Reference no: EM133036473
Question no.1:
Raja and Rani are husband and wife, both are residing in the UK.
For the tax year 2020/21, Raja has the following incomes: Employment Income £80,000
Interest from Bank £40,000
He has no other income during the tax year.
Rani is a housewife, she had no income during the tax year 2020/21.
Raja and Rani heard something about tax planning to reduce tax liability. The tax planning may be Raja alone can do himself by shifting his interest income or he can reduce his tax by sharing his income with his wife. But even after discussing each other, they are unable to conclude how to reduce the tax.
As a tax advisor, Advice Raja:
a) how he can reduce his tax by shifting his investment in his own and
b) which income he can shift to his wife so that they can reduce the overall tax.
Substantiate your advice with the help of Tax calculations and explanation.
(500 words)
Question no.2:
Arun started a business as an electrical goods dealer on 1 January 2015.
He prepared his Profit and Loss Account for the year ended 31 March 2021 and its shows a net profit of £180,000.
Notes:
1. The profit of £180,000 is calculated after adding the following other incomes:
a) Rental Income £5,000
b) Interest Income £2,000
c) Profit on sale of his house £4,000 and
d) Dividend income of £6,000
2. The net profit of £180,000 is calculated after deducting various expenses as shown below:
a) Depreciation of £12,000
b) Salary of £8,000, which includes salary withdrawn by Arun £2,000
c) Interest on loan borrowed for business purposes £3,000 and personal purposes £1,000
d) Donation to National charity £600, Local Charity £50 and political donation £200.
e) Subscription for business association £400 and his club membership fees £550.
0 Expenses relating to Gift and Entertainment:
(i) The gift to staff £100
(ii) Entertainment to staff £200
(iii) Gift of chips packets costing £2 each to 1000 customers
(iv) Gift of juice costing £5 each for 200 staffs
(v) Gift of watch set costing £70 each to 10 customers.
g) Bad debts written off include £500 normal trade debt, £300 customer's loan, and £400 loan given to the former employee.
h) Repairs and maintenance include the following:
(i) Building redecoration (painting) £750
(ii) Purchase of plant and machinery £1,000
i) Other expenses deducted include payment contrary to public policy (bribe) £200, Staff parking fine of £20, the penalty for irregularity in the payment of tax £500.
j) Arun uses the business car for his personal use. 40% of the car expense of £5,000 is assumed as personal.
k) Arun has taken one car on a rental basis for business
use. The annual rent of the car is £3,000. The CO2
emission of the car is 120 g/km.
1) Arun has calculated the capital allowances as £20,000 for the year ended 31 March 2021.
3. The business had a trading loss of 23,000 for the year ended 31 March 2020 and it has not been adjusted against any other income.
Required:
a) Calculate the adjusted trading Profit of Arun for the year ended 31 March 2021 after adjusting the brought forward trading loss.
b) Calculate the Class 2 and 4 NIC for the business of Arun.
c) Arun has calculated the tax liability for the tax year 2020/21 as £25,000. Assume that for the tax year 2020/21, he filed his return on 31 August 2022. Explain the penalty procedures for the delay in filing the return and also, calculate the penalty for Arun. (max. 100 words)