British Taxation: Self-employment, Corporation Tax, Capital Gains Tax, and VAT

This study material covers British taxation laws on self-employment, corporation tax, capital gains tax, and VAT. It explains the key factors that distinguish workers from being self-employed, calculates tax liabilities, and lists the non-chargeable items under CGT for individuals. The subject is relevant to business, finance, and accounting courses in colleges and universities.

British Taxation

TABLE OF CONTENTS
SECTION 1................................................................................................................................3
Question 1..............................................................................................................................3
Question 2..............................................................................................................................4
Section 2.....................................................................................................................................5
Question 1..............................................................................................................................5
Question 2..............................................................................................................................6
Question 3..............................................................................................................................7
REFERENCES...........................................................................................................................8

SECTION 1
Question 1
a.
Key factors which distinguish worker from being a self-employed:
1. Protection from discrimination.
2. Entitlement to the national minimum wage.
3. Not to be unfairly dismissed
4. Protection against unlawful deduction from wages
5. Statutory health and safety protection
6. Deducting tax and national insurance at source (PAYE) from the salary paid to
workers.
7. Insurance to cover the risk of employees injuring themselves at work.
8. An individual must be obliged to do the work personally.
9. The employer is obliged to provide eth work while the employee is obliged to accept
the work.
10. Employer exercises control over the work of the employee.
b.
I.
Amount of taxable trading profit if Nana is treated as self-employed during 2020/21
Particulars Amount
Income 60000
Less: expenses
Utility bills 880
Computer equipment 4000
Motor car 10000
Motor expenses 3500
Gross income / taxable trading
profit 41620
II.
Amount of Nana’s taxable earnings if she is treated as an employee during 2020/21
Particulars Amount
Income 60000
Less: expenses
Motor expenses 3500
Gross income / taxable trading profit 56500

c.
I.
Nana’s liability to class 2 and class 4 NIC if she is treated as self-employed
Amount of class 2 NI you need to set aside each month: £ 13.00
Yearly = £ 156
Amount of class 4 NI you need to set aside each month: £ 247.41
Yearly = £2968.92
II.
Nana’s liability to Class 1 NIC if she is treated as an employee during 2020/21
Amount of Class 1 NIC = £ 508.84
Question 2
Software Ltd.’s corporation tax liability for the year ended 31 March 2021
Particulars Amount
Operating profit 711475
Add: Depreciation 10170
Add: Amortisation of leasehold property 2500
Add: Rental income 30000
Add: loan interest receivable 8100
Less: Interest payable -67200
Total taxable income 695045
Corporation tax
Main rate 19%
Total tax 132059
Capital gain tax on sell of shares (Note 1) 10580
Net profit for the year or disposable
income 552406
Note 1:
Profit on disposal = 64900
Minus Deductions = 12000
Tax rate = 20%
Capital gain tax = (64900 - 12000) * 20% = 10580

Section 2
Question 1
a. Capital gain tax payable
Residential investment property
Particular Amount
Sale proceed 150400
Less:
Cost of acquisition 79000
Cost of disposal 1280
Total gain 70120
Land
Particular Amount
Sale proceed 35000
Less:
Cost of disposal 700
Total gain 34300
Vase
Particular Amount
Sale proceed 20000
Less:
Cost of acquisition 12000
Total gain 8000
Peter taxable income
Particular Amount
Taxable income 33100
Gain from investment property 70120
Gain from vase 8000
Total taxable income 111220
Tax rate 40%
Net income after tax 66732

b. Five non- chargeable items under CGT for individual
There some of the asset or items which are exempt from the CGT are as follows-
 Private motor cars including vintage cars
 Gifts to UK registered charities
 Government securities
 Prizes and betting winnings
 Foreign currency held for your own use
These are some of the items which are exempted from the CGT for the individuals.
Question 2
a) Chargeable death estate=
Shares in Microsoft Plc 320000
Life assurance policy 60000
Main residence
230,00
0
Household furniture 20000
Cash in bank 97,750
Car 5,000
Total assets 732750
Repayment mortgage secured on main
residence
110,00
0
Credit card bills 7000
Income tax 3000
Gas bill 250
Simona’s chargeable death estate.
612,50
0
b) The nil rate band available to Simona is 325000 according to the tax legislation of the
United Kingdom

c) Inherent tax payable on Simon’s chargeable death estate
Inherent tax rate = 40%
Simona’s chargeable death estate = 612500
Inherent tax chargeable on this = 245000
Question 3
a) Cash accounting enables a business to account for and pay VAAT on the basis of cash
received and paid rather than on the basis of invoices issued and received. VAT
annual accounting scheme is will enable the organization to indulge into less paper
work, managing cash becomes easy (Bilicka, 2019). Getting extra month to pay VAT
return will be beneficial for the firm so utilizing both should be considered.
b)
i. In the case of supplier situated outside the VAT will be paid at the exact time
when the machinery will be purchased and paid amount for it.
ii. In such case the VAT will is charged and due in the Europe whenever the
machinery will be consumed (Devereux, Maffini, and Xing, 2018). in EU
there is no charging of VAT but the Clueless Ltd is a manufacturing company
need to pay tax through following mentioned way.
c) List of VAT invoice
 Unique invoice number
 Business name
 VAT number
 Date
 Customer name or trading name, address
 Description of goods or services
 Total amount of excluding VAT
 Total amount VAT
 quantity of each item
 rate of any discount if there
 rate of vat charge per item
 total amount including VAT

REFERENCES
Books and Journals
Bilicka, K.A., 2019. Comparing UK tax returns of foreign multinationals to matched
domestic firms. American Economic Review.109(8). pp.2921-53.
Devereux, M. P., Maffini, G. and Xing, J., 2018. Corporate tax incentives and capital
structure: New evidence from UK firm-level tax returns. Journal of Banking &
Finance. 88. pp.250-266.