UK Taxation System and Regulations

This assignment analyzes the UK taxation system, exploring its application to different entities like individuals and businesses. It delves into specific regulations, exemplifications, and provides a practical example of tax calculation based on provided figures. The document emphasizes the importance of complying with tax laws and highlights the consequences of non-compliance.

Taxation

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Tax environment which is there in UK.................................................................................1
1.2 Roles and responsibilities of Tax practitioner.......................................................................2
1.3 Obligations of tax payer and effect of non compliance........................................................4
2.1 Calculation of income, expenses and other allowances........................................................5
2.2 Computation of taxable sum.................................................................................................6
2.3 Computation of relevant tax return and its documentation...................................................8
TASK 2............................................................................................................................................9
3.1 Chargeable profits.................................................................................................................9
3.2 Tax liability to be paid..........................................................................................................9
3.3 Dealing with tax deductions................................................................................................10
4.1 Chargeable assets................................................................................................................10
4.2 Capital gain and loss...........................................................................................................10
4.3 Tax payable on capital gain.................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
In any country there are different laws in respect of taxation which are required to be
complied with. There are various levels at which it will be required to be paid and basically
classified in three stages which are central, devolved national and local government. It is
considered that tax is the major source from which revenue is earned by authorities and that will
be used for development of nation as whole (Bird, 2011). There are various aspects which will
have to be understood in this relation so that proper calculations can be made. Tax will be
calculated in different manner for individuals and different entities and for that regulations shall
be taken into consideration. In this report the taxation environment will be discussed in context
of United Kingdom.
TASK 1
1.1 Tax environment which is there in UK.
Government of any country will be imposing an obligation on all under which they will
be required to pay certain part of their income to them and that amount in known as tax. The
payer will not be receiving any direct benefit for the contribution made but will be provided with
various benefits in indirect manner (Adam, Browne and Heady, 2010). This is because the funds
will be utilised for the benefit of whole society. Tax will be categorised in various forms and that
will be imposed on all. In UK it has been mainly classified in two ways which are direct and
indirect taxes which are explained here under:
 Direct taxes: These are those taxes which will be charged directly from any individual or
any other businesses and they will be required to pay the needed amount to authorities. In
this the burden of tax will have to be borne by directly by tax payer and can be paid in
two manner which will be direct payment or deduction made from income known as
TDS. Some of them are as follows:
Income tax: The amount that will be paid on total earnings will be covered under this. For this
purpose taxable income will have to be calculated in which various consideration will have to be
made. The main part of revenue is collected from this source only.
Corporation tax: The tax which will be paid by all the companies and organisations will be
included under it. If the business will not be UK based then tax will be payable on that income
which will be earned from activities that are carried out in UK.
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 Indirect taxes: The payment in which burden will not be directly on the tax payer will
be covered in this. In this buyers will be responsible to pay the taxes which have been
determined (Mirrlees, 2010). The sales price will be identified and then on that amount
they will be required to be charged. By this buyer is the person who will be bearing
burden of taxes which will be paid to government. Some of the taxes which will be
included in this category are custom duty, value added tax and excise duty.
The amount which has bee collected by government are from various categories and in
order to determine the total amount of revenue they all be required to be accumulated. The
revenue which has been earned in 2017 is provided below with the help of a diagram.
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llustration 1: Taxable revenue of UK government in 2017
(Source: Budget, 2017)
1.2 Roles and responsibilities of Tax practitioner.
In taxation there are various rules and regulations which have been provided by HMRC
and it is legal requirement that tax practitioner will have to comply with all the laws that are
made. By them all the experience and qualifications will be satisfied. The tax payers will get help
from them in the process of return filling as they are professional experts having all knowledge
in this regard. The work will be carried out by them on behalf of their client and they will be
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responsible to complete it and then present it before revenue and custom authority (Grown and
Valodia, 2010). There are various roles and responsibilities which will have to be fulfilled by
them and some of them are presented below:
Responsibilities which are to be fulfilled by Tax practitioner:
 In the return which will be filed, it is necessary that all the information that is to be
provided shall be true and fair. So it will be required by practitioner to tell his client
regarding this and also in respect of different issues which may be faced by the
organisation about needs of audit.
 There are many laws and rules which are prescribed and it is needed that they shall
perform their work in such manner by which all of them will be complied with in best
possible manner. This will be required in both cases that is while providing services to
client and also in conduction of private affairs.
 It will be required that proper assistance shall be provided to client so that they can
follow all rules so that it can be ensured that calculation of tax liability is as per the
requirements.
 The main aspect which is to be considered is confidentiality which means that
information of client shall not be provided to anyone without his consent.
 There are various amendments which takes place in respect of provisions to be followed
and so it must be ensured that practitioner shall have adequate knowledge regarding
them. This will be necessary as then only they will be able to provide proper guidance to
their client.
Roles played by tax practitioner:
 There is legal system and procedure according to which reporting is required to be done
and for that it is needed that proper knowledge shall be attained by tax practitioner (Oats,
2012). With the help of them they will be able to save their client from payment of
excessive tax. Also proper advice will be provided to client so that they can report the
information in proper manner.
 The regulations, norms and standards which have been provided by HMRC shall be
complied by tax practitioner. All the relevant information will be collected by them so
that they can help their client in tax payments. With the help of data tax will be calculated
which will have to be paid on the earnings at the specified rate.
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 All the legal matter in respect of tax that will be faced by client will be dealt in proper
manner and this will be possible as taxpayers will be getting help from the information
which is submitted by practitioner to government in legal format.
 All the opportunities and risk which is present in relation to policies of tax will be
understood by client with the help of assistance that will be provided by tax practitioner
(Ehrlich and Radulescu, 2017). So it will also be role of him to provide suitable advice.
1.3 Obligations of tax payer and effect of non compliance.
The person who will be responsible to make payment is tax payer and will be including
companies, individuals and many others. Agent will be one who is responsible to perform
various tasks on behalf of payer (Evans, 2012). There are certain principles which are required to
be followed by them and the main among them are provided hereunder:
 All the laws which are made by HMRC shall be complied by agent as well as tax payer
and this is their major obligation that shall be met.
 It will have to be kept in notice that all the taxes shall be collected in full and are marked
in proper categories.
 The tax payments shall be made in respect of all the transactions and it shall be ensured
that true status is presented. All the returns which are to be filed shall be done in
appropriate manner and at correct time.
 It shall also be noted that if there is any breach which is made then the liability or can say
penalty shall be paid on time which has been specified in this regard.
If the payer will not be able to comply with rules and there are various implications
which will be made and it will be including payment of penalties which are decided. The main
defaults which can be made are in payment of tax or in return filling. So the penalties which are
fixed in this respect are as follows:
If delayed tax payments are made:
Payment delay period Penalty imposed
Delay by 30days 5% of amount which is due
Delay by 6 months 5% of total outstanding amount
Delay by 12 months 5% of amount outstanding as on that date
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Penalties which will be imposed on filing returns late are:
Period for which delay is made Penalty to be paid
1 day late filing £100
By 3 months £100 + £10 for 90 days
By 6 months 5% of total tax payable or £300 whichever will
be higher
By 12 months If intentional then 100% of tax liability
otherwise 5% of total tax payable or £300
whichever will be higher
2.1 Calculation of income, expenses and other allowances
One of the cashier, called henry Clark working in a local retail organisation and get a
annual gross salary of £36,000. The designation of Mr. Clark is IT consultant and account for his
own tax responsibility and national insurances (James, 2012). As on 5th April 2017, his total
employee turnover from the self employed enterprise has been reported to £ 52,500. from this
amount he rented a small subsidiary in Wandsworth business subsidiary. They pays a monthly
rents and rated of around £ 2050 / per month. His profit, losses and other allowances adhering
with the tax laws in order to calculate underneath:
Employment in a local retail store Amount £
Income from salary 36000
Income from self-employment
Self- employment head 52500
less:
Rent: 2050*12 24600
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Electricity bills 600
Stationery and books 400
Contribution to national insurance
claim 1200
Administrative expenses 700
Tax deductions 27500
Taxable income 25000
Total income 77500
Less: Standard deduction 11500
Taxable income 66000
2.2 Computation of taxable sum
A tax levied on total import done by the customers authorities of a country to increase its
total sales. It is levied by the local bodies on the net amount after deducting of all the taxable
expenses those are available to Mr Clark. According to the tax provision they need to be
followed all the related obligations. In order to calculated total Net tax liability of Clark various
sections need to considered.
Computation of Net Tax liability of Mr. Clark
Particulars Saving income
Non saving
income Dividend income Total
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Income from salary as a cashier 0 36000
Income from self-employment 0 52500
Tax deductions 0 -27500
3700*100/90 Dividend 0 0 4111.11
Housing and society interest
(4200/80*100) 5250 0 0
Exemption
Total 5250 61000 4111 9361
Less :
Standard allowance 0 11500
Taxable income 5250 49500 4111 58861
Working Note:
It has been anticipate that Mr Clark had accepted a divided of 3700 on which the
government of UK has charged a tax rate of 10%. The net profit received as income has been
totalled up to 4000.
There is an interest rate which is charged as 4200 on development of society at which a
20% tax rate been charged by the government (Farnsworth and Fooks, 2015). This made an
increase in total amount up to 5000 and shown as total saving amount.
On income form self-employment the tax duties are charged at different rates. The terms and
condition under this situation are different and has been calculated individually.
Tax on Non – Saving income:
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According to the taxation system of UK, Non-saving incomes are taxed on charged
before saving income. There is special case in which, if the saving amount of an individual
comes under the tax slabs of tax then it should be charged as non- saving amount of 20%.
36000-11500= 24500*20% =4900.
Computation of income tax rate on 2016/17
Limits £ Tax rates
Up to £11500 No tax is been charged
11500 to 45000 20% Normal rate
45001 to 150,000 40% maximum rate
More than 150,000 45% Extra rates would be applicable
£55000-11500 = £43500
On the income of 27500 at which a general rate of 20% is charged = £27500 *20% = £5500
Total tax saving:
Non-saving of Mr Clark is deducted at basic rate. Therefore, his total saving will be computed on
20% tax rate. £5000*20% = £1000
Total tax levied on divided: 4000£ *20% = £800
Total taxable liabilities: Tax on income + Tax on divided
: £1000+ £800 = £1800.
Less: Tax deductions
Dividend @ 10% = £400
Development of the society @ 20% = 4200£*20% =£840
Net Tax liabilities = £6060.
Thus, the total liabilities would be paid by Mr. Clark is £6060 for the year ended 2016/2017.
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2.3 Computation of relevant tax return and its documentation
According to the tax atmosphere, there are various paper and documentation is been
required in order to fill and tax return. Different taxation requirement must be fulfilled. So that
tax contributor needs to comply with its concern statements. Those are mentioned underneath:
Form no. 64 – 8: Under this form various deals and contracts are mentioned among tax payer
and tax professional. Government can uses it in order to interact with the tax agents, accountant
and other concern advisors those are working on the behalf of tax payer (Winer, Profeta and
Hettich, 2013). This form explains official document for which professional has been authorised
to communicated with individual and other businesses taxation system.
Form SA 10 3S: It consist of details regarding income from self-employment, VAT, applicable
and non applicable allowances those are required under taxable head.
Form SA 102: It is related with the individual employment form which is related with those
people who are part time and full time employed. It is important for them to file tax return in
order to save their income.
SA 105: It is said to be UK property form which is used by an individual or other rental
businesses those are associated with generating more income form their land and properties.
P60: It is necessary to all the employers to provide a P60 form to their employees at the last
financial year. It is related with total earning, pension and NIC contribution and other tax
deductions.
P87: It is that form which is related with those claims which are work based expenses and used
by the tax contributors not the self-employed customers.
TASK 2
3.1 Chargeable profits.
The amount on which tax will be paid is chargeable profit. Robin limited is one of the
business which is operating in UK and its profits for year ending 2017 as as follows:
Particulars Amount
Operating profit for the year 125600
Income earned from property 3600
Capital gain 28000
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Donations made in year -13000
Taxable profit 144200
3.2 Tax liability to be paid
The tax rate has been specified by taxation department at which it will have to be paid.
The specified rate for 2017 is 20%. so the calculation will be made in following manner.
Profitability = P
Upper limit = M = £1.2 million
Marginal relief: (M-P)* 1/P*fraction of marginal relief
Particulars Amount
Taxable profit 144200
Corporation tax (144200*20%) 28840
Marginal relief 0
Total tax payable 28840
As the profit chargeable to tax is less than 300000 so there will be no benefit which will
be received in form of marginal relief. So that amount to be paid is 28840.
3.3 Dealing with tax deductions.
In business there are various expenses which are incurred and they will be allowed as
deduction from the total income which has been earned. Some of the examples of it are salaries,
administration expense, marketing and various others. In the given case amount of donations is
deducted from the income. By this the liability of tax is reduced which is beneficial for company.
4.1 Chargeable assets
The assets on which capital gain tax will be paid is known as chargeable asset (Da Rin,
Di Giacomo and Sembenelli, 2011). For this the Act which will be followed is CGT, 1962. There
are various assets which are exempted and on them tax will not be charged. Some of exempted
are as follows:
 Private purpose vehicle
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 Debts other then security debts
 Life insurance policy
All of these assets will be chargeable and same is in the presented case in which John will be
earning an income of 32000 and with that he sold two asset. So the gain which is made will be
charged and tax will be paid at specified rate. Return in form CT 600 will be filed with HMRC.
4.2 Capital gain and loss.
The gain and loss which will be made on selling any asset will be considered as capital
gain and loss (How are foreign income and gains taxed?, 2017). They will be required to
adjusted in same year and if this is not possible then loss will be carried to coming year. It will
be calculated by deducting cost from sales vale.
Calculation of capital gain for John:
Particulars Sales value Cost of asset Capital gain
Asset A 150000 110000 40000
Asset B 45000 52000 -7000
Total amount 33000
It can be seen that loss of asset B is set off from gain of Asset A and by this capital gain
of 33000 is made.
4.3 Tax payable on capital gain
The total revenue which is made from capital assets will be charged to tax. The rate at
which it will be charged is 10 and 20% and for residential property it will be 18 and 28 percent.
Annual amount which is exempted is 11,100 and 5,550 for trustee and non trustees respectively.
Calculation of tax
Particulars Amount £
Capital gain 33000
Exemption 11100
Net gain 21900
Tax @ 10% 2190
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CONCLUSION
From the report it can be concluded that there are various entities on which tax laws are
applicable and there is difference in provisions which are made in respect of them. All of them
will have to pay tax and if this will not be done then penalties will have to be borne. All the
taxable amounts and liability which will have to be met has been determined above.
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