Taxation 16 (Finance): Income, National Insurance, Capital Gains, IHT

This assignment analyzes the tax liabilities of Sephora, a finance director, and Elvis Ltd for the tax year 2019/20. It calculates Sephora's employment income, total income tax payable (including benefits like house allowance, fuel, and laptop allowance), national insurance contributions (employee and employer), and capital gains tax from share sales. The analysis includes detailed workings, assumptions, and references to relevant tax regulations. Furthermore, the assignment calculates the inheritance tax due based on the estate value. For Elvis Ltd, the assignment calculates capital allowances, net adjusted trading profit, and corporation tax liability, including depreciation, expenses, and tax computations. The assignment also covers the computation of the corporation tax and the assumptions made for tax purposes. Finally, it provides the calculation of the tax liability of the company.

Running head: TAXATION
Tax
Name:
Institution:
Date:

TAXATION
Question 1
a) Calculate Sephora’s employment income and total income tax payable (refund)
for The tax year 2019/20 and state when any additional tax is due.
Sephora’s employment income Tax
For the Tax year Ended 2019/2020
Tax Computation GBP GBP
Earned Income :
Salary 110,000
Add: Benefits
House allowance 13,000
Fuel 20,500
Laptop allowance (20%*950) 190
Mobile phone @ cost 150
Travel allowance on standard rail
76
Total Earned Income 143,916
Less: Personal deductions
Mortgage Interest/ interest on building
society
(800)
Interest from ISA account (1500)
Premium Bond winnings (1000)
Gift Aid Scheme Donations (1000)
Total Personal Deductions (4300)

TAXATION
Taxable Net Income 139,616
Less: Personal reliefs
Tax Relief 0
P.A.Y.E (3,000)
Total Taxable Net Pay 136,616
Tax Due
GBP 0 to 37,500 @ 20% 7,500
GBP 37,501 to 150,000 @ 40%
45,000
Over GBP 150,000 @ 45%
Total Tax Due 52,500
Workings & Assumptions
1. for self-invested personal pension schemes or personal pensions, the contribution paid
into the schemes are usually treated as have been paid net of basic rate on income tax
relief. For example, Sephora’s workplace personal pension scheme, the pension
provider is allowed to claim back a 20% basic tax rate from the HMRC to add to
Sephora’s contribution. For a higher rate tax payer, he or she can claim a further tax
relief from HMRC (at a higher arte less the already claimed basic rate by the pension
scheme.)
2. house allowance is a taxable benefit and will be valued at a cost of GBP 13,000

TAXATION
3. Fuel expenses paid by the employer for the sake of smooth running of the business is
a taxable benefit and for private is taxable (Feld, et al,2016)
4. Personal use of the company’s laptop is a taxable benefit
(20%*950)=190
5. Mobile phone use for business is not taxable on the employee’s side since she is using
it for business required by the company.
6. Dividend income is taxable on the receiver hand. It is taxed at source and therefore
capital gain tax on the GBP 20,000 dividend received from a UK company is taxed at
5% at source.
7. Personal deductions include interest on mortgages or building society, charities and
donations given and interest on ISA account (Huizinga, Voget, & Wagner, 2018)
8. Total earned income is GBP 143916
9. Total personal deductions is GBP 4300
10. Total Taxable income is GBP 139,616
11. Sephora’s Total Tax Due as per the FY 2020 tax Bracket
Tax Due
GBP 0 to 37,500 @ 20% 7,500
GBP 37,501 to 150,000 @ 40%
45,000
Over GBP 150,000 @ 45%
- /
N/A
Total Tax Due 52,500

TAXATION
b) Calculate the national insurance payable by Sephora and her employer.
National insurance is the total tax on earnings from employment and also self-
employment earnings. National insurance paid by both the employer and Sephora is paid into
a pool of collection or a fund from which some schemes benefit, for example the pension
fund, the statutory maternity leave or sick leave pay, or any other unemployment benefit
accrued or that is important.
In the UK, National insurance (NI) contributions is payable if one earns more than GBP 166
per week. One is obliged to pay 12% of their earning if they earning is more than the limit
stipulated and up to a maximum of GBP 962 per week. Beyond this limit, the rate drops to
2% for the FY 2019/2020 if the earnings exceed GBP 962 per week (Lei,, & Xu, 2019).
Contribution Rates
For an employee (Sephora) Class 1 contributions on National Insurance is made up of
1. Deductions from their pay( employee National Insurance )
2. Deductions paid by the employer ( employers national insurance)
Contributions depend on
1. Category letter by National Insurance to the employee
2. How much earnings of the employees fall in each category
Category Letter 0-166 per week 166.01-962 per week Over 962 per week
A 0% 12% 2%
B 0% 5.85% 2%

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C N/A N/A N/A
Sephora earns GBP 136,616 per year. Divide this by 52 week which is weeks in a calendar
year, she earns an approximately GBP 2627.23 per month which is also equivalent to GBP
656.8 per week .
National Insurance payable by employer
Income Class A (NI)@12%
Annual Income GBP 136,616 16940
Monthly income GBP 2627.23
Weekly income GBP 656.8
Employers contribution to
NI
GBP 16940
National Insurance payable by Sephora
Income Class A (NI)@12%
Annual Income GBP 136,616 16940
Monthly income GBP 2627.23
Weekly income GBP 656.8
Employers contribution to
NI
GBP 16940
c. ) Compute the lowest capital gains tax payable by Sephora for the tax year 2019/20,
using the taxable income from part (a) and state when the capital gains tax is due

TAXATION
Tax Computation GBP GBP
Earned Income :
Salary 110,000
Add: Benefits
House allowance 13,000
Fuel 20,500
Laptop allowance (20%*950) 190
Mobile phone @ cost 150
Travel allowance on standard rail
76
Total Earned Income 143,916
Less: Personal deductions
Mortgage Interest/ interest on building
society
(800)
Interest from ISA account (1500)
Premium Bond winnings (1000)
Gift Aid Scheme Donations (1000)
Total Personal Deductions (4300)
Taxable Net Income 139,616
Less: Personal reliefs
Tax Relief 0
P.A.Y.E (3,000)
Total Taxable Net Pay 136,616

TAXATION
Tax Due
GBP 0 to 37,500 @ 20% 7,500
GBP 37,501 to 150,000 @ 40%
45,000
Over GBP 150,000 @ 45%
Total Tax Due 52,500
For capital gain tax
Sephora matters on capital gain tax
Sale of share –Tawny Owl Plc on 31 January 2020
Transaction
Date
Number of shares Cost of share purchase
1/1/2009 1500 £6,300
19/6/2010 1050 £4,425
31/12/2016 1802 £8,430
11/9/2019 400 £2,100
(i) On 31 January 2020, she sold some of her shares in Tawny Owl plc, a listed
company. The shares had been acquired as follows:
Date of transaction Number of shares Purchase cost of shares

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1 January 2009 1500 £6,300
19 June 2010 1050 £4,425
31 December 2016 1802 £8,430
11 August 2019 400 £2,100
Total number of
shares
4752
Rights issues
Transaction
Date
Total Number of share Rights Price @3.50
31/5/2018 4752 1 for 4 shares
=1188 shares@ 3.50 4158
Sale of shares
Transaction Date Total Number of share sold Amount
31/01/2020 4350 GBP 38,000
=
Capital Gained
Transaction Date Total Number of share sold Amount
31/01/2020 4350 GBP 38,000

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Less;
1 January 2009 1500 £6,300
19 June 2010 1050 £4,425
31 December 2016 1800 £8,420
(19145)
Capital gain / Profit on sale of share 18855
Profit on sale of shares is GBP 18855
Assumption and workings on CGT
1. According to HMRC, one need to pay tax on profit or capital gained from sale of
shares unless they are held in a pension’s fund (PEP) or ISA. Capital gain tax include
profit on assets like shares, investments trusts , funds and other financial products.
2. On their taxation, Cpaital Gain Tax (CGT) to pay depends on the income tax band in
which one falls. A basic pay taxpayer in the UK pays a CGT at the rate of 10% while
a higher band taxpayer pays tax at a rate of 20%.
3. In the financial year 2019/2020, capital gains to a maximum of GBP 12,000 are not
taxable.
4. No taxation on share or capital gained on shares held in Unit trusts or pension
schemes.
5. For identical shares like the ones acquired by Sephora, acquired at different times and
intervals, HMRC assumption is that the disposure are in a strict order. This is in order
to calculate the tax bill for tax purposes using the correct initial cost of purchase for a
specific batch of shares. HMRC assumes that shares bought in the same group and in

TAXATION
the same day and the ones bought within the next 30 days are the same batch of share
or are in the same group (Plakhtii, Fedoryshyna, & Tomchuk, 2019)..
6. Buying of shares or exercising a rights issue does not attract any capital gained tax.
For capital gain tax, in disposition of Sephora’s shares. The first batch and the second batch
were disposed first. The third batch had more share by two so I disposed 1800 shares bought
on 31 December 2016.
CGT on Sephora’s Share sale
Shares Profit from sale of
shares
CGT (10%
Profit 18,855
Less: threshold (0% CGT to a maximum of
12,000)
(12,000)
Taxable amount on CGT 6,855 CGT= GBP
685.5
Item Capital gained
Antique dress 7,400
Speed boat 3,000
Capital losses b/f (2,000)

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Total capital
gained
8,400
CGT nil
Payable at the end of taxable year 2020/2021
d) Inheritance tax due in the UK, inheritance tax rate stands at 40%. However, it is
only charged above the estate threshold
Estate value /
item
GBP GBP@40%
Net estate worth 337,000
House 198,000
Net estate value 139,000 55,600
Question 2
a) Calculate the capital allowance for Elvis Ltd for the Year ended 30march 2020
Elvis Ltd Capital Allowance Schedule
For the year Ended 30the March 2020
Item Capital allowance pool GBP GBP
Note 1 Addition: New conditioning system 12,500