Principles of Taxation Assignment: Detailed Solutions for Finance

This assignment solution covers various aspects of taxation principles. It includes calculations for tax-adjusted trading profits, Class 4 National Insurance Contributions, and overlap profit. The solution addresses questions related to taxable income, car and accommodation facilities, and interest-free loans, with detailed breakdowns. It further explains the advantages and disadvantages of voluntary VAT registration, providing numerical examples. The assignment also calculates Class 2 and Class 4 NICs payable by a self-employed individual and describes the badges of trade with examples. The solution provides comprehensive answers, making it a valuable resource for students studying taxation.

Principles of Taxation

Contents
QUESTION 1..................................................................................................................................1

Table of Contents
QUESTION 1...................................................................................................................................2
Question 2........................................................................................................................................3
Question 3. ......................................................................................................................................3
QUESTION 4...................................................................................................................................3
Question 5. ......................................................................................................................................4
1

QUESTION 1
(a)
Harry’s tax adjusted trading profits
Net profits 31550
Add:
Depreciation 17000
Entertainment 8000
Bad debts 7500
Less:
Repairs to business property 6200
Business rates 3000
Salaries & wages 45000
Utilities 2500
tax adjusted trading profits 7,350
(b)
Harry’s tax adjusted trading profits 7350
Harry’s tax adjusted trading profits 9%
Class 4 National Insurance Contributions due
for 2019-20 661.5
(c)
Overlap profit
Harry’s Overlap profit
Net profits 31550
Add:
Depreciation 17000
Entertainment 8000
Bad debts 7500
64050
Harry can acquire relief on overlap profit by qualifying himself for tax relief. This can be
done by registering Social Security Number.
2

Question 2.
a. 35,000 pound
b. 15,000 pound
c. - 5000 pound
Question 3.
a. 12,000 pound
b. 1st January, 2020
c. 3rd Jan, 2020
QUESTION 4
Provided Information:
Annual salary 85000
Car Facility Details:
Car Type Diesel Engined BMW
CO2 emissions 131g/km
Marv's Contribution in car facility 1000
Loan form company (Interest Free) 35000
Flat Accommodation
Flat's Purchase Price 175000
Annual Value of Flat 8000
Flat's Cleaning Cost 3700
3

Furniture 17000
Personal pension scheme 25000
Charity Donation 3800
Annual salary 85000
Interest Free Loan (Deemed Interest @ 2.5%) 875
Car Facility (Assumed to be for company Use:
Exempt) 0
Accommodation Facility
value 8000
Furniture 17000
Flat's Cleaning Cost 3700
Charity Donation: Exempt 0
Personal pension scheme 25000
Total Taxable Income: 139575
Question 5.
(a) Explain two advantages for a trader of voluntary registration and two disadvantages and
give numerical examples.
4

For a trader voluntary registration is helpful due to following reasons:
 This helps to traders in order to avoid financial penalties.
 The right to assert VAT on goods and services consumed for the company is
another benefit of voluntary VAT registration.
 The voluntary registration gives a registration number to traders which can be
used to recognize the business.
Disadvantages:
 It leads to more number of paper works which lead to complexity in the
management.
 Some potential or current clients may be unappeased by VAT charging on
products, especially when they're not registration VAT themselves.
 In the case when output tax is higher than input tax then traders may have to pay
additional tax.
(b) Calculate the Class 2 NICs and Class 4 NICs payable by Steve for the 2019-20 tax year.
Class 2 NICs:
Class 2 NICs 2020-21 2019-20
Small profits threshold £6,475 £6,365
Weekly rate £3.05 £3.00
Class 4 NICs 2020-21 2019-20
Self-employed people start paying above £9,500 £8,632
A lower rate above £50,000 £50,000
Initial rate 9% 9%
Rate above £50,000 2% 2%
5

(c) 5 of the 6 badges of trade and give a short description or an example for each.
There are different types of badges which are as follows:
 Profit seeking goal- This shows objective of profit making intensity of a trader.
 The nature of assets- This indicates nature of assets which can be fixed or non-fixed.
 Variation to Assets-It is essential to note down changes in assets which can make in more
marketable.
 The source of finance- It is essential to assess the way through which funds are collected
from different sources.
 Way of acquisition- Finally, this is important to know about which method of acquisition
to be used by companies.
6