UK Taxation System: Principles and Practices

The assignment delves into the intricacies of the UK taxation system. It explores different tax categories like income tax, capital gains tax, and property taxes, analyzing their structures, rates, and implications for individuals and businesses. The document also examines relevant legislation, forms (P45, P60, P11D), and practical examples to illustrate key concepts.

TAXATION

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
AC 1.1 Describe the UK tax environment..................................................................................3
AC 1.2 Analyze the role and responsibilities of the tax practitioner..........................................5
AC 1.3 Tax obligations of tax payers or their agents and the implications of noncompliance...5
TASK 2............................................................................................................................................6
AC 2.1 Calculate relevant income, expenses and allowances.....................................................6
AC 2.2 Calculate taxable amounts for the employment at Supermarket and also calculate the
self-employment income with payment dates.............................................................................7
AC 2.3.........................................................................................................................................8
TASK 3............................................................................................................................................9
AC 3.1 Calculate the chargeable profit for the company............................................................9
2. Deduction for allowances of plant and machinery ...............................................................10
3. Property business profit.........................................................................................................11
4.1 Identify chargeable assets...................................................................................................12
4.2 Calculation of capital gains and losses................................................................................13
4.3 Calculation of capital gains tax payable..............................................................................13
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

INTRODUCTION
Tax is denoted as a compulsory monetary contribution of people which is earned in the
form of state's revenue. In other words, Tax is an obligation for legal entities and individuasl
against their respective incomes and gains (Kaplow, 2011). The government of country is
responsible to assess and impose taxes on the activities, expenditure on individuals as well as
business entities. The fund raised from taxation activities are used for the welfare of society and
government causes. The report deals with describing the UK tax environment and shows an
analysis of the role and responsibilities of the tax practitioner. Along with this, tax obligations of
tax payers or their agents in relation to their implications of non-compliance are discussed in the
following unit (Gee, Haller and Nobes, 2010). Here, the report includes calculations of relevant
income, expenses and allowances, taxable amount in accordance with given case scenarios. The
sections also reflects the workings on the calculations of capital gains tax payable for a business.
TASK 1
AC 1.1 Describe the UK tax environment
The UK economy has a highly competitive corporate tax system, further, the taxation
policies are simpler, and transparent therefore, suits with modern business practice (Capital
gains tax for individuals on the disposal of shares, 2015). The government believes that
corporate tax system is an asset for the United Kingdom which improves business environment
and helps in attracting multinational companies to invest (A guide to UK taxation. 2013). The
UK government wants to make its taxation system as the most competitive tax regime in the
G20, in this regard, the corporate tax of the UK is declined to 20% in 2015 which is the lowest in
the G7and joint lowest in G20, even, in the lowest in the United Kingdom’s history (UK Tax
Environment 2014-2015, 2016). Including this, the country’s tax system is moved to territorial
system from system of worldwide taxation. As a support to creative sectors, government is
introducing significant tax reliefs. The government of the UK impose various taxes on
individuals and organizations which are as follows:
Personal Taxes and Income Tax: The major source of income for the UK government
is income tax, however, it has different slabs. The tax free income / free personal allowance is up
to GBP 10,500, further, on the income between GBP 10,500 to GBP 31,865 individuals have to
pay 20% tax (UK Tax Environment 2014-2015, 2016). The next level rate is 40% which is to be

paid up to GBP 150,000. Above GBP 150,000 the individuals have to pay 45% tax on taxable
income (UK Tax Environment 2014-2015, 2016). In addition to that personnel also pay social
costs against salary, for which, up to GBP 7956c individual gets free allowance, then up to GBP
41,860, 12.0% tax is paid (Kaplow, 2011). Corporation tax: This tax is paid by limited
companies including other organizations such as clubs, societies, associations etc. The rate
of corporate tax is reduced from 23% to 20% in 2015, which is lower since till date and
makes it easier to develop competitive tax environment.
VAT Tax: In addition to other taxes, VAT tax is another measure in the UK to earn
government revenues (King and Fullerton, 2010). The current rate of VAT Tax is 20%.
However, there are certain essential goods which are exempted from tax such as public transport,
books and newspapers, children’s clothing, etc. The corporate entities who have annual sales of
more than GBP 81,000 must register themselves for VAT.
Capital gains tax: Capital Gains Tax is imposed on the profits when sell or give
away something that has increased value (King and Fullerton, 2010). This tax is paid by
individuals who are normally resident in the UK, PRs, trustees and partners. The CGT
rate is too low in the UK as the highest rate is 28 per cent. Till the amount £10,900, the goods
are exempted from tax pay.
HMRC (HM Revenue & Customs) is accountable for protecting and maintaining UK’s
tax system while keeping eye on both direct and indirect taxes (McLaughlin, 2013). The entity is
also responsible for tax collection on the behalf of Government of UK. The main method of
paying tax is through PAYE scheme however, some of the individuals have to pay taxes via self-
assessment tax return. The use of this system facilitates automatic deduction of taxes from the
earning of employees, nonetheless, two main situations are there in which payment through self-
assessment tax return is needed. One is when individual is self-employed and other one in which
individual receive rental or foreign income. Including this, at the time when, it becomes difficult
to collect taxes via PAYE scheme, then self-assessment tax return system is used (Melville,
2013). The HM Revenue & Customs is also accountable for providing guidelines for the
assessment of tax practitioners and looking eye whether they are fulfilling tax obligations or not.
The new amendment in taxation system are to be included under HMRC (Gee, Haller and Nobes,
2010).

AC 1.2 Analyze the role and responsibilities of the tax practitioner
Tax practitioners have a significant role in voluntary compliance system of tax payments,
but it is important to notice that tax practitioner are not accountants (Salanie, 2011). However,
the person having knowledge of accounting are not surly eligible to answer the tax questions and
prepare tax returns. The tax practitioners are facilitated with different licences and certification
which varies from region to region. Nonetheless, there is a similar procedure under which tax
practitioners need to go through an exam and must work under the guidance of a licensed or
certified accountant (Salanie, 2011). The tax practitioners need to derive required qualification
and degree so as to give legal advice to clients. The responsibilities of individual tax practitioner
is relied on their value in business whether they are certified public accountant or are licensed tax
expert. They are responsible for providing tax advice as well as arranging tax returns for their
clients of corporate entities. These individuals help tax payer in lowering down tax liabilities by
availing ambiguous characteristics of the law (Liapis, and et. al., 2014). Nonetheless, tax payers
must be familiarized with professional responsibilities and ethics. There are number of other
responsibilities on tax payers which must be fulfilled by them including communicating
effectively with clients, educating tax payers, must follow integrity, enforcing standards of tax
payments (UK Tax Environment 2014-2015, 2016.). The tax practitioners are responsible for
following principles of diligence and accuracy so that correct income and gains can be accessed
from relevant sources to calculate tax amount. The misleading information is to be avoided from
client and different tax matter must be given appropriately. They have to avoid penalties and
charges on the behalf of tax payers and must help them in properly filling returns.
AC 1.3 Tax obligations of tax payers or their agents and the implications of noncompliance
Tax payers are obliged for paying their taxes on time however, following points include
major obligations of Tax payers:
l The tax payers have to be honest for tax payments on time
l They must be cooperative and have to be honest in offering correct information
and documents on time
l The tax payers should maintain records of tax payments (Melville, 2013)
These are some obligations which need to be fulfilled by the tax payers in order to be safe
from government penalties and negative effects (Lymer and Oats, 2009). In case, tax payers do

not pay taxes on time then nation could come under strain. The negative impact is that the
government become unable to access finance to fulfil nation’s welfare demands. Honesty is the
major obligation of tax payers under which they must be very imperative (Gee, Haller and
Nobes, 2010). However, non-compliances of obligation by tax payers forces them to pay charges
and penalties, but, if they fulfil all the obligations then they can access support from government.
The tax payers must be cooperative which helps the government in operating tax system at
comparatively lower cost as well as reduces the unessential interference of the third parties in the
affairs of the tax payers (McLaughlin, 2013). The tax payers have to keep some records in
relation to tax payments and other events and transactions, so that effective taxation system can
be maintained. The payment of taxes must be on time within relevant taxing jurisdictions. They
are bounded with the professional responsibilities of paying taxes on time and following other
guidelines. They must not provide false and misleading information to the agents and must not
conduct the activities which are unfavourable to the tax system of the country. The non-
compliance of taxations system will lead tax payers to pay penalties and sanctions.
TASK 2
AC 2.1 Calculate relevant income, expenses and allowances
According to the given case scenario, Susan is working at the till machine however,
calculations of income, expenses and allowances are based on following assumed information:
Net profit: £30000
Transportation expenses:
l Vehicle 1 use: £10000
l Vehicle 2 use: £15000
l Other expenses: £2590
Table 1: Computation of Net adjusted profit of Susan 2015-2016
Net profit 30000
Add: Disallowed expenses
(I) Transportation expenses 3700
(iv) Other expenses 2590 6290 6290

Less: allowable expenses
(i) Capital allowance 3864 3864 -1831
Less: Disallowed income
Add: Allowable income
Adjusted profit or loss 34459
The calculation shown in the above section represents the value of Net adjusted profit of
Susan for the financial year 2015-16 (Based on hypothetical information). Form the information,
it is evident that Susan is earning profits of £34459 after the deduction of allowances paid him on
business. (Working note 1).
Working notes
Working Note 1
Personal use of motor car 3000
Personal use assets 500
Parking fines 200
3700
Capital allowance for the year ended
Main pool £
Special rate
pool £ Allowances £
Addition qualifying for FYA
Transportation vehicle 1 10000
Transportation vehicle 2 15000
WDA- 18% -1800 2520
WDA-8% -1200 1344
WDV carried forward 8200 13800
Total allowances 3864

The above table represents the capital allowance of business. The rate of written down
allowances for both the transportation vehicles are 18% and 8% respectively (Schwarz, 2014).
The written down value carried forward is £3864.
AC 2.2 Calculate taxable amounts for the employment at Supermarket and also calculate the
self-employment income with payment dates
Taxable amounts when Susan
is salaried employee at
supermarket
Salary amount 28,000
Deduction allowed as per act 9449
(annually)
Deduction provided
according for period worked
by them 9449
(employed for 12 months)
Taxable amount 18,551
income tax due by each
employee 3710.2
Self-employed gross income from a
designing greeting cards business is
£40,000
Gross income 40,000
deduction allowed as per act 9449
(annually)
Deduction provided
according for period worked
by them 9449
(employed for 12 months)
Taxable amount 30,551
income tax due by each
employee 6110.2

AC 2.3
Relevant document - The assesses is required to completed formalities which relates to
perfectibilities condition of tax payer. This may be different as type of person. Therefore, Susan
who has generated income from business and salary (Simser, 2008). Therefore, different
provision has applicable such individual as government provision which has describing at regular
time period.
Business and profession income tax – This type of tax has been charged on income which has
generated from business. Therefore, in this case, tax payer has Owen designing greeting cards
business which has earned of £40,000 so that this amount will be chargeable under income tax
legislation (A guide to UK taxation, 2013). Hence, there is Susan has to submit following
document when he submits income tax return. Like, financial statement, inventory, audit report,
supportive document, debit and credit note etc. on the other hand, competent authority can called
any document for investigation purpose (UK Tax Environment 2014-2015, 2016). Apart from
this, he has to fulfilled income tax form with self attested by him.
Salary – Susan is also engaged in job who earned as salary of amount of £28,000. Therefore, he
has to paid tax as basis of slab rate basis. He has to full file the rerun form with proper manner
with self attested. Along with, he to submit a salary slip which has received from employer
(Capital gains tax for individuals on the disposal of shares, 2015). On the other hand, supporting
document for availing document is also important for demanding deduction with legal manner.
For example:

P45 form – The employer is responsible for paid tax on behalf of their employee but when
subordinate decided to leave job then higher authority issue this form to worker. It is the legal
form which help finished the liabilities of employer for paid tax. Therefore, in case, Susan leaves
jobs from supermarket then employer issue this form to Susan for purpose of free from tax
liabilities. Therefore, he earned £28000 as a salary on which total tax has been paid by employer
as tax deducted at souces so this form is just inform to government that susan has not employee
Illustration 1: Form P45 Part 1 Format Example

of supermarket so that he is not liable for paid tax in future. Apart from this, if supermarket is
liable to paid 5% tax at end of each year then without fullfilng this form liable to employer to
paid even he is not still work in supermarket. Hence, it free to supermarket for paid tax.
P60 form - This form has been fulfilled by employee during paying of tax. Further, it
consists full detail of tax liabilities which is required to be paid for subordinate during the year.
Therefore, overpaid tax can be demand back by the helps of this document. The Susan is
required to fulfilled this form at the end of tax year with all required detail and document.
Illustration 2: Form P60 Format Example

Indeed, susan earned £28000 from salary and £40000 from business so that Susan is requred to
fullfied this form by giving full detail. In addition, on the basis of this form he can demand
deduction from paid tax. He is also eligible for demand tax deduction for requred expenss which
tax law has declared exemted. Apart from this, if portion of amount donate by susan then it
should be noted in this docment with recipt attachment for eligible for deductions.
P11D form – This form has been fulfilled when employer received benefits in kind
therefore, this form has to be fulfilled. It is compulsorily required to fulfilled when worker
earned at least £8,500 or more (including the value of company benefits) in the financial year.
Therefore, Susan has to fulfilled this form when he gets benefits in kind from supermarket. If it
is not fullfiled than whole tax liabilities has convert to supermarket. On the other hand, he also
valued every kind thing with proper calculation. For example: interst free loan received by susan
from supermarket then he should fullfiled this form and fullfiling whole detail as requrement.
Hence, he has to paid tax on the basis of slab rate which calculated by net profit.
TASK 3
AC 3.1 Calculate the chargeable profit for the company
Operating profit 100000
Add: Disallowed expenses
Depreciation of asset 10170
Amortization of lease hold property 3000
Illustration 3: Form P11D Format Example

Total disallowed expenses 113170
Less:
Debenture interest payable 67200
allowable deduction for lease premium 2255
capital allowance 27520
16195
Profit of overseas branch 30000
Trading profit 46195
profit from property business 30000
Interest income 10000
Chargeable gain 50000
Taxable profit 136195
Working notes for calculations
(i) Deduction for lease premium
Table 1: Deduction for lease premium
Premium received 110000
less deduction
110000*0.02*(10-
1) 19800
Amount assessed on the
landlord 90200
Table 2: Deduction allowable for this year
Amount assessed
on the landlord tire
life span 90200
deduction for this
year (90200/10)*3/12 2255
Corporate tax is levy on the basis of norm given by government at regular time period.
The corporate is artificial judicial person who has own right and duty among their stakeholder
(Gee, Haller and Nobes, 2010). Therefore, government separately prepare a slab rate for levy tax
from corporate sector. It is to be noted that double taxation are not applicable on company so if
organisation has paid tax at one time then it is not obligates to paid again. For example: Tax
deducted at sources (Kaplow, 2011). On the other hand, business and profession tax has been

charged on operational income only so that it is not levy on other type of sources like lease
property etc.
The income tax provision also gives exemption on lease premium with fair manner.
Therefore, in this case assess received a premium with amount of £100000 so legal provision
gives exemption at 2% of total amount received (King and Fullerton, 2010). The above table
shows calculation of tax liabilities. Thus, he has to paid £18000 as tax on total lease
amount receive.
On the other hand, the whole lease amount is not amortization in one
year only. Therefore, deduction has been provides by propionate basis,
hence, it is divided on quarterly basis as shown in table 2 (McLaughlin,
2013). Thus, deduction is allowed as proportionate basis as number of year
divided.
2. Deduction for allowances of plant and machinery
Table 1: Computation for allowable deduction
Main
pool
Special
pool Allowances
Additions qualifying for
AIA
Building costs 0
Heating system 3600
Ventilation system 4600
8200
AIA – 100% -8200 -8200
Furniture and furnishings 29400
Refrigerator and cooker 1400
30800
AIA – 100% -16800 -16800
14000
WDA – 18% -2520 -2520
WDV carried forward 11480
Total allowances 27520
The entity is required to paid tax on capital assets which used in company for operational
purpose. Further, whole deduction is depends on provision norm issued by legal authority at
regular time period (Melville, 2013). The above table shows that some allowances has declared
as not chargeable under tax liabilities. Therefore, it has gives some special deductions as legal
provision of legislation. The table has two column shows main pool special pool and

allowances. Hence, it is the sufficient for understand the deduction of allowances amount with
fair manner. Capital expenditure will be not eligible for deductions for term manner. But
government gives some exemption for purpose of promote to some business entity. Hence, the
heating system and Ventilation system are allowed as 100% tax deduction. So that it is not
charged any taxed on this item. It is the fully depreciate item and also helps to manage
environment with effective manner (Salanie, 2011). The cost of furniture and refrigerator also
eligible to deduction which as proportionate manner. The deduction is on the basis of proportion
basis as life of machinery. But term and condition must be fulfilled as norm of legal authority. So
that 16800 is allowed as deduction for company. The 18% of total amount is allowed as
deduction in these assets which are shown in the table content (Capital gains tax for individuals
on the disposal of shares, 2015). It is to be noted that capital amount is not eligible for deduction
fully at one time.
3. Property business profit
Table 1: Computation of business profit
Rent receivable
(15600+15600*(5/6)
) 26000
Security deposit 0
Advertising -600
Insurance (1200*5/12) -500
repairs (12800-9700) -3100
property business
profit 21800
The taxes on business is calculated on the basis of total amount operational activities
(Liapis and et. al., 2014). Therefore, it is charged one every activities which directly relates to
enterprise operation. Further, rent receivable is the income of house properties which is
calculated on prescribed form exhibit in this legislation. On the other hand, business entity can
deducted the expenditure which relates to operate whole business activities or which is necessary
for carrying on the operational activities with fair manner (Lymer and Oats, 2009). Therefore,
advertisement expenditure, insurance expenditure and repair are the necessary for operate
concern in fair manner. So that it has not charged any tax expenditure.
Scenario 2

4.1 Identify chargeable assets
The capital gain tax is levied by the government on the capital profit generated by an
individual or an organization from the sales of chargeable assets (Social Market Foundation
2006). Taxation of Chargeable Gains Act, 1992 includes is imposed by the government to
success all the activities of CGT. There are some of exempted assets which have been included
in the assets. These are all the assets on which seller don’t have to pay tax (Schwarz, 2014). Such
assets include: lotteries, prizes, government securities, life insurance policies, tangible movable
properties etc. The list of capital and long tern assists are mentioned here as under in the
following points:
 Trading
 Commercial assets
 Old things or antic items
 Jewellery and ornaments
 Land, buildings and fixed assets
 Goodwill of company
 Shares and bonds stocks
 Paintings items and art
4.2 Calculation of capital gains and losses
Capital gain tax is charged on the disposable income by the government of UK (Simser, 2008). The
following calculation is done on the behalf of Lucy who has taxable income of £32,000 in 2015/16 and sold the
following assets
2015/16 Proceeds (£) Cost(£)
Chargeable Asset A 100,000 80,000
Chargeable Asset B 40,000 15,000
Chargeable Asset C 50,000 68,000
:
Particulars Proceed Cost Capital gain/losses
Chargeable assets A 100000 80000 20000
Chargeable assets B 40000 15000 25000
Chargeable assets C 50000 68000 -18000

Total capital gains through disposal of
chargeable assets 27000
4.3 Calculation of capital gains tax payable
As per the UK CGT Act formed in 1992, the rate of CGT is reduced from the basic
rate of 18% to 10% nonetheless, taxation rates for higher-tax payers is declined to 20%
which was 28% before:(A guide to UK taxation, 2013). In the given case scenario, Lucy’s
taxable income is £32000 for the year 2015/16, here is the calculation for capital gains tax
payable for the entrepreneur:
Calculation of capital gain
taxes of Mr. Lucy for the
year 2016-17
Total capital gain from assets A and
assets B 45000
Capital loss from assets C -18000
Net capital gain 27000
Annual allowances 11100
Taxable income 15900
CGT payable (15900*10%) 1590
The basic tax rate for CGT in UK is 20%, hence Lucy is going to pay tax at such rate.
Capital loss from the CGT is going to be deducted from the gains which is earned from Asset C
(UK Tax Environment 2014-2015, 2016). As per the CGT rules, 10% tax rate is applied on the
capital gain from chargeable assets. Allowances in £11,100 on total taxable capital gains. Hence,
Lucy is liable to pay £1590 as a tax on his income of £32000.
CONCLUSION
Summary of report state that tax formate in UK is very easy as suit its environment as
well. Government charge tax from various of way for development in England territory. The
calculation of tax is exhibit in the income tax legislation along with, notification of legal
authority also considerable as amendments. The whole taxation policy has managed by special
authority which has governed by UK legislation. Therefore, this report also consist of some
example calculation which shows UK tax calculation on difference type of person. Lastly, rebate

provide on tax is also mentioned in this legislation therefore, advantages of this tax deduction is
also called as tax planning. Apart from this, the whole report shows that tax determination policy
of UK is too easy than other nation because its considered each part of income of type of person.
Therefore, they are liable to paid only those part of income which is necessary. For example: in
case person donate their income then it is not chargeable as income tax. Thus, it covers whole
part for determine the income part of individual.

REFERENCES
Books and journals
Gee, M., Haller, A. and Nobes, C., 2010. The influence of tax on IFRS consolidated statements:
the convergence of Germany and the UK.Accounting in Europe, 7(1), pp.97-122.
Kaplow, L., 2011. The theory of taxation and public economics. Princeton University Press.
King, M.A. and Fullerton, D., 2010. The taxation of income from capital: A comparative study of
the United States, the United Kingdom, Sweden and West Germany. University of Chicago
Press.
Liapis, J. K., and et.al., 2014. Commercial property whole-life costing and the taxation
environment. Journal of Property Investment & Finance. 32(1). pp.56 - 77.
Lymer, A and Oats, L., 2009. Taxation: Policy and Practice. Fiscal Publications.
McLaughlin, M., 2013. Tax Planning 2013/14. A&C Black
Melville, A., 2013. Taxation: UK Finance Act 2013. Pearson Education,
Salanie, B., 2011. The economics of taxation. MIT press.
Schwarz, J., 2014. Booth and Schwarz: Residence, Domicile and UK Taxation. Bloomsbury
Publishing Plc
Simser, J., 2008. Tax evasion and avoidance typologies. Journal of Money Laundering Control,
11(2). pp.123 - 134.
Social Market Foundation 2006. Road-User Charging and Taxation, London: SMF.
Online
A guide to UK taxation, 2013. [Online]. Available through :<
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/183408/
A_guide_to_UK_taxation.pdf >. [Accessed on 26th August 2016].
Capital gains tax for individuals on the disposal of shares, n.d., [Online]. Available through:<
http://www.out-law.com/topics/tax/tax-for-entrepreneurs/capital-gains-tax-for-individuals-
on-the-disposal-of-shares/>. [Accessed on 26th August 2016]..
UK Tax Environment 2014-2015, 2016. [Online]. Available through :<
http://www.ebs.ltd.uk/news/uk-tax-environment-2014-2015/>. [Accessed on 26th August
2016].