Unit 30 Revenue and Customs Taxation Assignment UK

Introduction

In this report, a brief discussion is to be made on the taxation matters in the United Kingdom. In United Kingdom, the regulatory body which is held responsible for the management of tax and other related matters is the HMR revenue and Customs. The tax payers are required to pay tax to the department of HMRC within reasonable time period. The tax environment in the United Kingdom is also to be explained in detail and the roles and responsibilities of the tax practitioner in this context are also to be discussed in this Unit 30 Revenue and Customs Taxation Assignment UK. The tax payers are liable to follow all the instructions of the HMRC and other regulatory authorities for the purpose of checking the compliance with the tax laws and regulations. The HMRC has also prescribed the implications of the non – compliance by the tax payers.

The calculation of the income and other allowances are also to be presented in this report with the help of an example. The tax payers are bifurcated into different categories. The employed and self-employed individuals are required to pay income tax on their incomes and deposit it on time to the department. Any non – compliance may lead to the penal consequences and other prosecutions, which may harm the goodwill of the business in the market. Thus, it should be focused that all the provisions should be complied with for the purpose of avoiding such consequences. The tax payers are also required to file all the necessary documentation with the tax authorities and file their tax returns properly. Other provisions regarding calculation of chargeable profits and tax and contract liabilities of the tax payers are also to be discussed in detail along with practical examples. The due dates of the tax payment should be taken into account for the benefits of the business and avoiding the serious implications. Deductions regarding tax payment will also be presented for the tax payers and its process is also to be discussed. The capital gain tax is imposed on the sale of assets by the tax payer, which is also to be presented along with an example for explaining its effects on the tax liability of the individuals and other tax payers.

Task 2

Part A– Income from Self – employment

1. Calculation of Paul’s taxadjusted profit for the year ended 5^th April 2016:

Particulars	Amount
Net profit as per Statement of profit & loss	£  32,200.00
Add: - Disallowed expenditure
Running cost of motor car used by the chef of restaurant	£    2,670.00
Running cost of motor car used by Paul for private use (4710 x 70 %)	£    3,297.00
Parking fines incurred by Paul for private use (280 x 70%)	£       196.00
Property expenses	£    3,240.00
Repairs and Renewals	£    1,320.00
Other expenses	£    2,590.00
Less - Allowances for motor car	-£   2,520.00
Adjusted trading profit	£  42,993.00

Calculation showing allowances for Motor Car: -

	Date of purchase	Cost	CO2 emission rate
Motor car	6.4.2015	£   14,000.00	124 grams per km
(-) WDA @ 18 %		-£    2,520.00
		£   11,480.00

Notes:

1. The motor car used by the chef of the restaurant is not to be considered under the calculation of adjusted profit of Paul.
2. Cost of running of motor car of Paul is used 70 % for his private purposes, which is disallowed for the purpose of calculation of cost (Jordan, 2012).
3. An apartment which is situated above the restaurant, property expenses related to this apartment is not included in the expenditure of Paul for allowance purpose.
4. Cost of repairs and renewals for decorating the apartment is also disallowed for this purpose.
5. Motor car used by the Restaurant’s chef is not included in adjusted profits, so additional information about the CO2 emission rate is not relevant (Miller& Pope, 2015).

2. Write a memorandum report advising Paul of the latest dates by which his self – assessment tax return for the tax year 2015 –16 should have been filed in order to avoid a penalty.

Report

To,
The Manager,
XYZ Restaurant

Subject –Report regarding self-assessment tax return and other provisions related to it.

Introduction

In this report, a brief discussion is to be made on the due dates of filing the self-assessment tax returns and compliance check requirements by the HM Revenue and Customs.

The self – assessment tax returns for the year 2015 – 16 should be filed up to 31^st January 2017, in which the tax payer is required to pay tax on the tax assessed by him. HM Revenue and Customs (HMRC)have used this self-assessment tax system for the collection of income tax. There are also provisions for tax deduction from the salary or wages of the individual, his savings, pension or other employment benefits. The tax payer has the right to deduct these taxes already paid from the total tax to be paid by the due date.

It is also mentioned that if the self – assessment tax return is paid for the first time, then an extra time of twenty working days is allowed to the tax payer, as he is required to apply for registration first and then file the self-assessment tax return (Maurice, 2016). A tax payer is also liable to maintain proper documents for the presentation of valid proof in case of any confusion.

The self – assessment tax return is filed, and then the HM Revenue and Customs has the right to notify the tax payer (Paul) for the compliance check. Prescribed normal time limit for the assessment by the HMRC is four years. For PAYE also, the limit is same. However, if the assesse is found to behave carelessly, then the time limit is increased to six years. For the deliberate behaviour, it is twenty years. Therefore, under PAYE, the deadline for Paul for the year 2015 - 16 is 5^th April 2020. The HMRC is entitled to check the correctness of thetax amount paid, self – assessment tax return, PAYE return, etc. HMRC can give notice for compliance check when it has a doubt about the accuracy of the tax amount deposited, documents kept, correctness of the returns filed with the authority.

Conclusion

It is concluded that Paul should file his self – assessment tax return by 31^st January 2017. The time period of notice of tax return is also explained in this report.

Part B – Income from Employment

1. Calculate the income tax due by Beth for the period 2015 – 16.

Calculation of income tax due by Beth for the year 2015 - 16
Particulars	Amount
Income from salary	£     42,000.00
Statutory redundancy payment received	£       3,500.00
Additional compensation	£     50,000.00
Total	£     95,500.00
Less: - Tax - free personal allowance	-£     10,600.00
Net taxable income	£     84,900.00

Calculation of net tax due:

Tax amount due	Band	Rate	Amount
Basic rate	£0 - 31,785	20%	6357
Higher rate	£31,786 - 150,000	40%	21246
Additional rate	Over £150,000	45%	_

Calculation of dividend income tax due by Beth: -

Dividend income		£       6,000.00
(The tax payer needs not to pay any dividend tax upto an amount of £ 5000)
Band	Limits		Percentage		Amount
Ordinary Rate	£0 - £31,785		10%		£ 100.00
Upper Rate	£31,786 - £150,000		32.50%		_
Additional/Top Rate	Over £150,000		37.50%		_

Notes to accounts: -

1. For the calculation of income tax due by Beth during the year ended 5^th April 2016, all incomes like salary income of £ 42000 and statutory redundancy amount of £ 3500 are included for the purpose of calculation of total taxable income. The amount of additional compensation is also taken into account for this calculation.
2. It is specified that Beth has claimed only basic personal and professional allowance, which is amounted to £ 10,600. Hence, any other allowance is not taken into account.
3. The tax due by Beth is calculated on the basis of income tax rate band, which is given in the question (Gourio& Miao, 2011).
4. The dividend income tax band is also provided, which is used for the purpose of calculation of dividend tax due by the Tax payer. There is an exemption up to an amount of 5000 pounds. Above that, the dividend rate band is used for calculating tax on dividend income.

Task 3

Required

1. Calculate the taxable total profits for the year.

Calculation of total taxable profits of Apply Ltd for the year
Particulars	Amount
Trading profits, after capital allowance	£   1,561,400.00
Interest received from bank deposits
Received on 30th June 2015	£          1,820.00
Received 31 December 2015	£          3,670.00
Accrued to 31 March 2016
Dividend received from UK companies	£      132,000.00
capital gain on sale of factory
[1192050 - (450200 / 176.2 x 258.8)]	£      530,803.00
Annual charity payment is exempt	_
Total profits of Apply Ltd which are taxable	£   2,229,693.00

Notes: -

1. The trading profits (after providing capital allowance) are taxable for the Limited company.
2. Interest from bank deposits received on 30^th June and 31 December is taxable during the year 2015 – 16. The accrued interest received on 31^st march 2016 is not taxable during the year (Smith, 2012).
3. The capital gain raised on the sale of a factory is calculated at the rate of 20 % and for the purpose of calculation of capital gain, Retail price index is used. The cost of a factory is adjusted as per the retail price index and then it is subtracted from the total sales revenue derived out of it.
4. Apply Ltd has also received dividend from other companies in the United Kingdom. The dividend income is exempt up to an amount of £ 5000. Dividend band rate is used for calculating the dividend income tax on the remaining income above £ 5000.
5. The Gift aid scheme provides the benefit of exemption to the company from the payment of tax on it. Apply Ltd pays deed of covenant to a charitable organisation on an annual basis. Therefore, the amount of £ 4,500 is not taxable for the year 2015 – 16.
6. Total taxable profit of Apply Ltd for the year 2015 – 16 is £ 2,229,693 which is taxable at a rate of 20 % for the year.

2. Calculate tax liabilities and due payment dates

Tax liability of Apply Ltd for the year 2015 – 16 is calculated as follows: -

Calculation of net tax liability	Amount
Capital gain tax @ 20 %	£      106,161.00
Dividend tax (132000 - 5000) x 20 %	£        25,400.00
Tax on other income (1566890 x 20%)	£      313,378.00
Total	£      444,939.00

Notes:–

1. Apply Ltd is liable to pay tax on the dividend income of the company. However, dividend up to £ 5000 is not taxable.
2.  Capital gain tax is calculated at the rate of 20 % on the sale of a factory.
3. Other incomes are taxable at the rate of 20 % for a company for the year 2015 – 16.

The due dates for payment of tax for the year 2015 – 16 are as follows:

First payment of tax for the year 2015 - 16	31st January 2016
Second payment of tax for the year 2015 – 16	31st July 2016
Filing of self-assessment tax return on paper	31st October 2016 in midnight
Online self – assessment tax return (PAYE code) when the owed amount is less than 3000	30th December 2016
Online self – assessment tax return	31st January 2017 in midnight
Payment of tax bill	31st January 2017 in midnight

3.Explain how income tax deductions are dealt with

Every organisation has to bear some expenses for their business during the year. Some of those expenses are deductible and some of them are non – deductible for the tax purposes. The expenses which are related to business and non - related to the personal use of the business operator are allowed normally. However, there are certain provisions regarding it which need to be followed for the purpose of satisfaction of demand of the HMRC. For the calculation of deductible amount for the tax payer, the tax practitioner should be consulted for having proper knowledge about the provisions regarding it. The tax provisions are well understood by them, as they are updated about the recent amendments and announcements.

While calculating the tax amount, the deductions are subtracted from the total taxable income and then tax liability will be imposed on the net taxable amount. In the present case of Apply Ltd, the company will have certain deductions which need to be adjusted from the total amount which is taxable. For instance, the expenses which are normal expenditure of the company like cost of material purchased, salaries of employees, etc. are allowed expenditure. They are not disallowed for the purpose of calculating taxability. In United Kingdom, for the limited companies, deductions are available like cost of accommodation, marketing cost, professional fees, hire expenses for vehicles, bad debts, salary of directors and other managerial personnel, bank interest expenses, legal expenses, insurance cost, mobile phone expenses, cost of training sessions provided to employees, rental cost of the business premises, parking cost, etc. therefore, it is recommended that Apply Ltd should develop an understanding about the provisions regarding deductions and their deductible limit for utilising the benefits of the tax laws. With proper knowledge and information of tax planning, the tax payer would be able to plan its tax liability in such a way that all benefits can be gained and the tax burden would be minimised.

Task 4

Part A

Required:

1. Calculate Grant’s capital gains tax liability for the tax year 2015–16.

Calculation of capital gain tax liability for the year 2015 - 16
Particulars	Amount
Sale price of shares in Dub Ltd	240000
Market value of shares on the date of gift	240000
Capital gain or loss raised	0

The capital gain tax liability is imposed on the individuals for earning capital gains. When an individual sells the capital assets and all the provisions regarding capital gains prescribed by the HM Revenue and Customs are complied with, then he needs to pay capital gain tax to the department within prescribed time limit. However, there are some exceptions, which shows that the individual need not to pay capital gain tax on the sale of some assets like own home (Kewley, 2013). The tax is imposed, if any gain arose on sale or disposal of asset. On the contrary, if any loss occurred, then the individual can avail tax benefit on it which will be set off from tax liability from other sources. The capital gain tax is calculated by subtracting the cost of acquisition from the sale value of asset. Indexation may also be applied in case of long term assets. However, there are some exceptions to it also. Basic capital gain tax exemption limit for the year 2015 – 16 is £ 11,100. It is deducted from the total capital gain raised and then the tax rate will be applied on the remaining balance of capital gain. For the higher and additional rate tax payers, the capital gain tax rate is 28 %, while for other tax payers it is 18 %.

Assumption – It is assumed that Grant is a major child, who is responsible for paying taxes on his incomes.

2. Explain why it would have been beneficial for capital gains tax purposes if Delroy had instead sold the 25,000 shares in Dub Ltd himself for £240,000 on 10 June 2015, and then gifted the cash proceeds to Grant.

If any parent helps his children in monetary terms for his survival, then it doesn’t impose any liability on him for tax purposes as per the provisions provided by the HM Revenues and Customs. However, there are some rules and regulations regarding imposition of tax on gift to children. In the present case, Delroy is gifting the sale proceeds of the shares in Dub Ltd amounting to £ 240,000 to his son instead of shares itself. It would be beneficial for Delroy to transfer the gift to his son in monetary terms, because it will not impose any additional liability on him. As per the provisions mentioned regarding income tax by the HMRC, the gifts are not considered to be the incomes of the individual as they are not derived from any source of income (Hanlon& Pinder, 2013; 2012). Therefore, an individual needs not to pay any tax on gifts to his children, either son or daughter. There are also some provisions regarding inheritance tax on gifts by parents to their children. However, it is not applicable in this case, because Delroy is alive and the provisions regarding inheritance tax are not complied with. There are separate provisions for small cash gifts and wedding gifts. It says that an individual is allowed to give only up to £ 250 as an amount of small gift to any person in a year. Regular payments to the close persons like husband, wife or any civil partner are allowed for their maintenance. Special occasional gifts are also allowed.

Part B

Required:

1. Calculate Marlon’s chargeable gain for the tax year 2015–16.

‘Chargeable assets’ include personal possessive property of the individual, property which is not related to the personal home of the individual, let out home, home used for business purpose, very big residential property, shares with certain restrictions, assets related to business etc. An individual is not required to pay any capital gain tax on the disposal of own home property in the United Kingdom, if following conditions are fulfilled:

• An individual has only one property as a home for residential use and the ownership ofthe property asset lies with that individual only.
• The acquired property should not be let out to any other person. Single lodger is not to be considered in it (Wu& Li, 2011).
• The property asset should not be used for the purpose of business.
• The overall land area hold by the property should not be more than 5000 sq. meters. The area of ground and all buildings is included in it.
• The main purpose of purchasing this property should not be to make personal gains.

If all the above mentioned conditions are fulfilled, then the individual will get the Private Residential Relief from the burden of tax.In the present case, one – third of the house is used for the business purposes. Therefore, this part is taxable.

Statement of tax liability of Marlon for the year 2015 – 16: -

Calculation of capital gain tax liability for the year 2015 - 16
Particulars	Amount
Sale price of home property	£497,000.00
Less - Legal fees incurred on sale of property	£    3,700.00
Net sale proceeds	£493,300.00
Less - Cost of asset	£146,000.00
Less - Legal fees incurred on purchase of property	£    2,900.00
Capital gain / loss occurred	£344,400.00
One - third used for business	£114,800.00
Two - third used for personal residential use	£229,600.00
Tax liability @ 28 % as he is a higher rate tax payer	£  32,144.00

Therefore, it is analysed that one – third of the house property is used by Marlon and his wife for the purpose of their business only. This is the case, where tax relief is not allowed to the tax payer (O'Neill, 2013).

2. Calculate the amount of capital gains tax which could have been saved if Marlon had transferred 50% ownership of the house to Alvita prior to its disposal.

If the transfer of house property is made to wife by a husband, then the tax payer is not liable to pay any capital gain tax on the transfer of property. However, there is a condition that the husband and wife should live together. In the present case, it is provided that Marlon had transferred almost half of the ownership of the house to his wife Alvita. This shows that the tax payer is transferring such asset to his wife only for the purpose of saving any tax liability. However, there are certain exemptions that need to be adopted for the purpose of saving any tax liability. The amount of capital gain tax can be reduced, when there is a valid purpose behind the disposal of property. The capital gain tax liability will be imposed on the disposal of assets at the rate of 28 % itself, as Marlon is a higher rate tax payer.

Conclusion

From the above Unit 30 Revenue and Customs Taxation Assignment UK it can be concluded that the provisions prescribed by the HM Revenue and Customs should be complied with for proper tax planning. Tax planning is very necessary for the purpose of being saved from the undue burden of the taxes and other penalties. An individual or any other tax payer is required to have proper knowledge about the provisions of the tax law, so that they would be able to pay taxes within time limit at an appropriate rate so as to be saved from the future consequences. In this report, some of the provisions of the HMRC are discussed with the help of some practical examples. The due dates of the payment of tax are also discussed and the tax payer will have to bear some additional penalties or fines, if those provisions are not followed. A brief discussion is also made on the deductions available from the tax liabilities. The deductions are allowed on the basis of hospitality provision formed. The expenditure which is incurred only for the purpose of normal activities of the business is allowed for the tax purposes. On the contrary, the expenses which are incurred for personal use or any other use are to be treated as the ‘disallowed expenditure’. The tax payer will have to add back those disallowed expenses for the calculation of total taxable income. The tax rate will be applicable only on the taxable income after deducting the deductions available. The chargeable assets are also defined in this report. A tax payer is required to calculate capital gain or loss on the disposal of chargeable assets of the business. When the cost of disposal of asset is higher than the cost of acquisition, then capital gain arises. On the contrary, when the disposal price is lower as compared to the cost price of the asset, then capital loss will arise. The tax payer will have tax benefit on capital loss. Different situations are defined for the calculation of capital gain or loss on sale of shares or home property etc. with the help of this report, the learner would be able to develop an understanding about the tax effects on the incomes of the tax payer.

References

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The tax environment in the United Kingdom is also to be explained in detail and the roles and responsibilities of the tax practitioner in this context are also to be discussed in this Unit 30 Revenue and Customs Taxation Assignment UK, We are posting Locus units solutions so scholars can explore the our Assignment Help in UK and get review the quality of our work.