Business Taxation Report: Distinguishing Employment, Trade & VAT

This report delves into the intricacies of business taxation, providing a clear distinction between employment and self-employment based on key criteria such as right of control, supervision, registration, tax liabilities, and risk. It further elucidates the concept of trade by outlining the six badges of trade, including subject matter, length of ownership, frequency of operations, subsequent work, circumstances, and motive, clarifying how these factors differentiate between trading stock and capital assets. Finally, the report details various VAT schemes available to VAT-registered businesses, such as the annual accounting scheme, cash accounting scheme, margin scheme, capital goods scheme, and retail scheme, offering insights into their respective functionalities and applicability. The report concludes by summarizing the key takeaways, providing a valuable overview of the complexities of business taxation and the various schemes available to businesses.

BUSINESS TAXATION

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
The criteria which can be used to distinguish employment from self employment....................3
Question 2........................................................................................................................................4
The six badges of trade................................................................................................................4
VAT scheme available to the VAT registered business..............................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

INTRODUCTION
Taxation is a means by which government levies tax on its citizens and different business
entities. It is divided into direct tax and indirect tax. In this report, we will discuss about the
criteria through which we can distinguish between employment and self employment. In this
report, we will also understand the six badges of trade along with different VAT scheme which is
available to the VAT registered business.
MAIN BODY
Question 1
The criteria which can be used to distinguish employment from self employment
In self employment people run their own business while in case of employment people
work under the different business entities as an employee(Burnap, and et.al., 2018). But someone
can be both self-employed and employed as well. The criteria which distinguish between the
employment and self employment are:
Criteria Employment Self- employment
Right and
responsibilities
In this person have employment
rights and responsibilities.
In this person do not have
employment rights and
responsibilities.
Supervision In this, employee has to work
under someone's supervision.
In this, self-employed person work
without the supervision of anyone.
Registration If the person is in employment they
need not registered themselves to
HMRC.
If the person is self employed they
need to registered themselves to
HMRC.
Control In this, the person themselves do
not have any control over their
work.
In this, the person have full control
over their work because they
themselves run the whole business.
Tax Rate Under this, the person is liable to
pay tax by following individual
slab rate.
Under this, the person is liable to pay
tax on the basis of flat rate
depending on their types of business.

Paying leaves An employed person get paid,
casual and sick leave.
Self-employed person did not get
any paid and sick leave.
Earnings Earnings in case of employment is
salary or commission based
reimbursement.
Earnings of self-employed workers
are directly from their business or
freelancing in case if you are a
freelancer.
Payment of taxes Under this, the taxes of employee
is automatically paid through the
PAYE income tax system.
In self employment, person are
themself responsible to calculate and
pay taxes which is based on their
profit not earnings.
Clients There is not such issue of working
on the basis of different clients.
They have to work regularly on the
basis of different clients
Risk In this, the risk of not getting paid
is minimal.
But in this, the risk of not earning the
profit is high.
Question 2
The six badges of trade
Trade is the basic concept of the economy in which the buying and selling of goods and
services between the buyer and seller is take place. Trade may be done locally i.e. domestic trade
and internationally in order to expand business i.e. international trade(Gopalakrishna, Malthouse
and Lawrence, 2019). The six badges of trade are:
 Subject matter: It is important to understand the subject matter of trade(Bloodworth,
2018). If we are selling goods and services then it is considered as stock trading but if we
sale any land and building it will consider as trading of capital assets and liable for
Capital gains tax.
 Length of period of ownership: The length of period of ownership is also one of the
badges of trade(Gulson, and Witzenberger, 2020). Trading stock is normally held for
short period such as less than 12 months but if any items is held for more than 12 months
it is likely to considered as capital assets.

 Frequency of similar operations: The frequency of similar operation states that whether
the buying and selling operation of similar item is one time or it is continuous(Ooi,
2019). If the operation is continuous then it is considered as trading but if it is one time
sale and purchase it is considered as capital assets.
 Subsequent work: Any subsequent work such as advertisement to make an item more
marketable is likely to be representative of trading.
 Circumstances: The circumstances behind trading is more important. For example, if
any item is sale because of the urgent need of cash is will not considered as
trading(Tybur, and et.al., 2020).
 Motive: Intension behind trading is also one of the badges of trade. If the motive is to
earn profit is considered as trading.
VAT scheme available to the VAT registered business
Businesses whose VAT taxable turnover is more than the threshold limit of £85000 then
they must register the business for VAT(Zu and Krever, 2020). VAT taxable turnover means the
amount of everything the company sold and that is not VAT exempt. The different VAT scheme
available to the VAT registered business are:
 VAT annual accounting scheme: Under this scheme, VAT registered businesses need
not to file HMRC VAT return four times in a year but instead of that they only need to
file return once in a year.
 VAT cash accounting scheme: Under this scheme, VAT registered business pay VAT
only after customer will pay the same to them and they reclaim VAT on sales after they
have paid VAT to their supplier(Cano, 2020). This scheme is not available to VAT
registered businesses who already using the VAT flat rate scheme.
 VAT margin scheme: This scheme is generally used by sellers of second hand goods,
antiques, work of art and other collectors items. Under this scheme, the tax amount is
difference between cost price and selling price of the items.
 Capital goods scheme: This scheme is uses by the businesses in order to claim the rebate
on assets such as land and building etc(Szymanski, 2020). These purchases is made for
the purpose of resale but because of any reason have been used by the owner for other
purpose.

 VAT retail scheme: This scheme is only used by the businesses that make retail sales
and have the annual VAT turnover is less than £130 million. The businesses who make
both retail and non retail sales also avail these scheme but for their non retail business
they must account it in the regular way.
CONCLUSION
In this report, we conclude the different criteria which can be used to distinguish between
employment and self employment. This report also state the six badges of trade and how this
badges help us to differentiate between trading stock and capital assets. In this report we also
conclude the different VAT scheme which VAT registered businesses can avail.

REFERENCES
Books and journals
Burnap, P. and et.al., 2018. Malware classification using self organising feature maps and
machine activity data. computers & security. 73. pp.399-410.
Bakhshi, H. and et.al., 2017. The future of skills: Employment in 2030. Pearson.
Bloodworth, J., 2018. Hired: Six months undercover in low-wage Britain. Atlantic books.
Gopalakrishna, S., Malthouse, E. C. and Lawrence, J. M., 2019. Managing customer
engagement at trade shows. Industrial Marketing Management. 81. pp.99-114.
Zu, Y. and Krever, R., 2020. The United Kingdom has spoken: The receding impact of
European jurisprudence on the UK interpretation of the common VAT
system. Common Law World Review. 49(1). pp.75-91.
Ooi, V., 2019. Taxing ‘all other income’in Singapore and Malaysia. Oxford University
Commonwealth Law Journal. 19(2). pp.204-226.
Tybur, J. M. and et.al., 2020. <? covid19?> Behavioral Immune Trade-Offs: Interpersonal
Value Relaxes Social Pathogen Avoidance. Psychological science. 31(10). pp.1211-
1221.
Gulson, K. N. and Witzenberger, K., 2020. Repackaging authority: artificial intelligence,
automated governance and education trade shows. Journal of Education Policy. pp.1-
16.
Cano, M. C., 2020. UK retailers anxious over withdrawal of VAT retail export
scheme. International Tax Review.
Szymanski, S., 2020. On the Incidence of an Ad Valorem Tax: The Adoption of VAT in the UK
and Cost Pass Through by English Football Clubs. De Economist. pp.1-25.
Online
Business Taxation Meaning: Everything You Need to Know. 2021 [Online]. Available
through:<https://www.upcounsel.com/business-taxation-meaning>
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