Principles of Taxation

This document provides study material and solved assignments on the principles of taxation. It covers topics such as tax adjusted trading profits, overlap profit, car facility details, and more. It also includes numerical examples and explanations of advantages and disadvantages of voluntary registration for traders.

Principles of Taxation

Contents
QUESTION 1..................................................................................................................................1

Table of Contents
QUESTION 1...................................................................................................................................2
Question 2........................................................................................................................................3
Question 3. ......................................................................................................................................3
QUESTION 4...................................................................................................................................3
Question 5. ......................................................................................................................................4
1

QUESTION 1
(a)
Harry’s tax adjusted trading profits
Net profits 31550
Add:
Depreciation 17000
Entertainment 8000
Bad debts 7500
Less:
Repairs to business property 6200
Business rates 3000
Salaries & wages 45000
Utilities 2500
tax adjusted trading profits 7,350
(b)
Harry’s tax adjusted trading profits 7350
Harry’s tax adjusted trading profits 9%
Class 4 National Insurance Contributions due
for 2019-20 661.5
(c)
Overlap profit
Harry’s Overlap profit
Net profits 31550
Add:
Depreciation 17000
Entertainment 8000
Bad debts 7500
64050
Harry can acquire relief on overlap profit by qualifying himself for tax relief. This can be
done by registering Social Security Number.
2

Question 2.
a. 35,000 pound
b. 15,000 pound
c. - 5000 pound
Question 3.
a. 12,000 pound
b. 1st January, 2020
c. 3rd Jan, 2020
QUESTION 4
Provided Information:
Annual salary 85000
Car Facility Details:
Car Type Diesel Engined BMW
CO2 emissions 131g/km
Marv's Contribution in car facility 1000
Loan form company (Interest Free) 35000
Flat Accommodation
Flat's Purchase Price 175000
Annual Value of Flat 8000
Flat's Cleaning Cost 3700
3

Furniture 17000
Personal pension scheme 25000
Charity Donation 3800
Annual salary 85000
Interest Free Loan (Deemed Interest @ 2.5%) 875
Car Facility (Assumed to be for company Use:
Exempt) 0
Accommodation Facility
value 8000
Furniture 17000
Flat's Cleaning Cost 3700
Charity Donation: Exempt 0
Personal pension scheme 25000
Total Taxable Income: 139575
Question 5.
(a) Explain two advantages for a trader of voluntary registration and two disadvantages and
give numerical examples.
4

For a trader voluntary registration is helpful due to following reasons:
 This helps to traders in order to avoid financial penalties.
 The right to assert VAT on goods and services consumed for the company is
another benefit of voluntary VAT registration.
 The voluntary registration gives a registration number to traders which can be
used to recognize the business.
Disadvantages:
 It leads to more number of paper works which lead to complexity in the
management.
 Some potential or current clients may be unappeased by VAT charging on
products, especially when they're not registration VAT themselves.
 In the case when output tax is higher than input tax then traders may have to pay
additional tax.
(b) Calculate the Class 2 NICs and Class 4 NICs payable by Steve for the 2019-20 tax year.
Class 2 NICs:
Class 2 NICs 2020-21 2019-20
Small profits threshold £6,475 £6,365
Weekly rate £3.05 £3.00
Class 4 NICs 2020-21 2019-20
Self-employed people start paying above £9,500 £8,632
A lower rate above £50,000 £50,000
Initial rate 9% 9%
Rate above £50,000 2% 2%
5

(c) 5 of the 6 badges of trade and give a short description or an example for each.
There are different types of badges which are as follows:
 Profit seeking goal- This shows objective of profit making intensity of a trader.
 The nature of assets- This indicates nature of assets which can be fixed or non-fixed.
 Variation to Assets-It is essential to note down changes in assets which can make in more
marketable.
 The source of finance- It is essential to assess the way through which funds are collected
from different sources.
 Way of acquisition- Finally, this is important to know about which method of acquisition
to be used by companies.
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