TAXATION

Advanced Personal Taxation
Section A
Part 1: Isabelle’s Tax Liability for the Tax Year 2019/2020.
Gross Profit = 8404 x 10 = 84,040
Add Rent income 10% of 84040 = 8404
Total Income = 92,444
Less:
Depreciation 8% of 84040 = 6723
Wages and Salaries 10% of 84040 = 8404
Rent and other expenses 30% of 84040 = 25212
Utility Cost 12% of 84040 = 10085
Printing and Stationery 5% of 84040 = 4202
Monitoring Expenses 7% of 84040 = 5883 = 60,509
Net Profit = 31,935
Less Necessary and ordinary expenses
Membership fee = 1,200
Motor Expenses =1,400 =2,600
Net Income 29,335
Taxable income by June 2019 29335 x 92.35% = 27,091
Additional Revenues in 2020
Dividends = 9,000
Interest accrued = 4,000
Rent Income Premium = 60,000
Taxable income for 2020 = 60,000 = 133,000
Total Taxable Income for 2019/2020 = 160,091
Social Security Tax Payable (12.4% of 132,900) =16,480
Less Prepaid social security (5000)
Net Social Security Tax Payable = 11,480
Medicare Tax Payable (2.9% of 160,091) = 4,643
Add late payment Interest 500
Total Tax Liability for 2019/2020 = 16,623
Less Employer Equivalent Deductions 50% of 16,623 = 8311.5
Payable Tax liability 8311.5
Part 2: Report on the Tax Calculations
To get the tax liability, the first step is to determine the taxable income for the given trading period. The tax liability is calculated as a percentage of the net income (commonly referred to as the net profit). The taxable income in this regard is the difference between the gross income/gross profit and the business expenses for the year under review. Thus, the initial step was meant to obtain the gross profit. The gross profit is then adjusted upwards with rent income since it is revenue to the business, which shall increase the business earnings. Once the gross profit is obtained, the business expenses are calculated, and they are total deducted from the gross profit to obtain the net income for the year (2019). The net profit is then adjusted downwards by multiplying it by 92.35 to obtain the taxable income. The downward adjustment is meant to take care of the deductions that an individual business person remits (Gough, 2018).
The taxable income is then multiplied by 15.3%, which is the tax rate for self-employed persons as provided by Internal Revenue Services which is mandated to regulate tax rates and other matters about revenue management and regulation. The 15.3% is made up of two parts: 12.4% which is the deductions for social security (social security tax) and the 2.9% that is taxed for Medicare. For 2019 accounting period, the SST would only apply for the first 132,900 pounds of the total net income (taxable income realised during that trading period). O the other hand, the Medicare tax shall be 2.9 per cent of the taxable income for that trading period.
It is imperative to note that in the trading period 2019/20, Isabella had a taxable income of 160,091. Therefore, the SST was calculated on the first 132,900 pounds as per the provisions of the IRS. The since she had been charged interest of £500 for late remittance of tax, this would be included in the total amount of tax payable to her for that trading period. However, being self-employed, Isabella is entitled to adjust her tax downwards by subtracting the employee equivalent deductions, which is one-half of the tax liability. It is in this respect that the total tax liability is multiplied by half to arrive at £8,311.5
It is also important to note that there are additional deductions that Isabella is allowed to make on her net income before subjecting it to tax in order to ensure that she pays as minimum tax as possible. IRS accepts that all expenses that are ordinary and necessary can be deducted from the gross profit to come up with the real amount that should be subjected to tax. According to IRS, an ordinary expense is one that is common and acceptable in the line of business one is engaged. For instance, for Isabella, the motor expense falls in the class of ordinary expenditure since it is common to virtually all sorts of businesses, but at the same time, it is important in helping Froggy Recruitment in reaching out to potential clients located in afar places from the business’ headquarters. On the other hand, the necessary expense is one that is advantageous or helpful and appropriate to the business. For example, in Isabella’s case, the move to register is helpful in so far as matters of legality are concerned. Therefore, such expenses are deducted from the net profit to get the real amount of income that should be subjected to tax.
It is imperative to note that the amount of income that is subjected to social security tax varies year after year, for instance, in 2020, the amount is pegged at 137,700 pounds. Furthermore, for individuals whose income exceeds 200,000 for individual filing and 250,000 pounds for those filing their taxes jointly, there is an additional 0.9 per cent calculated in the amount in excess of the amount to cater for Medicare needs. Therefore, as the business grows, Isabella should be aware that when it hits these figures, then additional charges shall be levied on the income to cater for the tax liability she owes the government.
Part 3: Implications for Failing to Notify HM Revenue and Customs for Chargeable Gains
When a client (Isabella for this matter) fails to inform HM Revenue and Customs for any changeable gains in their business assets and general undertakings, her business will be liable to a penalty of failure to notify. Such penalties are affected to the business when a business fails to notify HMRC that their business has increased in worth and makes considerably high amounts of profit and should, therefore, pay more taxes or when their business sells part of the assets and consequently realises more profits. The penalty may do business to suffer financial losses since it would be required to offset all the penalties. Besides, it also taints a negative image on the business since it will be perceived as being noncompliant that would ruin its PR.

Advanced Personal Taxation Coursework
1. SUBMISSION
This report has a 60% weighting in calculating your overall module mark.
It must be produced in a single Microsoft Word document and uploaded to
Moodle Submission Inbox by 28
th April 2020. You must keep a duplicate copy of
all work submitted for assessment.
2. Specific instruction relating to the coursework
(a) For your guidance – the report should include the following:
– Title/cover (including the name/number of the course, the name of the module
and coursework, your name and student number, the date and the word-count)
– Page of contents
– Main body of report (Parts one, two, three and four)
– Bibliography (using Harvard style of referencing)
– Appendices.
(b) The attention of every student is drawn to the warning in the course guide on
late submission of coursework, mitigating circumstances and plagiarism. For
guidance on copyright and referencing see the following section ‘Guidance on
referencing’.
(c) It should be noted that 10% of the marks is reserved for the quality of
presentation as reflected by the bibliography, reference citations in text and
cross referencing
(d) Ensure your entire answer is contained in one file only – upload that file to the
Submission Inbox.
Page 3 of 10
Guidance on referencing
(Supplied by Academic Misconduct Officer)
Correct referencing is an academic skill that you will be assessed on.
Correct referencing demonstrates that you have read appropriately on the subject, shows
that you are acknowledging the sources you have used (that you are not trying to cheat) and
provide information on useful sources of information to your reader.
Doing it correctly demonstrates professionalism. Doing it incorrectly will lead to reduced
marks and possibly to disciplinary action, which includes the possibility of having your
studies terminated.
I do see cases where the student has clearly deliberately attempted to cheat. These are
dealt with very firmly. However, most cases I see are where students have either referenced
poorly or not bothered with referencing at all. Otherwise good work often fails in these
circumstances.
Guidance on referencing itself is available from the resources listed at the end of this sheet.
If you have any concerns about your referencing ask for help before submitting.
Checking your referencing
You are required to upload your coursework to the Advanced Personal Taxation Moodle site
BAF_6_APT_1920. Use this site for checking your work for matching text. This will reveal
where you have not fully referenced. You will need to reference correctly or remove the
matching text from your final submission. The matching source given by the check may not
be the one that you used. Make sure you use the Library Help sheets to guide you on correct
referencing (style: Harvard).
When you submit your coursework you must submit a copy of the latest matching Turnitin
report.
The version to submit is the ‘Show highest matches first’ version (the one with numbers
in the boxes) as this is the easiest for you to check your work. When you look at your report
(use the ‘Show highest matches first’ version) you will see that there is a list of sources on
the right that match (numbers in boxes) to the highlighted text on the left.
Remember, the point of this exercise is not to remove all matching text, but to make
sure that it is properly referenced.
If you have a match of 1% or less, this will almost certainly be because of coincidence. We
are not concerned about matches of 1% or less. You do not have to do anything about these.
You need to look at all matches of 2% and above. Where there is such material that
is matching you must ensure it is referenced or remove it from your work.
Page 4 of 10
Points to note:
1. The source given in Turnitin may not be the source you used. Reference where you got
the material.
2. If it is a quote make sure you have used quotation marks and give the page number from
the source in your reference too.
3. If you have rewritten somebody’s words (this is called paraphrasing) you must reference
the source. You may see this in your report as bits of matching text in a paragraph.
4. If the match given is to another student (either at LSBU or another University), you have
probably both used material from a textbook. Make sure you have referenced the
material correctly to the textbook you have used.
5. If it matches to another student because you have worked together you are almost
certainly going to have to remove it. In an individual coursework this would be seen as
academic misconduct, in a group coursework it may be appropriate, but check your
submission requirements.
6. If you have used material from a source and the Turnitin check does not show it you still
must reference it. Thousands of new sources are added to Turnitin every day.
Further help is available on all academic matters from the ‘Academic Assistant’ at
http://www.blc.lsbu.ac.uk/aa/aa/
Page 5 of 10
Advanced Personal Taxation Coursework
You must display your date of birth prominently on the front page.
WORK TO THE NEAREST £.
IGNORE VALUE ADDED TAX.
YOU MUST ANSWER ALL FOUR PARTS OF THIS ASSIGNMENT
SECTION A
Self Employed Tax Calculation
Isabelle has started her own business as an Office Personnel Recruitment Agency (‘Froggy
Recruitment’), and has asked for your help in respect of her tax affairs.
Your month and year of birth will trigger the amount of the gross profits for the period and
also the date the business commenced.
Froggy Recruitment has prepared accounts for the period ending 30 June 2019 based on
the following information.
General Guidance:
GROSS PROFIT FIGURE
Take your month and year of birth in 2 digit form, reverse them, and multiply by 10 – this will
give you the accounting gross profit figure
If you were born in March 1995 = 95, 03, x 10 = £95,030.
If you were born in September 1984 = 84, 09, x 10 = £84,090.
MONTH BUSINESS COMMENCED
We are going to assume that your business commenced on the 1st day of the month 2018
that you were born unless you were born in March or April. Then we shall assume that
your business commenced in either September (for March) or October (for April).
If you were born in November 1992 – business commenced 1 November 2018.
If you were born in July 1994 – business commenced 1 July 2018.
If you were born in February 1990 – business commenced 1 February 2018.
If you were born in March 1995 – business commenced 1 September 2018.
If you were born in April 1993 – business commenced 1 October 2018.
EXPENSES
Expenses are expressed as a percentage of your gross profit – you can turn them into £
values by inserting your birth driven gross profit. WORK TO THE NEAREST £.
Page 6 of 10
Your month and year of birth will trigger the amount of the gross profits for the period and
the date the business commenced.
Froggy Recruitment has prepared accounts for the period ending 30 June 2019 based on
the following information.
Page 7 of 10
Financial Accounts for Froggy Recruitment for period ended 30 June 2019.
£
Gross Profit (based on date of birth) 100%
Add
Rental Income 10%
Less
Depreciation 8%
Wages and salaries 10%
Rent and other expenses 30% (Note 1)
Utility costs 12%
Printing & Stationery 5% (Note 2)
Motoring expenses 7% (Note 3 )
72%
Net Profit 38%
NOTES TO THE ACCOUNTS.
1. Other expenses include:
 Isabelle paid a lease premium of £12,000 on the office property when she
started the business. The lease signed covered an 11-year period.
 Membership fees (£1,200) of the professional body to which Isabelle belongs.
 Interest on late payment of income tax (£500).
2. Printing costs include a gift of fleece jackets bearing the name ‘Froggy Recruitment’
to Isabelle’s top 10 customers (£650).
3. All motoring expenses relates to business usage. The expenses include the fee for
the lease of a Mazda CX5 2.2d SKYACTIV 150 StopStart EU6 SE-L SNav Auto for 3
months at a cost of £1,400.
4. Capital Allowances: The only two capital items that Isabelle’s business acquired
were:
 A new motor car with a cost of approximately £20,000 (YOUR CHOICE). The
car was deemed to be used 20% for private mileage. The car was acquired 3
months after the business commenced.
 A desktop PC and accessories, costing £4,000.
Page 8 of 10
Other Matters
1. Isabelle paid £5,000 (net) into a personal pension plan on 1 May 2019.
2. Isabelle owns a rental property in Westminster and the net taxable income figure on
that property is as shown in the accounts above. When the 18-year lease was signed
in July 2019, the tenant paid Isabelle a premium of £60,000.
3. Isabelle received dividend income of £9,000 from her shares in Barclays Bank and
£4,000 of interest on a savings account during the tax year 2019/2020.
4. Isabelle was liable for Class 2 and Class 4 national insurance contributions.
5. If necessary, assume Isabelle’s business will make a taxable profit of £60,000 for the
accounting year-ended 30 June 2020.
REQUIRED
PART 1
Calculate Isabelle’s tax liability for the tax year 2019/2020. (23 marks)
PART 2
Prepare a report for Isabelle that explains your calculations. (Min 800 words)
Isabelle has very little knowledge of taxation and would appreciate a report that was not too
technical. (22 marks)
PART 3 Reporting of chargeable gains.
Isabelle does not intend to report her chargeable gains on her income tax return as she
believes that the tax authorities should be able to obtain this information from other sources.
Explain the implications for Isabelle, and our firm, of Isabelle failing to report the Chargeable
gains to HM Revenue and Customs. (5 marks)
(Part 1, 2 & 3 Total 50 Marks – 1000 words)
Page 9 of 10
SECTION B
PART 1 – Impact of taxes and tax planning – Financial Act 2019
A partner of your accountancy firm has requested you to prepare detailed notes on the
impact of taxes and tax planning. During this brief meeting with you, the partner said the
following, “It is vital that our trainees understand the importance of tax planning, which
is an integral part of any tax advice that we give to our clients”.
The partner wanted your notes to cover the following issues in detail.
 Employment & Self employment
 Remuneration packages
 The choice of a business medium
 The incorporation of a business
 Disincorporation of a company
 Tax efficient profit extraction
 Tax efficient exit routes
REQUIRED:
Present your detailed notes in a report format.
Your summary should be detailed enough to be a basis for the trainee accountants to explain
the matter to their clients. It may contain examples if that will improve the clarity of your
report.
(20 marks – 1,000 words)
Page 10 of 10
PART 2 – The importance of an individual’s domicile status – Financial Act 2018
The concept of an individual’s domicile is important when there are overseas sources of
income and/or assets situated overseas. The concept of deemed domicile has now been
extended, such that it is now possible for an individual to be deemed domicile for the
purposes of income tax and capital gains tax as well as for inheritance tax. In addition, the
definition of deemed domicile for the purposes of inheritance tax has been changed to align
it with the new definition for income tax and capital gains tax.
The manager of your accounting firm has asked you to prepare a detailed report, on the
importance of an individual’s domicile status.
REQUIRED:
Write a report as requested by the Manager. (Calculations are not required for this part of
the question).
Your report should address the following issues:
 All relevant Background information
 The importance of an individual’s domicile status – income tax
 The importance of an individual’s domicile status – inheritance tax
 Deemed domicile status – income tax and capital gains tax
 Deemed domicile status – inheritance tax
(20 marks – 1,000 words)
Presentation (10 marks)
Bibliography and referenced citations in text and cross referencing 5 marks.
General presentation and English 5 marks.