Reference no: EM132338994

Assessment- Taxation

Assignment Brief

1 Understand the duties and responsibilities of the tax practitioner in the UK tax environment

2 Calculate personal tax liabilities for individuals and partnerships

3 Calculate corporation tax liabilities for companies

4 Calculate the capital gains tax payable for individuals and businesses

Task 1

A potential client of your business, Jay Cobb has written asking for some information on the UK taxation environment and the roles and responsibilities of tax practitioners such as your own firm. He has also asked for explanation of some technical terms and documents which he does not understand. Jay has also sent some details of personal income and transactions for the most recent financial year.

Required

Task 1a)

Produce a response in the form of a set of brief, non-technical notes suitable for inclusion in a letter to the potential client. You do not have to produce the letter. As a minimum your notes must include explanation of:

• The purpose of taxation levied in the UK, the legislation and procedure used to administer taxation in the UK, the main types of taxation collected in the UK, distinguishing between direct taxes and indirect taxes and the main ways in which taxation is assessed and collected in the UK

• The main roles and responsibilities of the tax practitioner in the UK,

• The implication for the tax payer of non-payment of taxes including examples of the penalties which may be incurred.

• The main purpose of forms P60, P45 and P11D

Task 1b)
 
You are required, On behalf of Jay Cobb, to fill in the appropriate sections of the "employment" section of the UK Income Tax Return for year 6 April 2013 to 5 April 2014.

The information sent by Jay was as follows:

Name:    Jay Cobb

UTR: 98789 12652

Abi has one main employment working for the SPO Consultancy Ltd, Employer?s PAYE tax reference 321/XYZ/B

Jay is not a partner or Company Director. He is 26 years old and has no other income than that listed below.

Jay ?s latest form P60 includes the following information: Gross pay for year to 5 April 2014: £32,000 Taxation deducted from gross pay in year to 5 April 2014: £5,000

Jay has paid professional fees and subscriptions of £150 during the year.

The professional fees and subscriptions are an essential requirement of her contract of employment and are allowable expenses for tax purposes.

Jay has a form P11D from his employer for the year to 5th April 2014 in respect of taxable private health insurance benefits, £3,000.

Jay has no income from savings.

You are required to fill in the necessary information for the tax return for year 6 April 2013 to 5 April 2014 for Jay.

Task 1c)

You are required to show a taxation computation for Jay for the year to 5 April 2014 which indicates why he has underpaid his UK income tax liability by £82 for that year.  

In order to complete task c) you will need to take account of the following rates and allowances which will apply to Jay:

• Personal Tax Allowance 2013/2014, = £9,440

• Basic rate of tax, based on taxable income between £0 and £32,010, = 20%

• Higher rate of tax, based on taxable income between £32,011 and £150,000, = 40%

Task 1d)

During March 2014 Jay also sold some land which he had purchased some time ago as an investment.

Details of the relevant transactions are as follows:

Jay Cobb		£	£
The investment was purchased for			120,000
Legal fees for the purchase were			1,500
Acquisition costs			121,500
The Investment was sold for			140,000
Estate agency costs of the sale were		2,800
Legal costs of the sale were		2,450	(5,250)
Net Disposal Proceeds			134,750

You are required, in respect of Jay Cobb’s land transactions, to:

• Identify the nature of the above transactions for taxation purposes and to define the term „chargeable? disposal?

• Calculate the amount of the gain which will be subject to tax

• Calculate the amount of tax that Jay will incur in tax year 2013 - 2014 assuming all of Jay?s gains will be taxed at the lower rate of tax.

In order to complete task d) you will need to take account of the following rates and allowances which will apply to Jay:
Annual exemption for relevant transactions £10,900 Taxable gains and income below £32,010,    18%
 
Task 2

Your practice has received some information from a new client of the firm, a self- employed trader, Ben Jack

The first year of Ben Jack?s business ran from 1 June 2012 to 31 May 2013 and your practice has produced draft accounts for that period which indicate an adjusted profit for tax purposes of £36,000 and also for the period 1 June 2013 to 31 May 2014 which indicate an adjusted profit for tax purposes of £45,000.

As at 5th April 2014 the business is expected to continue trading for the foreseeable future with the same accounting year end.

Ben Jack wishes to understand how these first two sets of annual accounts will be used to assess income from self-employment form tax year 2012/2013 onwards.

Required:

Task 2a)

You are required to draft some brief notes which would be suitable to include in a letter to Ben Jack which explain the amounts of profit which will form the basis of the Schedule D tax assessments for tax years 2012/2013, 2013/2014 and, 2014/2015.

It is not necessary for you to write the letter to Ben.

Task 2b)

While preparing Ben Jack?s accounts for the year to 31 March 2014, the following information had been used:

Ben Jack
Net Profit for the period	54,600
Private items of exenditure included as business expenses	4,500
Disallowed expenses for tax purposes	3,500
New business car purchased (100% business use)	20,000
The car entitles the trader to an annual writing down allowance of	8%

Produce a tax computation which indicates how the above information was used to produce the adjusted profit for taxation purposes of £45,000.

Task 3

Your supervisor hands you a file containing details of the trading position for year ended 31 March 2014 of a local company, Glimmer plc, one of the corporate clients of your practice.

The following information is contained within the files:

Glimmer plc	£
Adjusted profits for Corporation tax before capital allowances	1,193,000
Capital allowances to be claimed	215,000
Losses brought forward from previous years	200,000
Capital Gain - Transactions on sale of asset - see below:
The asset had been acquired for	£600,000
RPI at date of acquisition	156.0
The asset was enhanced at a cost of	£100,000
RPI at date of enhancement	176.0
The asset was sold for	£900,000
Disposal costs were	£43,000
RPI at date of sale was	184.0

Required:

Task 3a)

• Produce a computation which indicates how a capital gain of around £44,762 for Glimmer plc was calculated.

• If a capital loss had been made in the year, how might Glimmer plc gain tax relief for this?

• Briefly explain how corporation tax is assessed if a company?s financial year covers two corporation tax financial years and show your calculation, for Glimmer plc, of the amount that will be subject to corporation tax for corporation tax year 2014;

• Show a calculation which indicates the amount of corporation tax payable by Glimmer plc for the year to 31 March 2014 to be around £184,156 and indicate when the corporation will be required to pay the corporation tax to HMRC.

In order to complete these tasks you will need to take account of the following corporation tax rates and allowances which will apply to Glimmer plc:

• Corporation tax full rate 23% (where profits exceed £1,500,000)

• Corporation tax rate for taxable profits below £300,000, 20%

• Marginal relief fraction 3/400, for where taxable profits exceed £300,000 but are below £1,500,000.

Task 3b)

Glimmer plc paid loan interest of £320,000 to its debenture holders during the year to 31st March 2014. Assuming that the corporation had deducted 20% income tax when it had paid the loan interest (that is, Glimmer plc had paid the debenture holders £256,000), what would Glimmer plc do with to the £64,000 income tax which had been deducted from the gross loan interest payments?