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Calculation of Income Tax - Case Study Example

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This paper "Calculation of Income Tax" discusses income from employment that is subjected to income tax as well as Class 1 National Insurance Contributions NIC. Payment of the Tax and NIC are normally undertaken by the employer through the PAYE system…
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Calculation of Income Tax
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Download file to see previous pages The calculations for the capital gains tax are shown in the appendix. From the calculations, it may be observed that it is advisable to sell off the business building before 05th April 2008 as you can avail of the indexation allowance and taper relief which are no more available. It may be noted that the indexation and taper relief are the allowanced granted by the government to provide for the increase in the asset value due to inflation (Chris Horne). In case you decide to sell the property after 05th April 2008 you may have to pay a higher CGT of 18,000. However in the case of the personal paintings since they have been acquired only in the year 2005 they do not stand eligible for any allowances and the capital gains will simply be the difference between the sale proceeds and the cost. Hence, in this case, it is advisable to sell the paintings after 05th April 2008 as the CGT on the chargeable gains can be paid at a lower tax rate of 18 percent.

As per the calculations shown in the appended income statement assuming that you have contracted out of the state pension scheme, you may have to contribute 9.4 percent of £ 23,760 i.e. £ 2233.44 towards the National Insurance Contribution.

We understand that you and your wife are both heavy smokers and drinkers. Beware that the budget for the year 2008 has put the additional tax burden on the cigarettes, wine, and beer to the extent of 0.14p on a bottle of wine, 0.4p on a pint of beer and 0.11p on a pack of cigarettes and to this extent the cost of these items would go up. We do hope you will revise your consumption of these items in view of the increased burden on your income.

We have provided you with the computation of your income along with the tax workings for the year 2007-08 and 2008-09 assuming that you will affect the transactions of sale of the business building in the year 2007-08 and the paintings in the year 2008-09 to make the maximum tax savings in the CGT and Income tax. We shall be pleased to provide you any additional details you may need in this connection. ...Download file to see next pagesRead More
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