A Comprehensive Report on Taxation Fundamentals: Income Tax & NICs

This report provides a detailed explanation of income tax and National Insurance Contributions (NICs), including the assessment of income tax based on various sources such as salary, bonus, and benefits. It covers topics like personal allowance, gift aid, company accommodation, and car/fuel benefits, along with calculations for income tax liability and NICs. The report also analyzes the difference between tax evasion and tax avoidance, examines HMRC policies aimed at reducing tax evasion, and determines whether income is subject to personal income tax or capital gains tax. Furthermore, it calculates disposable income under different scenarios, offering a comparative analysis to determine the most financially advantageous option. This comprehensive overview is valuable for understanding the complexities of taxation and financial planning.

Taxation
Fundamentals

Contents
Prepare a report providing detailed explanation for the income tax payment and its NICs........3
Section B..........................................................................................................................................6
Part 1................................................................................................................................................6
(a) Calculate the income tax and NIC for both the options.........................................................6
(b) Calculate the disposable income after performing deductions..............................................6
From the two options which option is best..................................................................................7
Part 2................................................................................................................................................7
Analyse the difference between tax evasion and tax avoidance..................................................7
Analyse two different policies introduced by HMRC in last five years with a view to reduce
tax evasion and avoidance...........................................................................................................7
Part 3................................................................................................................................................7
Analyse the way in which HMRC will ascertain that whether Mrs Jill Jonson will be subjected
to personal income tax or capital gains tax..................................................................................7
REFERENCES................................................................................................................................9

Section A
Prepare a report providing detailed explanation for the income tax payment and its NICs.
Assessment of income tax on the basis of income earned from all sources.
 Salary and Bonus- Fiona is earning a salary of £ 95081 which is calculated from the date
of birth 10.08.95 and then it is divided by 10. On reversing the data, it comes out to be
958010 and on dividing it by 10 the resulting value is 95081. Also, it received a bonus of
£ 15000 on 12 may 2020 which was entitled on 22 March 2020. this amount will be
taxable in current year.
 Contribution- Fiona is contributing 5 % of its gross salary to HMRC registered
occupational pension scheme which is calculated as
95081 * 5% = £ 4754
This amount will be available for tax deduction and would not increase the limit of tax.
 Personal Allowance- This benefit is tax free and can be reduced in case the adjusted net
income is more than £ 100000 by the extent of half of the amount. For instance a person
earned an amount of £ 125000, then personal allowance of that being is zero.
Christian, husband of Fiona transfers its Marriage allowance to Fiona as it is unemployed. This
amount usually equal to the 10 % of basic personal allowance. But in case one of the two
spouses is a heavy tax payer then the transfer is not done. Fiona is not entitled to personal
allowance as the amount of marriage allowance cannot to be transferred to it.
 Gift aid- Fiona made a charitable donation of £ 2852, which is equal to the 3 % of the
total gross salary . This needs to be adjusted up up grossing up the value.
2852 *100 / 80 = £ 3565
This amount of £ 3565 will be added to higher and basic relief limit for Fiona.
 Other income- Fiona received an interest of 4 % on the gross salary which amounts to £
3803. In addition to this, it is also receiving an income of £ 9508 which is equal to 10%
of its gross salary.
Other benefits
 Company accommodation- The property used by Fiona was purchased before more than
six years thus the value of providing accommodation will be equal to £ 250000 which
was the value of house on the date it shifter over their. In addition to this, the
improvement cost of £ 31000 is also made but this is before the start of taxation year.

The annual value if accommodation is £ 11600.
Market value = 2.5 % of 250000 – 75000 = £ 4375
Furniture cost = 20 % of £ 45000 = £ 9000
Total taxable benefit = £ 24975
 Car and fuel benefit – Fiona has been given a car driven by petrol which is Audi S3 2L
TFSI having a list price of £ 22550. The CO2 emission of car is 146g/km. Its taxable
amount is counted be £ 7425 for car and £ 7953 for fuel.
 Whenever a company lends its asset to an employee for its personal use then it is taxed
by 20% every year. The music system was held by Fiona since 2018. This becomes equal
to £ 1750. after 4 days, Fiona purchase that from the company. In this situation, tax is
charged in following ways.
The higher amount out of both is used.
I. when the asset is sold to employee then market price less amount paid for asset
II. when previously asset was loaned then market price minus assessed sum to tax and sum paid
for asset (Veryzhenko and et. Al., 2017).
Fiona relates to second scenerio.
Fiona - Income from employment 2019/20
£
Fiona's annual salary 95081
(Occupational Pension Scheme) - -4754
Bonus 15000
Company Accommodation:
Annual value 11600
Market value 2.5% x (250000-75000) 4375
Furniture 20% x 45000 9000
Car benefit 7425
Fuel benefit 7953
Music system 3000

Total 148680
Fiona - Income tax computation 2019/20
Total NSI SI Dividends
Employment 148680 148680
Interest 3803 3803
Dividends 9508 9508
Net income 161991 148680 3803 9508
(PA) - -
Taxable income 161991 148680 3803 9508
Income tax due
NSI Basic rate (37,500 + 3,565) 41065 at 20% 8213
:Higher rate (150,000 + 3,565)
(150580 - 41,065)
109515 at 40% 43806
SI Saving allowance
Additional rate 3883 at 45% 1747
Dividends Allowance
Additional rate
2000
7708 at 38.1% 2696.748
164171 56463
Income Tax Liability 56463
 National insurance contribution – Primary and secondary NICs are ascertained in
accordance with the earnings of employees, Fiona makes payment for Class 1 NICs. It
consists of gross income and bonus before the deduction of contribution through pension
(Scalise Jr, 2017).

Section B
Part 1
(a) Calculate the income tax and NIC for both the options.
For the purpose of calculating tax, the rate of NIC is 12% for the salary of 9500 and 50000 per
annum for the year ending 2021. Thus, the calculation is as follows:
Option 1: Gloria is working as a freelancer for the salary of £ 50000 for the whole year. Its
annual ticket for conveyance costs at £ 2400. Thus, the net income for Gloria is 50000 –
2400 = £ 47600.
The exempted amount of £ 9500 is subtracted from the complete amount. So the net taxable
value is 47600 – 9500 = £ 38100.
Tax rate is 12 %.
Income tax = 38100 * 12% = 4572.
Option 2: If Gloria is self-employed and its annual fees is £ 50000. In addition to this, it also
travels for 5200 miles through its personal car in the year. Its car expenses cost is 39 p / mile.
Thus, the travelling and car expenses are 5200 approx.
So, for calculating taxable income, it is necessary to reduce both the amounts.
50000 – 9500 = £ 41500.
Taxable income = 41500 * 9 % = £ 3735.
(b) Calculate the disposable income after performing deductions.
Disposable income refers to the earnings that is earned after subtracting the income tax from the
net salary (Goodman, 2021). This means the disposable income will be:
Option 1: Gross salary = 50000
Deduction = Conveyance allowance = 2400
Taxable income = 47600
The disposable income is,
= 5000 – 4572 = 45428.
Option 2: In this the gross salary is also = 50000
Income tax = 3735.
Disposable income = 50000 – 3735 = 46265.

From the two options which option is best
It is clear from above discussion that option 2 is good as the tax payment in this option is
less as compared to Option1.
Part 2
Analyse the difference between tax evasion and tax avoidance.
Tax evasion simply refers to the situation when persons try to hide their tax from the
authorities which is illegal (Ironside, 2017). It is a means of lying to income tax authorities in
any form. It can lead to punishment, penalties, fines or even to imprisonment. This also increases
the risk of regular audits to the firm. On the other had tax avoidance means the situation when a
person tries to reduce the amount of payment of tax in legal manner. It is a structured manner in
which the tax payer attempts to minimise the amount of tax obligation according to the rules
provided for that. If used is legal and appropriate manner, it can help the person in claiming tax
deductions.
Analyse two different policies introduced by HMRC in last five years with a view to reduce tax
evasion and avoidance.
Tax avoidance can be defined as a usage of rules and regulations of taxation system for getting
the benefit of tax. This is made through human transactions and is performed in a view to earn
benefits. Most of the tax avoidance policies do not perform as per their need and many times
make the people to pay more than the tax they try to avoid (Ouazad, 2021). Tax evasion is when
the individuals deliberately does not record for the transaction for which the amount is owed by
them.
Part 3
Analyse the way in which HMRC will ascertain that whether Mrs Jill Jonson will be subjected to
personal income tax or capital gains tax.
For ascertaining that the properly being sold, is a capital gain or a personal income tax,
HMRC would have to look at the daily transactions of the business. Whenever a stock or
building is purchased for business purpose as a stock, then the person always tries to sell its
product at some profit. While on the other hand, the sales of capital asset is not necessary to be
sold on credit. The buildings have been sold by Jill on no profit basis, which shows that it was

not a profit earning sale. This shows that the earnings on sale of houses will be taken as capital
gain and will be taxed under this system only.
Also, whenever a residential property is sold, the taxable capital gain is required to be paid
within the time period of 30 days and is required to be send to HMRC. All the other capital
losses experienced in this year can be adjusted against this capital income (Özen and Ersoy,
2019). But if there is any capital loss that has arisen after the sale of this residential property is
ignored and not allowed to be adjusted against the capital gain. At the end of taxation year, the
property gain on the sale of asset is included in the self-assessment capital gain for the
computation of the taxable income. Payment for the capital tax gains is different in regular tax
assessment with regards to 31 January of the tax year and 31 July of the coming year. But it does
not examine the calculation of payments in a situation when more than single residential property
is sold in a whole tax year. Thus, it can be said that Jill Johnson is required to be paid according
to capital tax gain (Rupitsch, 2018).

REFERENCES
Books and Journals
Goodman, D., 2021. loosened these linear structures somewhat in the past twenty years but the
fundamentals remain un flanged. ese established input-output relations and 
locational specificities of the food system are now threatened by modern biote
nologies. Inputs for the food industry potentially can be derived from a mu wider
range of materials: food and non-food crops and even non. Towards A New Political
Economy Of Agriculture.
Ironside, K., 2017. Between Fiscal, Ideological, and Social Dilemmas: The Soviet ‘Bachelor
Tax’and Post-war Tax Reform, 1941–1962. Europe-Asia Studies. 69(6). pp.855-878.
Ouazad, A., 2021. Resilient Urban Housing Markets: Shocks Versus Fundamentals. In COVID-
19: Systemic Risk and Resilience (pp. 299-331). Springer, Cham.
Özen, E. and Ersoy, G., 2019. The impact of financial literacy on cognitive biases of individual
investors. In Contemporary Issues in Behavioral Finance. Emerald Publishing Limited.
Rupitsch, S.J., 2018. Piezoelectric sensors and actuators: Fundamentals and applications.
Springer.
Scalise Jr, R.J., 2017. Some Fundamentals of Trusts: Ownership or Equity in Louisiana. Tul. L.
Rev.. 92. p.53.
Veryzhenko, I. and et. Al., 2017. Time to slow down for high‐frequency trading? Lessons from
artificial markets. Intelligent Systems in Accounting, Finance and Management. 24(2-3).
pp.73-79.