Taxation Principles and Concepts - Coursework Example

? Taxation Principles and Concepts (Taxation) By Taxation Principles and Concepts (Taxation) FIRST REQUIREMENT Dear Tobby, Hello, my friend. It has been a long time since we last met at campus. However, I am very glad to offer you some conclusive advice on your financial position as well as how to take a financial direction after starting a new business. The issue of capital allowance arises when a purchase or property is made either for business or for personal use. A capital allowance refers to the amounts in cash that a business operating in the United Kingdom can deduct from the overall income tax on its profits or the corporate tax. The sources of these sums of money come from certain purchases as well as investments as outlined in the Capital Allowances Act of 2001 (Channer & Rogers 2007, p.xiv). A business or corporate organization can claim capital allowances on the costs of cars, vans and machines purchased for business use, or other assets in the business such as scaffolding, equipment, ladders, furniture, computers, and tools. In addition, a business can also claim capital allowances on the expenditures incurred on plant and machinery, as well as, on facilities and equipment used for research and development, and items that a business operator uses privately before using them commercially. Another capital deduction occurs on the premises used for the company to run its business, such as improving a property, and converting a space above a building for rental purposes. As for your case Tobby, you can claim capital allowances on the following items: computers, car, premises and rent for Tamara. The capital allowance on computers is ? 200, car as ? 2,700, premises at ? 12, 5000 and Tamara’s rent at ? 4,000. As such, the total capital allowance that Tobby can claim from the tax authority is ? 19,400 (Dunn & Rogers 2008, p.664). The taxable profits of Lewis include all the expenses as well as the revenues generated by the company. The taxable profits include a deduction of all the expenses that are incurred in the business. These include the rates at 1,500, telephone charges for business calls only at 1,000, light and heat for the whole property at 3,000, NIC contribution for himself at 1,000, wage expenses for lily at 20,000 and for himself at 25,000. The other expenses also included in the expenditure of the company are car-running costs at 6000, depreciation expense on the cars at 4,000, loan repayment costs at 3,500, interests on loans at 5,000, insurance charges at 1,800, advertisement expenses at 1,500. The other additional expenses recorded in the business include parking fines at 1,000, gift aid donations at 1000, membership at a sports club for 900, and donations for lewisham hospital at 1000. He further needs to add an additional expense of wages, which he pays to Tamara at 20000 for the part time job she performs at his corporation. This totals all the business expense to ? 77,200 (Gabay, et al. 2007, p.180). This total expenditure by the business of ? 77,200 shows that the business in incurring a lot of expenses which in turn reduce its level of profitability. In order to calculate the profitability of the firm, this includes a deduction of the expenses from the revenues or incomes made or generated by the firm. The general income made by the business from its business processes and activities is ? 90,102, and a subtraction of the two provides the business profits at ? 12,102. This is the general profit, which is subjected to taxation as the income made by the business during the fiscal year under operation. As such, the profitability of the company for the year ended 31 July 2013 was ? 12,102. The projected assessable profits for the business in the fiscal year ending 2013/2014 were ? 12,102 plus the deductible allowances for the business (Gupta 2003, p.67). The best way to set an accounting year is to position it in line with the financial year of her majesty’s government. The royal budget of the United Kingdom runs from the start of July, i.e. 1 July on that fiscal year, and runs for twelve months in order to culminate at the end of June the following year, i.e. 30 June. As such, if one positions his business financial year along these dates, he gets to operate in concurrence with the economic progress and development of the country. As such, he will follow a taxable orientation as that adopted by the government of the United Kingdom, meaning that he will have to submit his profits at the 30th day of every month of June in the fiscal year. However, currently this would be a problem for him because of the adopted financial year, running from 31st July of every year to the end of the following fiscal year in august 1st. this would mean that the business would have to pay its taxes for a given fiscal year in two financial periods relating to each other. Therefore, the business should adjust these dates in order to meet the provisions of the government’s financial period and as such, control the taxable return dates (Helminen 2011, p.250). The income taxes that the company will pay would include a 20% tax on the corporation’s net income, such as a ? 2,420 and an NIC contribution of 1000 payable during the fiscal year 2013/2014. The payments of these inabilities will be before the end of the fiscal year of the government, which is on the 30th of every June (Kobetsky 2011, p.387). I hope this information will help you make a good decision on the best positions to take in relation to your business, as well as in consideration of the taxation regulations within the country. I wish you all the best in your business enterprises. Yours sincerely, Brian. FIRST REQUIREMENT Tobby's P & L a/c as at 31st july 2013 expenses revenues rate 1500 tobby's income 90102 light & heat 3000 business calls 1000 NIC self 1000 wages-lily 20000 wages-self 25000 car running costs 6000 depreciation 4000 loan 5000 insurance 1800 loan repayment 3500 advertisement 1500 parking fines 1000 gift aid 1000 sports club membership 900 donations to lewisham hosp. 1000 -77200 77200 net profit 12902 capital allowances car 27000/10 2700 computer 2000/10 200 premises 500000/40 12500 tamara 4000 19400 SECOND REQUIREMENT Dear Tamara, I am glad that you also want to set your records right with the taxation authorities. This is because failure of paying taxes may lead to dire repercussions such as seizure of property by the taxman or imprisonment for tax offenses. As an individual, one is liable to pay taxes on all the incomes they get from their employment or other income generating activities. This may include separate businesses, agricultural investments, and other private business entities that the individual might be running. However, when an individual gets a job and works for a company, he or she is liable to remit taxes from the income they earn on their payroll. In addition to the taxable income, they get at the end of the month, or on an annual basis, the individual is also liable to taxation on all the other benefits that he or she enjoys as subject to their employment, such as car allowances, loans, plus other gifts and monetary benefits (Kobetsky 2011, p.387). As for the case of tamari, she will have to pay the taxes in accordance with the income she makes at the end of the years, alongside all the other benefits that she enjoys because of her employment, notwithstanding the inheritance that received. Since she is working in the United Kingdom, she will also have to pay for the National Insurance Contributions made through payrolls and income taxes. The annual salary she earns from her employment will be taxable at 20% to get 13010. She also has to pay NIC tax on the basic income plus other net revenues, which provides 13.8 of the amount as 8977. This includes both the income made through salary as well as the income made through the rental flats that she lets to some students. However, in addition to these sources of income, Tamar would also have to pay some taxes on the benefits and allowances that she receives from the company (Rolfe 2006, p.xiv). These taxable allowances include cost of the flat, payable at a tax of 86,350. This includes the cost of acquiring the flat, 300,000, the annual value of the flat at 25,000, and the cost of furnishing the flat at 20,000. Most of the other benefits are tax exempt because they fall below the taxable threshold, such as the interest free loan, which falls below the taxable threshold of ? 5,000. This leads to a total payable tax of ? 115, 937 on all her incomes as well as all the allowances and benefits that she receives from her employment (Shome 1995, p.45). Tamara is due to pay tax on her property because this property generates for her some considerable amount of income, despite the income coming from students. This is because she is not a student herself, and the income she gets is thus taxable. The taxable income on this property would be 2000. She can notify her majesty’s revenue and customs commission to pay her tax on this income through a tax invoice showing all the sources of her income (Channer & Rogers 2007, p.xiv). I hope my information was of some help to you. Yours sincerely Brian. SECOND REQUIRMENT taxable income for tamara ? Annual salary for Tamara 45,051 rent from property 20,000 cost of acquiring a flat 300000 annual value of the flat 25000 cost of furnishing th flat 20000 company car 22,000 running costs for car 3000 mobile phone 1000 expensive computer equip 5000 loan at no interest 4500 allowable proerty expenses 6000 386500 65,051 taxes on icnomes and rent property 20./100 of 65051 13,010.20 nic rate 13.8/100 of 65051 8977.04 taxable allowances 21,987.24 car emmisions .35 of 22,000 7700 house .25 of 345,000 86,250 115,937.00 THIRD REQUIREMENT The idea of changing a job and taking a new one is a very inviting venture owing to how much she will end up saving, especially in relation to taxation. The current jobs bring her many benefits, alongside a lucrative income. Nonetheless, it also has several benefits, which wear down her income through multiple options for taxation. As such, before accepting either one of the available job options; she should weigh each of them critically in order to deduce the best option for her that is most tax efficient. This will allow her to save on her income, which she can spend on another activity or lucrative venture to expand the spheres of her income (Channer & Rogers 2007, p.xiv). The best option is the one where she gets an offer to work at a local authority. This local authority pays her more salary that whet she earned in her previous job, making it more appealing at 15% more, hence a salary of 51,808. However, it does not have as many allowances and benefits as the previous job that she had, and the few allowance benefits are not taxable, or only attract a small amount of tax. For instance, she pays an income tax of 10361 and an NIC of 7149. The benefits and allowances only result to a tax of 450, which makes the total tax payable at 17,961 (Dunn & Rogers 2008, p.664). This second option of working with a fashion house is very appealing, just as it is also very attractive. However, the numerous allowances and benefits offered in this job make it very inefficient from a tax perspective. She pays a total tax of 70,900, which incorporates a taxable income of 7308, and an NIC of 5042. The allowances and benefits bring upon her a taxable cost of 58,550 (Gabay, et al. 2007, p.180). THIRD REQUIREMENT option A amount tax NIC local authority 51,808.65 10361.6 7149.5 17511.1 free parking 5000 0 staff canteen 8000 450 450 17961.1 Option B fashion agency 36041 7308.2 5042.66 12350.86 commission 500 car 8050 8050 flat 50500 50500 70900.86 Reference List Channer, C. & Rogers, M., 2007, CIMA Exam Practice Kit Financial Accounting and Tax Principles: 2007 Edition, Butterworth-Heinemann. Dunn, J. & Rogers, M., 2008, Financial Accounting and Tax Principles, Butterworth-Heinemann, London. Gabay, et al., 2007, Economics: It’s Concepts & Principles (W/ Agrarian Reform & Taxation)' 2007, Rex Bookstore, Inc., Philippines. Gupta, S., 2003, State and Local Taxation: Principles and Planning, J. Ross Pub., Boca Raton, FL. Helminen, M., 2011, EU Tax Law: Direct Taxation, IBFD, Amsterdam. Kobetsky, M., 2011, International Taxation of Permanent Establishments: Principles and Policy, Cambridge University Press, Cambridge. Rolfe, T., 2006, Financial Accounting and Tax Principles 2007, Elsevier, Amsterdam. Shome, P., 1995, Tax Policy Handbook (EPUB), International Monetary Fund, Washington D.C. Read More