Detailed Analysis of UK Tax Liabilities for Individuals and Businesses

This assignment provides a comprehensive analysis of UK tax calculations, covering various aspects of income tax, inheritance tax, and capital gains tax. The solution begins with an introduction to accounting and taxation, defining different tax types and the sources of government revenue. It then details the steps involved in calculating income tax, including determining residential status, classifying income under different heads (salary, property, business, capital gains, and other sources), computing income under each head, and addressing exemptions, deductions, and loss set-offs. The assignment proceeds to calculate inheritance tax liabilities after death, capital gains tax, and factors influencing individual loss relief claims. It also calculates taxable income and tax liabilities for individuals and businesses, considering additional director remuneration and bonus payments. The solution concludes with references to relevant books and journals.

Accounting

INTRODUCTION
Accounting is a recording and summarizing of the financial data. It can be classified into
the various fields such as financial, management, cost and tax accounting. This report includes to
calculate the taxes that are income generated by people of various sources. Taxes are levied by
the government to meet the common welfare expenditure of the society. There are two types of
taxes such as direct and indirect taxes. The reason for levy of taxes is that they constitute the
basic source of revenue to the government. The levy of direct tax in UK is governed by the
Income-tax Act.
TASK
Tax levied on the total income of previous year of every person. Person includes individual,
undivided family, Association of person (AOP), body of individual (BOI), firm and company.
Total income and tax payable
Tax is payable on the total income of assessee. Total income has to be computed as per UK
income laws. There are many steps to calculate the tax liability which are as follows:
step1
Determination of residential status – it has to be determined to ascertain which income to be
included in computing the total income. The residential status as per income tax act can be
classified as under
 in case of an individual, the duration for which he is present in UK determines his
residential status. The status of a person ascertain the taxability of income.
Step 2
Classification of income under different heads – A person may earn income from different
sources. for example, a salaried person earns income by way of salary. Person also gets interest
from saving account. Apart from this, if the assessee has invested in shares, he would be getting
dividend and when shares are sold then profit can be earn on such sales. If someone holds a
residential property which is let out then also rental income would be earned. According to
income tax act, the calculation of total income, all income of tax payer are classified into five
different heads of income they are as follows -
 Salary head includes salaries, pensions, bonus and incentives.
 Income from house property includes rental income.

 Income from business or profession includes income deriving from carrying business or
profession.
 Income from capital gain includes profit derive from sale proceed of capital assets.
 Income from other sources includes interest, dividend, winning of horse races and
lottery.
Step 3
computation of income under each head – Income is to be computed in accordance with the
provision governing a particular head of income.
Exemption – There are certain income which are wholly exempt from income tax e.g agriculture
income and some income which are partially exempt from income tax. For example, house rent
and education allowance.
Deductions – while calculation income there are many deductions and allowance available under
each head of income.
Step 4
Set off and carry forward of losses – an assessee may have different sources of income under the
same head of income. He may have profit from one source and loss from other source.
Income head Carry forward years Set off
Income from salary 8 years Not adjustable with other
heads.
Income from house property 8 years Adjustable with any other
heads except salary head.
Income from business or
professions
Speculative business losses
8 years
4 years
Adjustable with all heads of
income except salary head.
Speculative business losses
can be set off only the
speculative income
Income from capital gain:
long term capital gain
Short term capital gain
8 years
8years
Long term capital losses set off
only with long term capital
gain but short term capital
losses can be set off both

capital gain incomes.
Income from other sources 8 years It can be set off any other
heads but except salary head.
Casual losses can be set off
only casual incomes.
Question 2
Computation of inheritance tax which will be payable after Olivia's death
Inheritance tax
It is an amount of tax which is levied on estate of someone who got died. Here, estate consists of
property, possessions and money. The standard rate of inheritance tax is applicable 40 percent
after above of the threshold limit of 325,000. If property received of children then threshold limit
is 500,000.
Particulars Pere Phil
Gift received from Olivia 440000 440000
Less : threshold limit -325000 -440000
Taxable income 115000 Nil
calculation of tax liability in hands of Pere
Income Slab rate Tax liability
Upto 12570 0.00% Nil
12570 – 50270 20.00% 7540
50271 - 115000 40.00% 25891.6
Total tax liability 33431.6

Calculation of Duphney's capital gain tax liability
Capital gain – any profits or gains arising from the transfer of capotal assets effected in a
previous year will be chargeable to income tax under the head Capital gain. Such capital gain
will be deemed to be the income of the previous year in which the transfer took place. In this
charging section, two terms are important in which one is capital assets and other is transfer.
Capital assets means property of any tax which is held by the individual whether or not it relates
to profession or business. Any investment which is held by foreign financial investor, any unit
which is related to linked insurance policy. Capital assets does not include
 stock in trade
 raw material which is held for business or profession
 moveable property which is use for personal purpose by the owner and his family
member
 rural agriculture land
There are two types of gains which are classified into short term and long term capital gain.
Short term capital gain – It means those assets which are held by assessee not more than 36
months immediately preceding the date of transfer. It is adjusted by both capital gain such as
long term and short term.
Long term capital gain – It means capital assets that are held by assessee more than 36 months.
Long term capital losses adjusted only by itself.
Computation of capital gain tax liability of Duphney's for the year 2021/22
Particular Amount
Full value of consideration received or
accruing as a result of transfer
725500
Less : cost of acquisition (560000 * 331 / 240) -772333
Less : cost of new boundary wall around the
property
-10300
Less : cost of replacing the property's chimney -4500
Long term capital gain -61833
Income from other source

Taxable income 18550
Total taxable income 18550
Note : long term capital loss can not be set off with any other head of income. So, the capital
losses of Duphney is 61833 can not be adjusted with any other taxable income. It will be carry
forward to upcoming years.
Calculation of tax liability
Income Slab rate tax liabilities
Up to 12570 0.00% Nil
12570 – 18500 20.00% 5930
Total tax liability 5930
Question 3
(a)the factors which influences an individual's choice of loss relief claims
There are many factors which will be related to influence of loss relief choice but there are 3
important factors they are as follows:
1. Early relief claims- Therefore the modern day overall profit of whole year which convey
12 months over all profits declared are more likely for use earlier than declared selling
and buying profits.
2. Corporation tax rates- There is a downfall in corporate tax rate. Such as in year 2016 the
rate was 20% than in 2017 it was 19% and hence remain same for financial years
18,19,20 and 21.
3. Reduce the enterprise size from big to small for the purpose of corporate tax- if the size
of the company gets reduced then they will not required to make quarterly instalments of
corporate tax.
(b)Calculate Sara's taxable income and tax liability
Particulars 18-19 19-20 20-21 21-22
Income from 14580 52500 -81500 27955

business or
professions
Losses can be set
off
27955 -27955
Income from
capital gain
24200 26600 -4500 16200
Less- carry
forward losses
4500 -4500
Income from
other sources
8200 5700 4260
Loss of business -5700
Total income
earned
38780 79100 -47845 15960
Less-deduction
allowed of
building society
interest
-1000 -1000 0 -1000
Total taxable
income
37780 78100 0 14960
Calculated tax liability of year 2021-22
Income Slab rate tax liabilities
Up to 12570 0.00% Nil
12571– 14960 20.00% 478
Total tax liability 478

Question 4
(a) calculate the revise tax liability of Jessy and Hippy Ltd (1) as a additional director
remuneration
Particulars Jessy Hippy Ltd
Income from salary
Income earns from additional
remuneration
NIC contribution by employee
NIC contribution by employer
33500
24500
2460
2920
Income from business or
professions
nil 85500
Income from other sources:
Dividend 43000
Total income 106380 85500
Less- deductions
NIC by employee
NIC by employer
2460
2920
Total taxable income 101000 85500
Revised income tax liabilities
Income Slab rate Jessy Hippy Ltd
Up to 12570 0.00% Nil
12571– 50270 20.00% 7540 7540
50271-101000
50271-85500
40.00% 20292 14091.6
Total Tax liability 27832 21631.6

(2) Bonus is to be treated as additional dividend:
Particulars Jessy Hippy Ltd
Income from salary
NIC contribution by employee
NIC contribution by employer
33500
2460
2920
Income from business or
professions
nil 85500
Income from other sources:
Dividend
Additional dividend
43000
24500
Total income 106380 85500
Less- deductions
NIC by employee
NIC by employer
additional dividend allowance
2460
2920
2000
Total taxable income 99000 85500
Revised income tax liabilities
Income Slab rate Jessy Hippy Ltd
Up to 12570 0.00% Nil
12571– 50270 20.00% 7540 7540
50271-99000
50271-85500
40.00% 19491.6 14091.6
Total tax liabilities 27031.6 21631.6

CONCLUSION
In the above report calculated the income of various heads and determined the tax
liabilities of various individual. The tax liabilities is calculated on the basis of slab rate which are
determined by the UK tax act. There are many deductions that are applicable on the income of
the person on which tax is not payable by the individual.

REFERENCES
Books and Journals
Ahn, J., Hoitash, R. and Hoitash, U., 2020. Auditor task-specific expertise: The case of fair value
accounting. The Accounting Review, 95(3). pp.1-32.
Bekun and et.al, 2021. Beyond the environmental Kuznets Curve in E7 economies: accounting
for the combined impacts of institutional quality and renewables. Journal of Cleaner
Production, 314. p.127924.
CGMA, C., 2018. Blockchain augmented audit–benefits and challenges for accounting
professionals. The journal of theoretical accounting research, 14(1). pp.117-137.
Guo, J., Huang, P. and Zhang, Y., 2020. Accounting conservatism and corporate social
responsibility. Advances in accounting, 51. p.100501.
Matsuoka, K., 2020. Exploring the interface between management accounting and marketing: a
literature review of customer accounting. Journal of Management Control, 31(3). pp.157-
208.
Pavlopoulos and et.al, 2019. Integrated reporting: An accounting disclosure tool for high quality
financial reporting. Research in International Business and Finance. 49, pp.13-40.
Susanto, A., 2018, June. The Influence of Information Technology on the Quality of Accounting
Information System. In Proceedings of the 2018 2nd High Performance Computing and
Cluster Technologies Conference (pp. 109-115).
Xiong, Y. and Wu, S., 2021. Real economic benefits and environmental costs accounting of
China-US trade. Journal of Environmental Management, 279. p.111390.
(Ahn, Hoitash and Hoitash, 2020)(Bekun and et.al, 2021)(CGMA, 2018)(Guo, Huang and
Zhang, 2020)(Matsuoka, 2020)(Pavlopoulos and et.al, 2019)(Susanto, 2018)(Xiong and
Wu, 2021)