Income Tax and NIC Calculation: A Detailed Analysis for 2016/2017

This assignment provides a comprehensive solution for calculating income tax and National Insurance Contributions (NIC) for the 2016/2017 tax year. It includes the calculation of adjusted taxable profit, taking into account non-allowable expenses and capital allowances. The solution details the income tax liability, considering gross salary, dividends, bank deposits, mileage expenses, and pension contributions. Furthermore, it calculates the NIC payable and explains the implications of late tax payments, including penalties imposed by HMRC. This document provides a clear, step-by-step guide to understanding tax calculations for the specified period.

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Table of contents
1. A
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2. B
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3. C
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4. D
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1. A. Calculation of adjusted taxable profit
Particulars Amount (£)
Net Profit 87600
Add:
Expenditure not for business – Property Expense paid for own house 4,800
Less:
Capital Expenses on Motor Car not allowed (1,875)
Capital expense on cooking equipment (729)
Tax Adjusted trading profit 89,796
Note:
Property expenses of £19,200, out of which 25% amounted for £19,200 * 25/100 = £4,800
Capital expense on Motor Car at 18% as it has a CO2 emission of less than 130g/km = £16,667 *
18/100 = £3,000. The total number of miles travelled by the car is 6,000 miles and travel done
for personal purpose is 1,500 miles, out of which HMRC has agreed to 500 miles deduction.
Therefore non allowable travel miles is 1,000 miles. Hence disallowed capital expense out of
£3,000 is £3,000 * 1,000/6,000 = £500. Allowed capital expense is £2,500. For 9 months period
it will be £2,500 * 9 /12 = £1,875
Capital expense on cooking equipment at 18% for p months is £5,400 * 18/100 * 9/12 = £729.
B. Income tax calculation for 2016/2017
Particulars Amount(£)
Gross Salary 66,505
Other Income:
Dividneds 10,500
Bank Deposits 3,000
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Total 8,0005
Less:
Allowance for mIleage expenses borne by Imogen (4194)
Contribution to Occupational Pension Scheme (3420)
Net Income 72391
Less: Personal Allowance 11,000
Taxable Income 61391
Tax Liability calculation
Dividend @ 0% Nil
Income Tax on Remaining income
Upto £43,000 above £11,000 @20% 6,400
Above £43,000 to £150,000 subject to (£61391 – 10500) 7556
Total Tax liability 13956
Less: PAYE 9,505
Net Tax liability 4,451
Note:
Gross salary is before PAYE, i.e. £57,000 + £9,505 = £66,505
The Employer has not paid for any reimbursement for the Mileage expenses borne by the
employee on the use of own car for work purpose. The tax rate per business miles for cars is 45p
for first 10,000 miles and 25p above it. It will be: 9,320 mileage, and the amount will be 45p *
9320 mileage travelled by car for work = 45p * 9320 = £4,194.
Te amount of £13,000 paid by the employer Dhissom for removal of Imogen is not taxable as
such expense is incurred by Employer and is to be borne by it.
Occupational Pension scheme = £57,000 * 6/100 = £3,420.
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C. NIC calculation
Earnings from £5832 to £8112 Nil
Earnings above £8112 to £42996 @13.8% £4813
Above £42996 @13.8% to £66,505 £3244
Total amount payable £8057
D. When the taxpayer does not pays the balancing payment to HMRC, then is imposed a tax
penalty for late payment of such tax. If on assumption it is 3%, and the tax payment made is
£44,000 and the remaining tax to be paid is £20,000. Then the penalty of 3% on £20,000 will be
charged from the taxpayer amounting to £600 in addition to the tax.
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