Taxation - Research Paper Example

Running head: TAXATION Taxation This paper describes UK tax environment; its types and income. Role and responsibility of a tax advisor has been discussed. After that different method of data collection is presented. Finally, a real life example is taken under consideration and the person’s income, amount of income tax payable and net capital gains are determined. Introduction Taxes are a collection of revenue from individuals who are citizens of a country or are residing in the country for purposes of leisure or work. Taxes are imposed to provide revenue for the government and allow the government to improve the civil needs of the country. A good example is the when the tax revenue collected is allocated towards paying for government services such as the police, the military and the government administration. Taxes are also collected for purposes of subsidizing the needs of its citizens such as the subsidization of a staple food or education. Taxation carries the weight of bearing the load of administration as well as providing its citizens a chance to run their country. As taxpayers many people are given the opportunity over voting rights as well as social security and welfare in times of hardship. There are different types of taxes available in the UK and here is the list of basic taxes that are used : Consumption Tax: It is a system whose tax base is consumption. This includes the goods bought by an individual. The most common is the VAT (Value Added Tax) and is added already on all legal goods that are being purchased. Excises: Excise does not depend on the quality of the object rather, based on quantity amount of tax payable is calculated. It modifies the consumption pattern of user. If excise in alcohol is made higher then, rate of alcohol consumption will definitely come down. Income Tax: Tax imposed on financial income of the person is known as income tax. Income taxes are also inclusive of the profits of a business if the individual is self-employed. This tax is inclusive of a person’s savings in correlation to the amount of money that has been saved. Corporation Tax: It is the direct tax levied on the profit of a corporate or industry. Poll Tax: Poll tax is the fixed amount of tax that is levied to each and every individual irrespective of his/her financial strength. Though they are cheap and easily manageable but, it has one basic drawback: Poorer people need to pay higher proportion than rich persons. Property Tax: Individuals who own property are required to pay a certain amount of tax. Inheritance taxes, Stamp Duties and a tax on gifts that you have made seven years before an individuals’ death. This tax is also inclusive of all the properties a UK citizen has overseas whether or not money is brought into the UK. Capital Gains Tax: A tax on the profits received when an individual sells or gives away their assets. National Insurance Contributions (NIC), is similar to an income tax and the individuals who pay for the taxes are an employee or are self-employed and are aged 16 and over provided that the earnings are a certain level. Those who have reached the State Retirement age are not legible to pay for NICs. Petroleum Revenue Tax: A tax levied on the use, import and export of petroleum. A tax levy on petroleum curbs the excessive use of petroleum thus reducing carbon monoxide emissions. Pension Scheme: Employed individuals the age of 16 or above are expected to pay the pension scheme tax as a savings method to better secure their future. Roles and responsibilities of the tax adviser The tax adviser does multiple roles and most of the time they are also trained as tax technicians. The tax adviser’s job is to provide correct information as to how individuals or companies get taxed as well as the benefits and gains they get from paying taxes such as the state provided pension for future retirement as well as welfare for the disabled and dependent individuals such as children and the infirm. The tax adviser would also inform taxpayers where their money will be distributed and how the government will use the money for the country. The tax adviser is to inform his/her clients as to how much they have to pay taxes The tax adviser will calculate the clients’ purchases, assets and benefits The tax adviser will work for the benefit of the client and find ways to help them. To check every tax paying individual and inform them of their duties and obligations to pay taxes. To inform the authorities when there is a tax fraud. The tax adviser also has the power of a legal attorney. The tax adviser has the ability to collect taxes by informing the taxpayer and if they refuse a penalty will be issued to the taxpayer. Penalties will also be issued to companies which have misappropriated employee tax funds with or without the knowledge of the employee. The tax payer has the power to penalize taxpayers who have not paid their taxes promptly either willfully or unknowingly. Methods of tax collection The methods of tax collection differs on the type of taxes that an individual is required to pay, some of the more common methods are :- Payments of self-assessment taxes are usually made willingly by the individual using various methods of tax payment, this includes bank payments and the post office, nowadays, it also offers internet payments as well as payments made by phone. Most tax payments are payable through these methods. Employer taxes that handle the accounts of their employees can pay through a Pay As You Earn (PAYE) scheme where employees’ salaries are immediately deducted for taxes. PAYE schemes may also be paid through similar ways such as the above. Corporate taxes that don’t have pay slips are required to pay at wherever venue (e.g. the Post Office) available that handles tax payments, the payments are similar to those stated above. TASK 2 Jane Simmons’ total income from employment inclusive of all benefits in kind £26,500 + £5,563 (deducted tax from total annual income) + £ 20,000 (company loan) + £18,500 (company car) = £ 70,569 TASK 3 and 4 Earnings Dividends Gains Total Income/Gains £32,063 £2,700 £2,760 £ 37,523 Less - £ 400 + £ 500 £ 900 Personal allowance £ 5, 035 £ 5, 035 Annual Exemption £ 8,500 £ 8,500 Taxable £ 26,488 £2,700 Nil £ 29,188 Starting Rate: £ 2,090 at 10% £ 209 £ 209 Basic rate on Earnings: (£ 26,488 – £ 2,090) £ 24,398 at 10% £ 2,439.80 £ 2,439.80 Basic rate on Dividends: 10% £ 591.20 £ 591.20 (£ 32,400 – £ 26,488) £ 5,912 Capital gains tax: Nil Total tax £ 2,648.80 £ 591.20 £ 3,240 TASK 5 & 6 Assets Sale Price Cost of Selling Net Capital Gain House £ 45,000 £ 185,000 £ 140,000 Painting £ 7,000 £ 5,000 -£ 2,000 Plot of Land , ¼ sold £ 60,000 £ 55,000 + ¾ of remaining land £ 120,000 £ 115,000 Taxable £ 260,000 CGT at 40% £ 104,000 TASK 7 & 8 Earning Gains Total Income/Gains £27,000 + £ 4,500 £ 6,900 £ 38,400 Less - £ 3,550 £ 3,550 Capital Allowance £ 3,610 £ 3,610 Taxable £ 27,890 £ 2,350 £ 30,240 Schedule D is taxable for £ 30,240 James has to submit his tax schedule on 31st of July,2006, exactly 12 months after summation of profit and loss on 31st of July, 2005. Therefore, he must pay in the time span provided. TASK 9, 10 and 11 Schedule D for X Limited as of 31 March 2006 Profit Rental Income Dividends Capital Gains Total Income/Gains £ 46,575 £ 13,500 £ 6,300 £ 19,110 £ 85,485 Less- £ 6,565 £ 2,455 £ 9,020 Capital Allowance Already inclusive Taxable £ 76,465 Limited X’s corporate tax liability is due within 12 months after income for the year ended on 31st March,2006, it ends on 31st March,2007 Read More