Assignment on Taxation in UK

Taxation

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 Description of UK tax environment.......................................................................................3
1.2 Analysis of roles and responsibilities of tax practitioner.......................................................5
1.3 Explanation of tax obligations of tax payers and their agents along with the implications of
non-compliance............................................................................................................................5
2.1 Computation of relevant expenses and allowances...............................................................6
2.2 Computation of taxable amount and tax payable for employed and self employed along
with the payment dates.................................................................................................................7
2.3 Completion of relevant documentation and tax returns of the organization..........................9
Task 2.............................................................................................................................................12
3.1 Computation of chargeable profits.......................................................................................12
3.2 Computation of corporate tax liabilities and computation of due payment dates................12
3.3 Provisions of income tax deductions...................................................................................14
4.1 Identification of chargeable assets.......................................................................................15
4.2 Computation of capital gains and losses and tax payable on it ...........................................15
Conclusion.....................................................................................................................................17
References......................................................................................................................................18
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INDEX OF TABLES
Table 1: Income statement of Mr. Jones..........................................................................................7
Table 2: Statement showing computation of taxable income..........................................................8
Table 3: Data of Running Limited.................................................................................................14
Table 4: Financial facts and figures of Running Limited..............................................................14
Table 5: Operating profit of Fast and Forward Ltd........................................................................14
Table 6: Chargeable profit of Fast and Forward Ltd.....................................................................15
Table 7: Taxable amount of Fast and Forward Ltd........................................................................15
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ILLUSTRATION INDEX
Illustration 1: Income tax rates......................................................................................................10
Illustration 2: Form P45.................................................................................................................11
Illustration 3: Form 11 D...............................................................................................................12
Illustration 4: Form P60.................................................................................................................13
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INTRODUCTION
Taxation can be referred as act of taxing authority of levying of tax on individuals on
their earnings or benefits attained by them. This term is applicable on all types forms of taxes
such as income tax, capital tax and other indirect tax. Taxation in UK is governed by provisions
of HM Revenue & customs (Xu and Xu, 2013). Individuals are required to comply guidelines
provided by HMRC in order to satisfy their tax obligations in an appropriate manner. Present
project report is focused on the evaluation of provisions of tax liability of individual and
commercial entities. For this aspect, description will be provided regarding relevant tax norms.
This description will be supported by practical examples for better understanding.
TASK 1
1.1 Description of UK tax environment
Purpose and types of taxation
Taxation is a system of compulsory contribution by public levied by government. It is a
primary source of revenue for government expenses and other public purposes. Tax is charged
by government to make reduction between income in-similarities between population and to
provide necessary goods and services to the public. This revenue is raised from the direct and
indirect taxes. For this aspect following types of taxes are collected by the government of UK-
 Income tax- Income tax is charged from individuals and trusts on the income earned and
unearned by them from course of employment, trading activities, pensions, dividend,
rents, investment and profits (Income Tax rates and Personal Allowances, 2015). Basic
rate of income tax is 20%. However, in situation where income exceed from 31785 then
40% tax is payable on additional income and if it exceeds from £150,000 then 45% is
payable on additional income.
 Corporation tax- This tax is payable by corporate entities which have separate legal
identity on the profits earned by them during particular accounting period. In accordance
with the HMRC, corporation tax is placed on the taxable profits of limited companies and
similar entities such as association, unincorporated entities, clubs and societies
(Henrekson and Sanandaji, 2011).
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 Capital gains tax- Individual or business organization is liable to pay capital gain tax in
situation they had earned benefit on transfer of non-current asset (Comprix, Mills and
Schmidt, 2012). In accordance with the provision of this tax, profit is taxable instead of
receivable amount.
 Inheritance tax- This tax is chargeable on the transfer of property after death. However,
this tax is subjected to various reliefs and exemptions. Inheritance tax will also be levied
in situation asset is transfer before 7 years of the death of party (Becker and Fuest,
2011). It is computed on the cumulative basis i.e. 20% is charged in respect of lifetime
transfers while 40% (Inherent tax, 2015) is charged at the event of death.
Different methods of tax collection
In UK, tax is collected by HMRC on the behalf of government. Generally it is collected
through the scheme of PAYE although some individuals are required to pay their tax liability
through self assessment tax return. PAYE tax is applicable if earning is attained through the
course of employment (Alzahrani and Lasfer, 2012). In this scheme, tax will be automatically
deducted by employer side on the earning. However, in following situation individual is required
to pay through form of self assessment tax return
 Individual is self employed (Working for yourself, 2015).
 Rental or foreign income is received
 Untaxed income that cannot be collected through PAYE scheme
Tax legislation
Taxation legislation in UK is mainly governed by provisions provided by HMRC. They
are responsible for the collection of tax on the behalf of government. They provide guidelines to
assesses and tax practitioners by which they can fulfill their tax obligations in an appropriate
manner (Miller and Oats, 2012). In addition to this, they provide continuous amendments by
considering economic environment in industry for the purpose of providing better and justified
guidelines.
1.2 Analysis of roles and responsibilities of tax practitioner
Tax practitioner act as a mediator between assesse and government authorities. They are
well versed with the knowledge of taxation provisions thus are required to guide tax payer in an
appropriate manner. In this aspect, they have following roles and responsibilities-
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