6004LBSAF Taxation: Income Tax, NICs, and Self-Employment Analysis

This report provides a detailed analysis of Bridget's tax liabilities under two different scenarios: employment and self-employment, in accordance with the UK's taxation laws. The employment scenario includes calculations of property income, taxable employment income, savings income, and dividend income, followed by the computation of total income tax and National Insurance Contributions (NICs) payable by both Bridget and her employer, Air Engineering Limited. The self-employment scenario covers the calculation of income from self-employment, allowable deductions, and taxable income, along with the computation of income tax and NICs. It also includes a memo offering advice on option selection or tax planning, suggesting that employment is more advantageous due to lower tax liability compared to self-employment. Desklib offers a range of solved assignments and past papers for students.

TAXATION

Table of Contents
SECTION A.....................................................................................................................................3
Option 1: Employment....................................................................................................................3
1. Calculation of Property Income taxable in 2022-23................................................................3
2. Calculation of total income tax payable by Bridget for 2022-23............................................6
3. Calculation of National Insurance Contributions payable by Bridget for 2022-2023.............7
4. Calculation of NIC payable by Air Engineering Limited........................................................7
Option: 2 – Self employment...........................................................................................................7
1. Calculation of total income tax payable by Bridget for 2022-23............................................9
2. Calculation of amount of NIC payable by Bridget 2022-23..................................................10
3. Calculation of amount of employer NIC payable by Bridget................................................10
SECTION B...................................................................................................................................10
REFERENCES................................................................................................................................1
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SECTION A
Option 1: Employment
1. Calculation of Property Income taxable in 2022-23
Property 1
Particulars Details Amount (£)
Total Rental income £600 * 12 7200
Less Allowable expenses:
Repair and Maintenance 1300
Insurance 350
Total 3650
Taxable property income 4550
Property 2
Particulars Details Amount (£)
Total Rental income £750* 8 6000
Less Allowable expenses:
Insurance 305
Advertisement for new tenants 610
Total 2915
Taxable Rental Income 4085
Property 3
Particulars Details Amount (£)
Lease premium 17500
Less £17500*(5-1) @2% -1400
Premium assessed 16100
Annual rental income 7800
Rent received -5600
Insurance 305*8/12 375
2575
2

Taxable rental income 13525
Property 4
Particulars Details Amount (£)
Total rental income 9000
Less Allowable expenditures: 1140
Taxable rental income 7860
Total property income Less Property income allowances = 4550 + 4085 + 13525 + 7860 =
£30020
Calculation of Employment taxable income of Bridget for 2022-2023
Particulars Details Amount (£)
Assessable Income:
Annual Salary 75000
PAYE Deduction 38500
Annual Bonus 7250
List Price (24150 – 2415) 21735
Co2 (working note 1) 6381
Mileage (18000 * 30% * 12p) 648
Interest on loan paid by
employer to Bridget
1000
(25000 * 4%)
House removal expenses
benefit provided by employer
17000
Staff party cost paid by
employer
500
(250*2)
Annual subscription of CIPD
paid by employer on behalf of
employee
575
Computer cost used for
Bridget personal use (Loan
1850
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provided by employer)
Club membership subscription
paid by employer on behalf of
employee
1100
Mobile telephone 1020
(85 * 12)
Total assessable income 172199
Allowable Deductions:
Interest on loan charged by
employer
375
(25000 * 1.5%)
Exempt removal expenses and
benefits
8000
Mileage (10000*45p) 4500
Milage (8000* 25P) 2000
Fuel benefits (24600*30%) 7380
Deduction of annual
subscription of CIPD
575
Deduction on employee’s
contribution towards car
running cost (related to 70%
business miles)
756
(1080 * 70%)
Pension contribution 12000
Total Deductions 42342
Taxable employment income 129857
Working note 1
Salary = £122943
Less £100000
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Total = £22943
22714/2 = £11471.4
Personal allowances £1099
When the income exceeds £100000 the personal allowances is lowered by £1 for every
additional £2
Starting personal allowances £12570
Working note 2
Car registered after 6 April 2020
Up to 75g/km = 19%
1% for each complete 5g/Km = 7%
Total 19% + 7% = 26%
Diesel = 4%
List price = £21735
Less running contribution cost (90*12) = (1080)
Total = £20655
Less 30% = £6197
Less Private fuel cost (45*12) = (540)
Total 61970-540 = £5657
Calculation of Bridget Saving income
Particulars Details Amount (£)
Bank Interest 1050
Less Personal saving
allowances (higher rate tax
payer)
500
Total Saving income 550
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Calculation of Bridget Dividend income
Particulars Details Amount (£)
Dividend income 2450
Less Dividend allowances 2000
Taxable dividend income 450
2. Calculation of total income tax payable by Bridget for 2022-23
Non
savings Savings Dividends Total
Tax
deducted
£ £ £ £ £
Employment income 129,857 129,857 38,500
Property income 30,020 30,020
Other income 0
Savings income 550 550
Dividends 450 450
Total income 159,877 550 450 160,877
Less: personal allowance 12,570
Taxable income 147,307 550 450 148,307
Tax payable:
Non savings income 37700 @20% 37700*20% 7540
109,607 @40% 109607*40% 43842.8
Savings income 550 @0% 0 0
Dividend income @ 0% 0 0
450 @7.5% 450*7.5% 33.75
147307
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Less: tax already paid (PAYE
Deduction) 38,500.00
Less Tax relief on
mortgage interest 600*20% 120.00
Tax payable 12796.55
3. Calculation of National Insurance Contributions payable by Bridget for 2022-2023
Being an employee, Bridget needs to pay Class 1 NIC on their earnings from employment such
as salaries and bonuses.
Annual Salary of Bridget + Bonuses = £75000 + £38500 = £113500
Earnings per week = £113500 / 52 = £2184 (approx.)
On first £184 = Nil
Income between £184 and £967 = 12% = £783*12% = £93.96
Income above £967 = 2% = £1217 * 2% = £24.34
Total Class 1 NIC payable by Bridget = £96.96 + £24.34 = £118.3
4. Calculation of NIC payable by Air Engineering Limited
Being an employer, Air Engineering Limited need to pay Class 1A NIC on the value of the
benefit in kind at the rate of 13.8%.
= £24600 * 13.8% = £3394.8
Option: 2 – Self employment
Calculation of total income tax payable by Bridget for 2022-23
Particulars Amount
Income from self - employment
Consultation fees (Revenue from sales) 156250
Allowable deductions
Entertaining clients and contacts 4000
Wages paid to husband 11000
General expenses
Subscription paid to Chartered Institute of Personnel and 575
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Development
Miscellaneous allowable expenses 340
Depreciation or capital allowance of car 5328
Contribution made to personal pension scheme 9600
Payment of lease premium 4200
Capital allowance on office furniture 3600
Other travel expense 2150
Telephone and communications 2112
Call charges 480
Bank interest and charges 4360
Insurance 1920
Printing, postage and stationery 1835
Heat and light 2100
Consumables 650
Motor and fuel expenses 2316
Total allowable deductions 56566
ADD: Trading income allowance 1000
Taxable income 98684
Notes:
 Entertainment expenses paid for Clients and contacts is deductible when it is paid for
hosting existing or potential clients who are not employees of the business. Further, to
deduct expenses as client entertainment it must be provided for free as per HMRC.
 Wages paid to husband is allowable to the full as it is against the provision of genuine
accounting services to the business. However, wages paid to son is not allowed against
the business income for tax purpose as he is not involved in business affairs and
accordingly, can’t be justified for deduction as business expense.
 Subscription paid to CIPD is allowed as deduction because CIPD form part of approved
professional organization. However, donations paid to political parties of 295 will not be
deducted as a general expense because it is something associated with personal aspects
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only. Also, parking fines borne by Bridget is not deductible against business income
because it is something paid for breaking the law.
 Capital allowance for car = 24000 list price
As CO2 emission is over 75g/km,
Allowance will be as follows:
163-75 = 88g higher
1% increase per 5g
88 / 5 = 18%
Up to 75g / km = 19%
Rate of capital allowance = 19% + 18% = 37%
Add on benefits = 60%
Assessable benefit = 24000 * 60% * 37% = 5328
*(40% of the car is used for private purposes)
 Contribution of personal pension scheme will be allowable as expense as it below the
maximum cap of £40,000 (annual allowance).
 Payment of lease premium is tax deductible during the life of the lease as trading
expenses.
Calculation of allowable lease premium
Lease premium paid = 28000
Less: 2% * (6-1) * premium (28000) = 2800
Premium assessed on landlord = 28000 – 2800 = 25200
Length of the lease = 6 years
Premium assessed on landlord for each year for 6 years = 25200 / 6 = 4200
Therefore, deduction allowable as expense for 2021/22 = 4200 which Bridget would be
allowed to deduct for each year for 6 years.
 Capital allowance on office furniture will be calculated on the basis of main rate pool as
it form part of plant and machinery of the business.
The allowable amount = 20000 * 18% = 3600.
 Other travel expense include expenses incurred on both Bridget and her husband,
however deduction of £1100 will be allowed only for expenses associated with Bridget as
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it was related to business and husband was not visiting for the business purpose, so
expenses related to him will not be allowed for deduction against business income.
 Out of telephone and communications expenses of 2300, 940 is associated with Bridget’s
mobile phone contract and of this 20% is for personal use. Therefore, allowable
deduction for this expense would be = 940 * 80% = 752. Amount charged against profit =
752 + 1360 = 2112.
 Call charges allowable as deduction = 800 * 60% = 480.
 Bank interest and charges where 2100 is associated with the loan to purchase the car
which is used 40% for personal purposes. Therefore, 2100 * 60% = 1260 + 3100 (other)
= 4360.
 Motor and fuel expenses = 3860 * 60% = 2316.
1. Calculation of total income tax payable by Bridget for 2022-23
Non
savings
Savings Dividends Total
£ £ £ £
Employment income 0 0
Trading income 156,250 156,250
Property income 23,820 23,820
Other income 0 0
Savings income 550 550
Dividends 450 450
Total income 180,070 550 450 181,070
Less: personal allowance 0
Taxable income 98684 550 450 80,276
Tax payable:
Non savings income
98684 19% 98684*19% 18750
Savings income 550 @0% 0 0
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Dividend income @ 0%
450 @7.5% 450*7.5% 33.75
Tax payable 18784
2. Calculation of amount of NIC payable by Bridget 2022-23
Under class 2
3.05 * 52 week = 158.6
Under class 4
Profits = 98684
Up to 9568 = NIL
9568 to 50270 = 9% (50270 – 9568 = 40702 * 9% = 3663.18)
Over 50270 = 98684 – 50270 = 48414 * 2% = 968.28
3. Calculation of amount of employer NIC payable by Bridget
Travel expense borne by Bridget for her husband = 1100 * 13.8% = 151.8
SECTION B
MEMO
To: Bridget
From: Taxation Consultant (Chartered Accountants, Hart & Bannon LLP)
Date: 1st April 2022
Subject: Advice on Option selection or tax planning.
Option 1 Employment
Employment is a term demonstrate in respect to all such individual who are earning their income
in the form of salary. The salaried individual become a part of this section of income tax
liability. They earn income every month by the employer. This option can also select by the
Bridget as a part of earning income. In this individual require to join certain organization as an
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