BAF-5-TAF: Income Tax Liability of a Salaried Person in the UK

This report provides a detailed analysis of the income tax liability of a UK-domiciled salaried individual, Mr. Jeff Ross, for the financial year 2017-18. It considers various income sources, including salary, bonus, interest, dividends, and accommodation benefits, applying the Income Tax Act 2007. The report calculates taxable income, accounts for charitable donations and pension contributions, and determines the total tax payable. Additionally, it discusses suitable business vehicles for an entrepreneur, Sam, recommending a sole proprietorship while also considering partnership benefits, concluding that buying an existing business could offer immediate operational advantages. This document is available on Desklib, a platform offering a variety of study resources for students.

Running head: TAXATION UK
Taxation UK
Name of the Student:
Name of the University:
Authors Note:

1TAXATION UK
Contents
Part 1:...............................................................................................................................................2
Part 2:...............................................................................................................................................7
References:....................................................................................................................................10

2TAXATION UK
Part 1:
Topic:
The topic is to discuss the income tax liability of a salaried person domiciled in UK for the
various income received by him in the country.
Rules:
In the United Kingdom, the Income Tax Act 2007 is the premier tax legislations governing
income tax related matters in the country. As per the income tax rules, the tax year in the country
is from April 01 of a year to March 31 of next year. Section 10 of Income Tax Act 2007, here in
after to be referred to as ITA 2007 in this document, individual incomes in the country is charged
either at the basic or higher or additional rate of income tax depending on the level of income of
an individual (James, 2016).
Income up-to a basic limit of an individual is charged using basic income tax rate as per (sub
section 2 of section 10 of ITA 2007. Sub section 3 of the section provides that in case the income
of the person is in excess of basic limit then the higher rate of income tax shall be used to
calculate the income tax liability of a person. Sub section 3A of section 10 further specifies that
individual with income in excess of higher limit of income will be charged income tax at
additional rate of for the amount of income in excess of the higher limit (McKee, Muir and
Moore, 2017).
Facts:

3TAXATION UK
Mr Jeff Ross is an UK domiciled individual working for a listed UK company, Typo PLC. Jeff
has received salary from the company along with other income from different sources including
dividend. Taking into consideration the facts about the income received by Jeff a detailed
discussion of tax liability of different incomes of Jeff are provided below (Saad, 2014).
Application:
Note 1:
Annual salary of ₤96,072 is taxable as per the ITA 2007. Hence, the amount of salary is to be
considered for calculation of income tax liability of Jeff for the year.
Note 2:
Bonus is taxable on the basis of receipt by the tax payer. Thus, the amount of bonus received by
Jeff on 12th May, 2017 shall be taxable in the financial year 2017-18 (Evans, 2018).
Note 3:
The taxable value of the accommodation shall be liable to be taxed in the hands of the employee.
Note 4:
A Mirage 3 from Mitsubishi has been selected as the suitable car for Jeff. The car will have 1.2
litre MIVEC DOHC I3 engine. Since no value in relation to fuel has been given thus, no tax shall
be payable by the employee in this regard.
Note 5:

4TAXATION UK
The computer benefits is not liable for any tax by the employee as it has not been mentioned as
on the assets for which an entity will required to pay any tax (Burkhauser et. al. 2016).
Tracing into consideration the above the taxable income of Jeff for the year 2017-18 is calculated
below:
Particular Amount
(₤)
Amount
(₤)
Gross salary 96,072.
00
Bonus 12,000.
00
Interest on building society (96072 x 5%) 4,803.
60
Dividend income (96072 x 10%) 9,607.
20
Rateable value of accommodation 11,600.
00
Taxable income 134,082.
80
Less:

5TAXATION UK
Charitable donation allowed (96072 x 2%) 1,921.
44
HMRC contribution in pension scheme
(96072 x 6%)
5,764.
32
7,685.
76
Taxable income 126,397.
04
Particular Amount
(₤)
Amount
(₤)
Gross salary 96,072.
00
Bonus 12,000.
00
Interest on building society (96072
x 5%)
4,803.
60
Dividend income (96072 x 10%) 9,607.

6TAXATION UK
20
Rateable value of accommodation 11,600.
00
Taxable income 134,082.
80
Less: Charitable donation allowed (96072 x
2%)
1,921.
44
Taxable income 132,161.
36
On the basis of basic, higher and additional income tax rates applicable for different income
slabs of a tax payer in the country the tax liability of Jeff would be as following:
Particular Amount
(₤)
Amount
(₤)
Taxable income 126,397.
04
Basic rate @20% (46350 -0 ) 9,270.
00

7TAXATION UK
Higher rate (126397 - 46351) x 40% 32,018.
40
Tax payable 41,288.
40
Note: Personal allowance of ₤11,850 is not allowed as the taxable income of Jeff has
increased ₤123,700 for the tax year.
Conclusion:
Thus, income tax liability of Jeff Ross, the UK domiciled, is ₤41,288.40, i.e. ₤41,288 for the
financial year 2017-18 (Ashworth and Perera, 2018).
Part 2:
Introduction:
The objective of Sam is to sun her own business and she is concerned with business vehicle.
With the objective of providing her with most tax beneficial business vehicle by keeping in mind
the business requirements the recommendation has been made in this document.
Start a new business or to acquire an existing business:
Firstly, it is important to consider the implications of starting anew business as well acquisition
of an existing business. Staring of new business involves lots of legal formalities and thus, is a
time consuming as the business has to be registered first before staring operations of business.

8TAXATION UK
However, no such formalities needed to be fulfilled in case Sam acquires an existing business
(Béland and Waddan, 2015). Thus, if appropriate business vehicle is available to be acquired
then, Sam should acquire an existing business instead of staring her new business. It is important
though to consider all possible implications of taxes before taking a final decision on the matter.
Business vehicles:
Sam has the option of following business vehicles and should choose any one of the following
forms of vehicles as per her requirements (Bohnsack, Pinkse and Kolk, 2014).
Sole proprietorship business:
Sole proprietorship business is a form of business in which there is only one owner of the
business and he is responsible to take all business related decisions. Annual profit earned from
such business is taxable in the hands of the sole proprietor, i.e. the owner of the business along
with other taxable income of the owner. In sole proprietorship business the owner is individually
and personally liable for the liabilities attracted in business operations. In case the sole proprietor
withdraws any amount of money from business as salary then such amount shall be considered
for calculation of income tax liability of the sole proprietor (Storey, 2016).
Partnership business:
The partnership business is one in which two or more partners come together to form an
enterprise with the objective of earning profit from business. The biggest advantage of a
partnership business is that the profits of partnership business which is distributed to the partners
are not taxable. Hence, irrespective of the amount distributed as profit to the partners it shall not
be considered for calculation income tax liability of partners. The assets and liabilities of

9TAXATION UK
partnership business are determined on the basis of agreement between the two or more partners
(Kaiwartya et. al. 2016).
Corporation:
An entrepreneur also has the option to form a company to conduct the business operations.
Forming and establishing a corporation is a lengthy and time consuming process. In UK the
provisions of Companies Act has to be followed by the entrepreneurs in order to form and
establish a corporation as per the act. The biggest advantage of a corporation is that the entity has
a separate legal identity of its own which protects the owners of the company from liability in
excess of their share capital in the company. Also another huge benefit of formation of a
company is the ability to collect huge amount of capital from different sources available to a
company. The amount of profit distributed to the shareholders or owners is termed as dividend
and it is taxable in the hands of the receivers (Xydas et. al. 2016).
Recommendation:
Since, it seems that the requirement of capital is not huge and Sam is primarily concerned of
running her own business without any other person. Hence, the most suitable form of business
for Sam is sole proprietorship business. However, the benefits of partnership business are
immense thus, Sam can also form a partnership business if she is willing to share the ownership
of business with another individual in exchange of capital and other resources.
Conclusion:

10TAXATION UK
Taking into consideration the above discussion it is clear that Sam should either form a sole
proprietorship business to run her own business and in fact if possible should buy an existing
business to immediately start business operations without any legal complications.
References:
Ashworth, A. and Perera, S., 2018. Contractual procedures in the construction industry.
Routledge.
Béland, D. and Waddan, A., 2015. Breaking down ideas and institutions: the politics of tax
policy in the USA and the UK. Policy Studies, 36(2), pp.176-195.
Bohnsack, R., Pinkse, J. and Kolk, A., 2014. Business models for sustainable technologies:
Exploring business model evolution in the case of electric vehicles. Research Policy, 43(2),
pp.284-300. Available at https://www.sciencedirect.com/science/article/pii/S0048733313001935
[Accessed on 5 November 2018]
Burkhauser, R.V., Hérault, N., Jenkins, S.P. and Wilkins, R., 2016. What has been happening to
UK income inequality since the mid-1990s? Answers from reconciled and combined household
survey and tax return data (No. w21991). National Bureau of Economic Research.
Evans, E.J., 2018. The Forging of the Modern State: Early Industrial Britain, 1783-c. 1870.
Routledge.
James, S., 2016. The complexity of tax simplification: the UK experience. In The Complexity of
Tax Simplification (pp. 229-246). Palgrave Macmillan, London.

11TAXATION UK
Kaiwartya, O., Abdullah, A.H., Cao, Y., Altameem, A., Prasad, M., Lin, C.T. and Liu, X., 2016.
Internet of vehicles: Motivation, layered architecture, network model, challenges, and future
aspects. IEEE Access, 4, pp.5356-5373.
McKee, K., Muir, J. and Moore, T., 2017. Housing policy in the UK: The importance of spatial
nuance. Housing Studies, 32(1), pp.60-72.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-
Social and Behavioral Sciences, 109, pp.1069-1075.
Storey, D.J., 2016. Understanding the small business sector. Routledge.
Xydas, E., Marmaras, C., Cipcigan, L.M., Jenkins, N., Carroll, S. and Barker, M., 2016. A data-
driven approach for characterising the charging demand of electric vehicles: A UK case
study. Applied energy, 162, pp.763-771. Available at:
https://www.sciencedirect.com/science/article/pii/S0306261915013938 [Accessed on 5
November 2018]
In partnership business