.

Penalties of paying tax late:

If the tax payers do not implement their tax obligation on time, they will pay more for the penalty after 30 days and the longer they delay. It also increases the money for taxation of them. So pay the tax on time is necessary to save their money. The table below will show the penalties of paying late.

Length of delay

Penalty you will have to pay

30 days late

5% of the tax you owe at that date

6 months late

5% of the tax you owe at that date. This is

as well as the 5% above.

12 months late

5% of the tax unpaid at that date. This as

well as the two 5% penalties above

Penalties if you miss the tax return deadline

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 

The taxpayer need to submit the tax return to HMRC on time. If they do not comply, they must pay more time depending on the day that they are late. The table below will show their paying is their tax return is late:

Length of delay

Penalty you will have to pay

1 day late

A penalty of £100. This applies even if you have

no tax to pay or have paid the tax you owe.

3 months late

£10 for each following day – up to a 90 day

maximum of £900. This is as well as the fixed

penalty above.

6 months late

£300 or 5% of the tax due, whichever is the

higher. This is as well as the penalties above.

12 months late

£300 or 5% of the tax due, whichever is the

higher.

In serious cases you may be asked to pay up to

100% of the tax due instead. In some cases the

penalties can be even higher than this.

These are as well as the penalties above.

21

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

LO2 – BE ABLE TO CACULATE PERSONAL TAX LIABILITIES FOR UNDIVIDUAL AND PARTNERSHIPS

2.1 CACULATE RELEVANT INCOME, EXPENSES ANS ALLOWANCES:

As a we know that, currently I’m a tax practitioner of L&T consultancy, and at present my client is Mrs Julia, so my role and responsibility here is giving and advicing her some information which related to her tax resposibility. In the previous task, I already have explained all the basic information of UK Tax Environment such as the UK Tax Framework, parties involved, UK Tax legislation, the tax rate of the year 2011-2012, type of tax, how to caculate the tax, the penalty, so now my job in this section is finding down how much Julia’s the relevant income, expenses and allowances for the year 2011-2012.

Julia’s Relevant Income:

Income is an amount of money that a person can earn from their employment or their investment or both of that. In the UK tax system, the income is devided into three types of income which is non- saving income, saving income, and dividend income. Non-savingincome is came from employment income, trading income, property income, saving income is all the money that can be earned from the interest such as interest on loan, bank, or building society accounts, and finally dividend income is the money come from inverstment on share.

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 

1. Trading Income

According to scenario, Julia’s trading profits for the final two periods of trading were as follow21:

£

Year ended 30 April 2011

98,200

Two-month period ended 30 June 2011

16,600

Overview Capital Allow

On 1 May 2010, the tax written down value of the capital allowances main pool (general pool) was £13,200, based on the figure above that Julia will receive 20% of tax written down value which is £2,640. Therefore, the trading profit of Julia in year ended 30 April 2011 is £95,560.

  • 21 Source: Scenario Page 4, paragraph 5
  • 22 Source: Taxation Lecture Session 6 – Slide Number 19.
  • 23 Caculation: £13,200 x 20% (belong to main pool) = £2,640
  • 24 Trading profit year ended 30 April 2011: £98,200 – £2640 = £95,560

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 From 20% the capital allowance which belong to main pool, we have the year balance after the capital allowance is £10,560.

However, because on 21 May 2011, Julia pruchased computer equipment for £3,600, and all the items included in the main pool were sold for £7,700 on 30 June 2011, so the capital allowance of two-month period ended 30 June 2011 will be reduce at £6,460, so we have the trading profit of Julia in two- month period ended 30 June 2011 is £10,140.

After minusing the capital allowances we have the total trading profit of Julia is 105,700. In addition, according to the scenario, Julia has unused overlap profits brought forward of 41,700, this amount of money will reliefs Julia’s Trading Profit, so trading profit of Julia after reliefing is £64,000

Suming up Julia’s Trading Profit:

Capital Allowance Caculation:

Written down Asset of C.A main pool

£13,200

Receive 20% of tax written down value

£2,640

Balance

£10,560

Purchase/Addition

£3,600

Selling/Disposals

£7,700

Capital Allow

£6,460

Julia’s Trading Profit Caculation:

Year ended 30 April 2011

£98,200

Capital Allowance (20% of main pool)

£2,640

£95,560

Two-month period ended 30 June 2011

£16,600

25 Caculation: £13,200 – £2, 6450 = £10,560

  •  Caculation: £10,560 + £3,600 (Computer Addition) – £7,700 (Items Disposal) = £6,460
  • Caculation: £16,600 – £6,460 = £10,140
  • Caculation: £95,560 + £10,140 = £105,700
  • Caculation: £105,700 – £41,700 = £64,000

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

Capital Allowance

£6,460

£10,140

Total trading profit of Julia

£95,560 + £10,140 = £105,700

Unused overlap profits

£41,700

Final Trading Income of Julia

£64,000

. Salary Income:

According to scenario that Julia was paid a Salary of 15,100 per month by Unicorn plc, and she worked for Unicorn pls as a marketing director from 1 August, 2011. According to HMRC of the tax year which begin from 6 April and ending 5 April next year, and because the salary is paid on the last day of each calendar month, so the salary of Julia of the tax year2011-2012 will be caculated from 1 August, 2011 to 31 March, 2012 which is about 8 months. Therefore, the total salary of Julia in the tax year 2011 – 2012 is £120,800

3. Property Income:

According to the scenario, Julia owns 2 properties. The income and the allowable expenditure for

her two properties for the tax year 2011 – 2012 are as follows:

Property 1

Property 2

Income

£6,600

£7,200

Allowable expenditure

£9,700

£2,100

“Expenditure on buying, creating or improving a business asset that you keep to earn the profits of your business is capital expenditure. In other words, allowable expenditure is an amount of money

  • 30 Source: Scenario Page 4, paragraph 8
  • 31 Caculation: £15,100 (each month) x 8 months = £120,800
  • 32 SourceL Scenario Page 5, paragraph
  • 33 HMRC Websites, n.d: Capital expenditure

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 which is used to maintain your properties, without the allowable expenditure your property maybe cannot run the business to earn profit, so the government allows the property owner some money to maintain the property and it called allowable expenditure. The owner of property will pay tax for the gorvernment after minusing the allowablw expeenditure.

The Allowable expenses may include:

  • rents, rates, insurance, ground rents etc
  • property repairs and maintenance
  • renewals – although you cannot claim these and capital allowances or the 10% wear and tear allowance
  • interest and other finance charges
  • legal, management and other professional fees
  • costs of services provided, including wages
  • other property expenses

For the property 1, we see that the amount of money from income is lower than the allowable expenditure by £3,10035, which is also considered as loss for Julia in the property 1, according to HMRC that any rental business loss is automatically carried forward and set off against rental business profits of the following year36, so the loss at £3,100 of the property 1 will be carried forward to the next year to caculate the income of this property.

HMRC Websites, n.d: 

35£9,700 – £6,600 = £3,100

36PIM4210 – Losses: set against future profits: http://www.hmrc.gov.uk/manuals/pimmanual/pim4210.htm

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 For the property 2, the income was £7,200 and the allowable expenditure was £2,100 so the income of Julia from this property is £5,10037

In general, from the properties that Julia owns, in the tax year 2011 – 2012, she just has income from the second property which is £5,100.

4. Interest from buliding Society38:

During the tax year 2011 – 2012 Julia receive building society interest of £8,96039, but this amount of money is the net income40 so tralating to gross income by 20%, the gross income of Julia from building society is £11,20041

5. Dividend42:

According to the scenario, in 2011-2012 Julia also received an amount of money from dividend at £6,480, but this amount of money is also after tax so tranlating to before tax by 10%, the amount of money Julia can received from her dividend is £7,20043

6. On 2 Octorber 2011, Julia received a premium bond prize of£10044

The Total relevant income of Julia is £208,40045

Julia’s Allowance:

  • 37 Caculation: £7,200 – £2,100 = £5,100
  • 38 Source: Source: Scenario Page 5, “Other information” Section
  • 39 Source: Scenario Page 5, “Other information” Section
  • 40 Source: Taxation Lecture – Session 1: Income Tax at Source Slide 16
  • 41 Caculation: £8,960 x 100/80 = £11,200
  • 42 Source: Scenario Page 5, “Other information” Section
  • 43 Caculation: £6,480 x 100/90 = £7,200
  • 44 Souces: Scenario page number 5
  • 45 Caculation: 64,000 + 120,800 + 5,100 + 11,200 + 7,200 + 100 = 208,400

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 Nearly everyone who lives in the UK is entitled to an Income Tax Personal Allowance. This is the amount of income you can receive each year without having to pay tax on it. Depending on your circumstances, you may also be able to claim certain other allowances.46

Personal Allowance 2011-2012:

Allowance

2011 to 2012 tax year

Personal Allowance

£7,475

Age 65 to 74 – Personal Allowance

£9,940

Age 75 and over – Personal Allowance

£10,090

Figure: Personal Allowance 2011-201247

If you’re over 65- If your income(less deductions) is between £25,400 and £100,000 in the 2012 to 2013 tax year, your Personal Allowance goes down by £1 for every £2 of income above £25,400, to a minimum Personal Allowance of £8,105.

If your income is over £100,000- For every £2 your income is above £100,000, your Personal Allowance goes down by £1. If your income is high enough, this can reduce your Personal Allowance to zero.

As the income of Julia which I already mention above, the figure of income is £208,400. From the infomation of “If your income is over £100,000” section above that if your income is over £100,000, your Personal Allowance will be reduced by half of the amount – £1 for every £2. Caculating to 2012, Julia is 42 years old so her personal allowance is £7,475, and her income is more than £100,000 so her Personal Allowance is reduced by half of the amount – £1 for every £2, we have the caculation:

46HMRC Websites,n.d.: Personal Allowance: http://www.hmrc.gov.uk/incometax/personal-allow.htm

47Source: Taxation Lecture – Session 2 – Slide number 22 – Allowance for personal

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 £7,475 – (£208,400 – £100,000)/2 = £ 7,475 – (£108,400/2) = – £46,725.

As the caculation above that the personal allowance of Julia is negative, it means the Personal Allowance of Julia is zero.

Julia’s Expenses:

Expenses are the costs that you pay out in the course of earning business profits and which you can claim for. You can’t claim for non-business or personal items. Buying or improving capital items, such as machinery, which last for several years, is not a business expense for tax purposes but you may still be able to claim for them as long as they are related to your business.48

As the scenario that there is no mention about the expenses that Julia had to pay out so we can consider that the expense of Julia is zero.

Summary, we have the table of income, allowance and expenses of Julia below:

Income

Expenses

Allowance

Trading Income

£64,000

N/A

N/A

Salary Income

£120,800

N/A

N/A

Property Income

£5,100

N/A

N/A

Building Society Interest

£11,200

N/A

N/A

Dividend

£7,200

N/A

N/A

Premium Bond Prize

£100

N/A

N/A

Expenses

N/A

0

N/A

Allowance

N/A

N/A

0

TOTAL

£208,400

0

0

2.2 CACULATE TAXABLE AMOUNTS AND TAX PAYABLE FOR EMPLOYED

INDIVIDUALS, AND ADVICSE ON PAYMENT DATES:

1. Premium Bond Prize

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 As the information from the scenario that on 2 Octorber 2011, Julia received a premium bond prize of £100, and according to HMRC that a premium bond prize is not taken into accounts for inheritance tax purposes49, so Julia does not have to pay any tax for this £100

2.Tax Benefit:

Removal Expenses:

As the scenario that during August 2011, Unicorn plc paid £11,600 towards Julia’s removal expenses, and according to HmRC that there is £8,000 of removal expenses and benefits will be exempted50 so for the removal expenses Julia just have to pay tax on £3,60051.

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Beneficial Loan:

From 1 September, 2011 to 5 April, 2012, which is around 7 months Unicorn plc provided Julia a loan with free interest of £33,000. It means Julia borrows £33,000 from the company and she does not have to pay any interest. However, at the same with that period time if Julia borrows that amount of money outside, it would charge Julia 4% of interest52, so because Julia borrowed that from the company so she can save 4% of interest each month, so after 7 months, the amount of money that she can save was £77053

Free Meals:

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 During the period from 1 August 2011 to 5 April 2012, Julia was provided free meal from Unicorn plc’s canteen, and the total cost of these meals was £1,34054. It’s a benefit of the company for Julia, and she does not have to pay any tax for this benefit, because according to HMRC that there is no tax charge on the provision of meals for directors or employees if the meal is provided in a canteen55

Vehicle Benefit:

From the scenario that during the period from 1 Octorber 2011 to the end of tax year2011-2012, Unicorn plc provided Julia a diesel-powered motocar which has a list price of £14,400 with an official CO2 emission rate of 149 grams per kilimeter. The taxable benefit of Julia about vehicle benefit will be caculated based on the list price of her vehicle and the rate at which the car emits carbon dioxide. From Mrsalvage Website56, we have the table below:

CO2 emissions

Appropriate percentage

(g/km)

Petrol %

Diesel %

Up to 75

5

8

76-120

10

13

121-129

15

18

130-134

16

19

135-139

17

20

140-144

18

21

145-149

19

22

150-154

20

23

155-159

21

24

160-164

22

25

165-169

23

26

170-174

24

27

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment

175-179

25

28

180-184

26

29

185-189

27

30

190-194

28

31

195-199

29

32

200-204

30

33

205-209

31

34

210-214

32

35

215-219

33

35

220-224

34

35

225 and above

35

35

Based on the table and the information below, the appropriate percentage of Julia’s vehicle will be 22% because Julia’s vehicle is a diesel-powered motocar. In addition, Julia used this motocar from 1 Octorber 2011 to 5 April 2012 which is about 6 months, so after caculating the vehicle benefit of Julia is £1,58457.

2. Taxable Amount:

As the information I have mentioned above that the relevant income of Julia includes trading income, salary income, property income, interest from building society, dividend and premium bond prize which is about £208,400. However, as I have explained above that Julia does not have to pay any tax for her premium bond prize, so in the taxable income I will minus £100 from premium bond prize, so after minusing the prize, Julia’s income is£208,30058.

57 Caculation: £14,400 x 22% x 6/12 = £1,584

58 Caculation: £208,400 – £100 = £208,300

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 In addition, I have caculated the taxable benefit of Julia which includes removal exepenses, benefical loan, and vehicle benefit. Therefore the total taxable benefit of Julia will be £5,95459, and all the taxable benefit will belong with the non-saving income of Julia.

Summary, we have the table of Julia’s tax amount below:

Non-Saving

Saving

Dividend

Total

Income

Income

Income

Trading Income

£

64,000

Salary

£

120,800

Property Income

£

5,100

Interest from Building

£

11,200

Society

Dividend

£

7,200

Total

£

208,300

Taxable Benefit

Removal Expenses

£

3,600

Benefit loan

£

770

Car benefit

£

1,584

Total Taxable Benefit

£

5,954

Taxable income

£195,854

£11,200

£7,200

£214,254

3. Tax Liability:

According to the scenario that during the tax year 2011 – 2012, Julia made gift aid donation totalling £4,400 which is considered as net to national charities, so after tranlating to gross by 20%60, the gross of girt aid donation will be £5,50061. According to HMRC that Gift Aid is a way for charities to increase the value of monetary gifts from UK taxpayers by claiming back the basic rate tax paid by the donor on

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

the donation62, the Gift Aid Donation will not deducted in the tax structure, it is only used to expand tax rate band:

Rate

2011-12

Starting rate for savings: 10%*

£0

– £2,560

Basic rate: 20%

£0

– £40,500

Higher rate: 40%

£40,501 – £155,500

Additional rate: 50%

Over £155,500

Additional rate: 45% from 6 April 2013

N/A

Figure: New Tax Rate by the Gift Aid Donation of Julia

Based on the new tax rate above, I will calculate the tax liability for Julia:

Non-Saving Income:

In order to caculating taxable of non-saving income, I have to minus personal allowance from non-

saving income. However, the personal allowance of Julia is zero63, so the taxable of non-savingincome

is £195,584. Therefore, we have the tax liability of non-saving income as follows:

NSI

Rate

Tax Liability

£40,500

x

20%

=

£8,100

£114,999

x

40%

=

£45999, 6

£40,355

x

50%

=

£20177, 5

Total NSI

£195,854

Total Tax Liability of NSI

£74277, 1

Saving Income:

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 Because the non-saving income of Julia is over 10% limit which is the starting rate, so saving income of Julia will be caculated as non-saving income. Saving income of Julia is £11,200 is belong with the basic rate which is 20%, so the tax liability of saving income is £2,24064.

Dividend Income:

According to tax fix website 65 that the amount of money that Julia must pay as tax for her dividends depends on the total taxable income. For the tax year 2011 -2012, if the total taxable income is below to £150,000 then the tax rate for dividend will be 32.5%. If the total taxable income is more than £150,000 then the tax rate for dividend will be 42.5%. In addition, HMRC also applies 10% tax rate for dividend if the total income is belong with the basic rate. For Julia, her total taxable income is more than £150,000, so HMRC will apply 42.5% tax rate for her dividend, after caclating her dividend tax liability is £3,06066.

Tax Liability

Tax Liability of Julia from Non-saving Income

£74277, 1

Tax Liability of Julia from Saving Income

£2,240

Tax Liability of Julia from Dividend Income

£3,060

Total Tax Liability

£79577, 1

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 Tax payable is an amount of money that exactly Julia has to pay for HMRC, the total income tax liability minuses tax deducted at source will be the tax payable of Julia.

Tax deducted at source:

From the income of Julia, the tax deducted at source will include:

PAYE from non-saving income is £43,77767

20% of interest from building society (saving income) which is £2,24068

According to HMRC that interest on most savings include building society interest has 20 % tax deducted

before Julia receives it69

10% from Dividend (from dividend income) which is about £72070

According to HMRC that the dividend Julia is paid represents 90% of ‘dividend income’. The remaining 10% of the dividend income is made up of the tax credit. Put another way, the tax credit represents 10% of the dividend income71.

Total Tax deduction at source is: £46,73772

Tax Payable of Julia is about £32,840

Summary Table:

Non Saving Income Tax Liability

£74277, 1

Saving Income Tax Liability

£

2,240

Dividend Income Tax Liability

£

3,060

Total Tax Liability

£79577, 1

PAYE from non-saving income

£43,777

20% of interest from building

£

2,240

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

society

10% from Dividend

£

720

Total Tax deducted at source

£

46,737

Tax Payable of Julia

£32,840

5. Payment dates73:

In order to avoid the penalty from HRMC, Julia needs to know exactly the date to submit tax return and the due day Julia pay tax.

There are two ways for Julia to submit tax return:

31 January for online returns

If Julia sends the tax return online to HMRC, the deadline will be 31 January or in other words that if Julia sends the tax return online, then HMRC must receive her online tax return before the midnight on 31 January.

31 October for paper returns

If Julia sends the tax return offline to HMRC by paper, the the deadline will be 31 Octorber. Or in another words that HMRC must receive tax return paper of Julia before midnight on 31 October.

Deadlines for paying Julia tax that is 31 January, Julia must pay any Tax she owes by 31 January following the tax year. The payment deadline is the same for both paper and online returns and there are very few exceptions

73 Gov Website: Self Assessment Dealine: https://www.gov.uk/self-assessment-tax-return-deadlines

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 Julia needs to pay tax before the deadline for HMRC, if she pays tax late, she will face up with some penalties from HMRC. The specific information about the penalty of paying tax late is presented above74

2.3 COMPLETE RELEVENT DOCUMENTATION AND TAX RETURN:

After calculating the tax liability for Julia, as a tax practitioner of L&T Company, I also have responsibility in preparing and filling the tax return form and the relevent document for my client and submit it to the HMRC.

According to scenario that Julia Gillard is a UK resident, she was born on 16th December 1970, she live at B15 2TT Edgbaston, west Midlands Birminglam, and her tax code (NINO) is DA671892Z75. All those information will be used to fill in some document to submit to HMRC.

There are a few forms that I need to prepare for her payment tax:

1. Form 64-8 – Authorizing tax practitioner76

This form is an important form, which is about the deal between tax payer and tax practitioner. The authorises use it to communicate with an accountant, tax agent or adviser acting on your behalf. The form covers authorisation for individual tax affairs (partnerships, trusts, tax credits and individuals under PAYE) and business taxes (VAT, PAYE for employers and Corporation Tax).

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

2. Form SA103S77

This is the full version form of the SA103; this form is used for self-employment, business detail, VAT, business income, allowable and disallowable expenses, capital allowances for vehicles and equipment, calculating taxable profit or loss, CIS deductions, balance sheet, Class 4 National Insurance contributions.

3. Form SA102 78

This is an employment form, if you are employed, whether it is part-time, full-time or casual employment, you

will usually have to complete Form SA102 Employment pages of the tax returns

4. SA105 UK Property Form79

Using the SA105 supplementary pages when filing a tax return if you are an individual or a rental business declaring income generated from land and property in the UK, or chargeable premiums arising from leases of land in the UK, or furnished holiday lettings in the UK, or a reverse premium.

5. Form P6080:

If you are an employer, you must provide a form P60 to each employee at the end of the tax year and for whom you have completed P11. The P60 confirms an employee’s final tax code and shows.

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1 total pension and/or earnings for the year, as well as the year’s total tax deductions and National Insurance contributions. If you’re an employee, keep form P60 as a record for self-assessment purposes

  • 6. Form SA100:

SA100 is the main tax return for individuals. People use this form to file your tax return for income and capital gains, student loan repayments, interest, pensions, annuities, charitable giving and to claim tax reliefs and allowances.

  • 7. Form P11D:

Your employer uses a P11D to tell HMRC about the value of any benefits in kind they’ve given you during the tax year. Your employer will only declare them if you’ve earned at least £8,500 in the year, including the value of the benefits. They will work out how much each benefit is worth, record it on the form and send it to HMRC81

8. Form P8782:

This form is used to claim back work related expenses. The form is only used for employed tax payers and not for the self employed.

9. Guidance HS25283:

This is a guidance which could help you UK property, Employment and Foreign Partnership Tax Return, the Trust and Company liable to Income Tax.

fill in the capital allowances boxes in theSelf-employment, pages of your personal tax return. It also applies to the Estate Tax Return and the Tax Return for a non-resident

Prepared by Le Tran Uyen Vy (Vivien) – Taxation Assignment 1

10. Form R8584:

Use form R85 to tell your bank or building society that you qualify for tax free interest on your account

CONCLUSION

As a tax practitioner of L&T Company, my role and responsibility is helping my client who named Julia in carrying out her tax responsibility with UK government. In this presentation, I already have explained about UK tax environment, the role and responsibility of tax practitioner and the obligations of tax payer as well as the implications of non-compliance. Besides, I have calculated the relevant income, allowance and expenses, taxable amount and tax payable of Julia, and lastly is preparing and filling the tax returns form and relevant documents which related in the taxation obligations.

Maddox Smith

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