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Taxation Fundamentals: Calculation of Income Tax and National Insurance Contribution

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Added on  2023-06-15

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This article covers the calculation of income tax and national insurance contribution for the assessment year 2020-2021. It also explains the difference between tax evasion and tax avoidance and the policies introduced by HMRC to reduce them. Additionally, it discusses the capital gain tax in the case of property selling. The article is relevant for students studying taxation and related subjects.

Taxation Fundamentals: Calculation of Income Tax and National Insurance Contribution

   Added on 2023-06-15

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TAXATION
FUNDAMENTALS
Taxation Fundamentals: Calculation of Income Tax and National Insurance Contribution_1
Table of Contents
SECTION A.....................................................................................................................................3
Calculation of Fiona's income tax payable and also National Insurance Contribution for the
assessment year 2020 – 2021.......................................................................................................3
SECTION B.....................................................................................................................................5
Part 1............................................................................................................................................5
Part 2............................................................................................................................................7
Part 3............................................................................................................................................8
REFERENCES................................................................................................................................1
Appendix..........................................................................................................................................2
Taxation Fundamentals: Calculation of Income Tax and National Insurance Contribution_2
SECTION A
Calculation of Fiona's income tax payable and also National Insurance Contribution for the
assessment year 2020 – 2021
Particulars Calculations Amount (£)
Annual Salary of Fiona 94020
Dearness allowances (Bonus) 15000
Gross Salary 109020
Add Allowable Income:
Interest received on her
building society account
94020 * 4% 3760.8
Dividend received on
investment
94020 * 10% 9402
Company accommodation Note 1 4100
Less Allowable deductions
Contribution to HMRC 94020 * 5% -4201
Charitable donation 94020 * 3% -2820.6
Car benefit Note 3 -3490
Car fuel benefit Note 3 -666
Personal allowances -12500
Taxable Income 102605.2
Income Tax liability 37500 * 20% + 65105.2* 40%
7500 + 26042.08
-33542.08
Less Capital gain tax liability Note 2 -190
Less NIC Class 1 -4025
Taxation Fundamentals: Calculation of Income Tax and National Insurance Contribution_3
(33542.08 * 12%)
Disposable Income 64848.12
Note 1: Calculation of company accommodation
In the given case, the actual cost basis will be used to calculate the benefit of living
accommodation. It is because the actual cost of the property including improvement is above
£75000 i.e., 180000 + 31000 = £211000
The rented value of the accommodation in the year 2020 to 2021 is £11600
Accommodation benefits which is also known as deductions and rent a room relief is £7500
So, the taxable income is equal to £11600 — £7500 = £4100
Note 2: Calculation of capital benefits of Fiona on music system sale
Particulars Amount
Music system Sale value 3000
Less payment paid by Fiona -2000
Capital benefits 1000
Tax rate 19.00%
Capital gain tax liability 190
Note 3: Calculation of Car benefits (see appendix)
Value of car = £24500
The car is registered before 6th April 2020
Type of engine and CO2 emission is electric charge with the electric range less than 30 miles
Car fuel scale charge = £24500
Car Benefit = £24500 * 14% = £3490
Car fuel benefits = £666 (allowable deductions)
Taxation Fundamentals: Calculation of Income Tax and National Insurance Contribution_4

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