Taxation Dissertation Sample

Dissertation
Sample On
Taxation
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TABLE OF CONTENTS
Introduction.................................................................................................................................3
Task 1............................................................................................................................................3
1.1 Description of UK tax environment........................................................................ 3
1.2 Analysis of roles and responsibilities of tax practitioner............................... 5
1.3 Explanation of tax obligations of tax payers and their agents along with
the implications of non-compliance...............................................................................5
2.1 Computation of relevant expenses and allowances........................................ 6
2.2 Computation of taxable amount and tax payable for employed and self
employed along with the payment dates....................................................................7
2.3 Completion of relevant documentation and tax returns of the
organization............................................................................................................................ 9
Task 2......................................................................................................................................... 12
3.1 Computation of chargeable profits...................................................................... 12
3.2 Computation of corporate tax liabilities and computation of due
payment dates.................................................................................................................... 12
3.3 Provisions of income tax deductions...................................................................14
4.1 Identification of chargeable assets......................................................................15
4.2 Computation of capital gains and losses and tax payable on it ..............15
Conclusion.................................................................................................................................17
References................................................................................................................................ 18
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INDEX OF TABLES
Table
Table
Table
Table
Table
Table
Table
1:
2:
3:
4:
5:
6:
7:
Income statement of Mr. Jones.......................................................................... 7

Statement showing computation of taxable income.................................8
Data of Running Limited.................................................................................... 14
Financial facts and figures of Running Limited......................................... 14
Operating profit of Fast and Forward Ltd.................................................... 14
Chargeable profit of Fast and Forward Ltd................................................. 15
Taxable amount of Fast and Forward Ltd....................................................15
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ILLUSTRATION INDEX
Illustration
Illustration
Illustration
Illustration
1:
2:
3:
4:
Income tax rates.........................................................................................10

Form P45........................................................................................................11
Form 11 D......................................................................................................12
Form P60........................................................................................................13
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INTRODUCTION
Taxation can be referred as act of taxing authority of levying of tax on
individuals on their earnings or benefits attained by them. This term is
applicable on all types forms of taxes such as income tax, capital tax and
other indirect tax. Taxation in UK is governed by provisions of HM Revenue &
customs (Xu and Xu, 2013). Individuals are required to comply guidelines
provided by HMRC in order to satisfy their tax obligations in an appropriate
manner. Present project report is focused on the evaluation of provisions of
tax liability of individual and commercial entities. For this aspect, description
will be provided regarding relevant tax norms. This description will be
supported by practical examples for better understanding.
TASK 1
1.1 Description of UK tax environment
Purpose and types of taxation
Taxation is a system of compulsory contribution by public levied by
government. It is a primary source of revenue for government expenses and
other public purposes. Tax is charged by government to make reduction
between income in-similarities between population and to provide necessary
goods and services to the public. This revenue is raised from the direct and
indirect taxes. For this aspect following types of taxes are collected by the
government of UKIncome tax- Income tax is charged from individuals and trusts on the
income earned and unearned by them from course of employment,
trading activities, pensions, dividend, rents, investment and profits
(Income Tax rates and Personal Allowances, 2015). Basic rate of
income tax is 20%. However, in situation where income exceed from
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31785 then 40% tax is payable on additional income and if it exceeds

from 150,000 then 45% is payable on additional income.
Corporation tax- This tax is payable by corporate entities which have
separate legal identity on the profits earned by them during particular
accounting period. In accordance with the HMRC, corporation tax is
placed on the taxable profits of limited companies and similar entities
such as association, unincorporated entities, clubs and societies
(Henrekson and Sanandaji, 2011).
Capital gains tax- Individual or business organization is liable to pay
capital gain tax in situation they had earned benefit on transfer of noncurrent asset (Comprix, Mills and Schmidt, 2012). In accordance with
the provision of this tax, profit is taxable instead of receivable amount.
Inheritance tax- This tax is chargeable on the transfer of property
after death. However, this tax is subjected to various reliefs and
exemptions. Inheritance tax will also be levied in situation asset is
transfer before 7 years of the death of party (Becker and Fuest, 2011).
It is computed on the cumulative basis i.e. 20% is charged in respect of
lifetime transfers while 40% (Inherent tax, 2015) is charged at the
event of death.
Different methods of tax collection
In UK, tax is collected by HMRC on the behalf of government. Generally
it is collected through the scheme of PAYE although some individuals are
required to pay their tax liability through self assessment tax return. PAYE
tax is applicable if earning is attained through the course of employment
(Alzahrani and
Lasfer, 2012). In this scheme, tax will be automatically
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deducted by employer side on the earning. However, in following situation

individual is required to pay through form of self assessment tax return:
Individual is self employed (Working for yourself, 2015).
Rental or foreign income is received.
Untaxed income that cannot be collected through PAYE scheme.
Tax legislation
Taxation legislation in UK is mainly governed by provisions provided by
HMRC. They are responsible for the collection of tax on the behalf of
government. They provide guidelines to assesses and tax practitioners by
which they can fulfill their tax obligations in an appropriate manner (Miller
and Oats, 2012). In addition to this, they provide continuous amendments by
considering economic environment in industry for the purpose of providing
better and justified guidelines.
1.2 Analysis of roles and responsibilities of tax practitioner
Tax practitioner act as a mediator between assesse and government
authorities. They are well versed with the knowledge of taxation provisions
thus are required to guide tax payer in an appropriate manner. In this aspect,
they have following roles and responsibilitiesDealing with inland revenue- There main responsibility is to deal
with inland revenues. They fill the return on the behalf of the client.
Further, they communicate amendments to the clients so they comply
their obligations in a proper manner (McGuire, 2013).
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Providing appropriate advise- Tax practitioners provides advise to

the client regarding tax requirements by analyzing their tax situation in
a proper manner. In addition to this, they also handle the cases of tax
dispute with the government authorities.
Computation of tax liability- By considering information of business
scenarios, tax practitioner also compute the liability of individuals
(Dowell, 2013). Due to this aspect, they are mandated to have
background education in the field of taxation.
Respecting confidentiality of client- It is both ethical and legal
responsibility of tax practitioner. They must not disclose information of
client to the third party in order to earn unjust benefits.
1.3 Explanation of tax obligations of tax payers and their agents along with
the implications of non-compliance
Obligation of tax payer
To provide fair and accurate information to the tax agent so they can
fill their return appropriate.
All material information should be disclosed without any window
dressing or manipulation (Cairncross, 2013).
They should act in accordance with the standards described by HMRC
while considering various aspects such as VAT, PAYE, corporation tax,
etc.
Further, they are required to maintain accounting data for reasonable
period of time for the purpose of scrutiny.
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Obligation of tax agent

They should act in accordance with the guidelines provided by HMRC
They should promote tax planning instead of tax evasion
Tax agent are required to provide true and fair information to client
without any misleading guidelines in order to earn high profit.
Implications of non-compliance
Both tax payer and their agents are liable to fulfill their obligations in a
proper manner. In situation where tax payer fails to act in accordance with
the provided guidelines by the legislation then they will be liable to provide
damages of 3,000. On the other hand, there will be adverse impact on the
business activities (Terra and Wattl, 2005). Further, license of tax agents
can be canceled if they act in contradiction with the guidelines given by
HMRC.
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TASK2
2.1 Computation of relevant expenses and allowances
For employee
Mary is employed in Chris and Cross Ltd. Stated company is engaged in
providing of ladders to the customers. For her service she gets payment on
hourly basis i.e. 50 per hour. In a week she work for 20 hours as Saturday
and Sunday is off. In addition to this, she is entitled for the dearness
allowance
of
10
per
week.
Computation of taxable income of Mary is as follows=(Monthly Basic Pay + Overtime Pay + Holiday Pay + Night Differential)(Allowances provided to her as Income Tax Act)
= (50*20)+40
=1040 per month
For self employed
Mr. Jones is running a digital store for the selling of computer
appliances. Along with this, they are also providing services to the clients for
the repair of computer appliances. However, this business is not able to
generate
sufficient
returns.
Income
statement
of
their
company
enumerated below-
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is
Table 1: Income statement of Mr. Jones

Particulars
Store of computer appliances
Income from sales of computer appliances
Cost of products
Payment made to employees
Rental charges
Drawings
Office expenditure
Travel charges
Paid for donation
Bank charges
Depreciation of office equipment
Capital Allowance
Services provider of computer appliances
Losses on these services of computer appliances
Amount
400,000.00
210,000.00
10,000.00
5,000.00
2,500.00
4,000.00
500.00
400.00
230.00
1,000.00
580.00
1,300.00
Table 2: Statement showing computation of taxable income

Particulars
Incomes
Income from sales of computer appliances
Less: Cost of products
Operating profit
Expenses
Payment made to employees
Rental charges
Drawings
Office expenditure
Travel charges
Bank charges
Depreciation of office equipment
Total expenses
Net profit
Less: Capital allowance
Less: Tax benefit of loss
Taxable income
Amount ()
400,000.00
210,000.00
190,000.00
5,000.00
5,000.00
2,500.00
4,000.00
500.00
230.00
1,000.00
18,230.00
171,770.00
580.00
1,300.00
169,890.00
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2.2 Computation of taxable amount and tax payable for employed and self
employed along with the payment dates
Taxable amount and tax payable by employee
Taxable amount = Income of Mary * 12 - Deduction allowed by Income Tax
Act of UK (Rates and thresholds for employers 2015 to 2016, 2015)
12480 (1040 (monthly income of Mary)*12) 10600 (yearly allowance)
=1880
Amount of tax payable= 1880 *20%
=376
By considering the above computation it can be said that after deduction of
yearly allowance of 10000, taxable income of Mary is 1880. This amount is
less than 10000, thus they will be liable to provide tax on rate of 20% (Tae Uk, 2009). Henceforth, tax liability during the assessment year of Mary is
376.
Taxable amount and tax payable by self employed
Particulars
Amount ()
Net profit
171,770.00
Add- Disallowed expenses
(a) Drawing
2,500.00
(b) Depreciation
1,000.00
3,500.00
Less- allowable expenses
(a) Capital allowance
(b) Charitable donation
Adjusted profit
580.00
400.00
980.00
167,290.00
Taxable amount =(Adjusted-tax losses)

=167,290.00-1300.00
=165990
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Tax payable= (150000-42385)*.40 + (167290-150000)*.45

=43046 + 7780.5
=50826.5
In accordance with the above calculation it can be said that, Jones is
liable to pay tax obligation of 50826.5. Computation of this tax obligation is
done by considering following tax brackets-
Illustration 1: Income tax rates

(Source: Income Tax rates and Personal Allowances, 2015)
Mary and Jones are required to submit their return prior to the
midnight of 31st October 2015. In situation where they are filing online return
then date for the submission of the return will be extended to the 31st
January 2016.
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2.3
Completion
of
relevant
documentation
and
tax
returns
of
the
organization
Tax payer is required to complete documentation formalities with the
submission of amount of tax payable by them on their earnings and benefits.
These documents are required to be submitted by tax agent or tax paper
with relevant and reliable information. This submission is required to be
supported by taxation regimes (Joo-suk, 2012). Description of various
taxation documents is enumerated below1. P45- Tax payer is required to provide submission of this document if
they are not willing to continue their operational activities of business.
It is compulsory for the tax payer to fill this document in order to
provide information of their earnings in previous assessment year prior
to the closing.
Illustration 2: Form P45

(Source: Garrett and Mitchell, 2001)
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2. P60- This taxation form is used by individuals who had earned income
from the course of employment. With this form, they are able to
provide description regarding actual tax liability in order to demand
compensation for the excessive tax deduction at source by the
employer.
3. P11D- This form is filled up by employer in order to provide description
of benefits provided in kind to the employees such HRA, dearness
allowance etc. This form is submitted to the HMRC.
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Illustration 3: Form 11 D
(Source: Blundell and et.al., 2009)
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Illustration 4: Form P60

(Source: Garrett and Mitchell, 2001)
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TASK 3
Scenario
Fast and Forward Ltd is engaged in production of sports equipments. In
2014, sales of the company was 950,000. In order to attain this revenue,
management of the company had made incurred cost of production of
380,000 on purchases. In this aspect other trading expenses of the
business were 60,000 (40000 direct overhead and 20000 indirect overhead).
In this financial year, company had also paid dividend to their shareholders
of amount 60,000. Along with this, interest charges on debt borrowed by
them was 60,000. Along with the sales company had received amount of
6,750 in form of dividend. As per accounting policies formed by them, there
is also charge of depreciation of 45,000. Company is entitled to take benefit
of capital allowance of 23,000.
Financial information of company
Information of other income and losses is as followsTable 3: Data of Running Limited
Particulars
Sales
Purchase
Direct overheads
Indirect overheads
Dividend paid
Interest paid
Dividend received (TDS on dividend 10%)
Capital Allowance for the year
Depreciation
Capital gains
Capital loss
Income from letting out building
Wear & Tear allowance
Interest on investment (TDS on investment 10%)
Amount ()
950,000.00
380,000.00
40,000.00
20,000.00
60,000.00
60,000.00
6,750.00
23,000.00
45,000.00
10,000.00
2,500.00
4,000.00
1,800.00
2,700.00
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Table 4: Financial facts and figures of Running Limited

Particulars
Amount
Capital gain
10,000.00
Capital loss
2,500.00
Rental income
4,000.00
Wear & Tear allowance
1,800.00
Interest
on
investment
(TDS
on
investment 10%)
2,700.00
Table 5: Operating profit of Fast and Forward Ltd

Particulars
Sales
Less: Cost of purchase
Less: Manufacturing expense
Gross profit
Less: Other expenditure
Less: Interest paid
Less: Depreciation
Operating profit
Amount ()
950,000.00
380,000.00
40,000.00
530,000.00
60,000.00
60,000.00
45,000.00
365,000.00
3.1 Computation of chargeable profits

Scope of corporation tax
Corporation tax is payable by corporate entities which have separate
legal identity on the profits earned by them during particular accounting
period. In this aspect, resident companies are required to pay tax on both
domestic and foreign income. However, non resident companies are required
to pay tax only on domestic income (Citron, 2001).
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Accounting period
Generally duration of accounting period is of 12 months which is
started with the financial year of the company. In assessment year, tax of
previous year is paid by company.
Chargeable profits
Tax payable by company is computed on the amount of chargeable
profit. This amount is computed after making adjustment of non-allowed
expenses and income by the HMRC. On this amount further adjustment
regarding deduction provided by government authorities is made.
Due dates
Action
Date of submission
Submission
of
File
annual Prior to the 9 months from the date of
accounts with Companies House completion of financial year
Prior to the 9 months from the date of 1 day
Payment of Corporation Tax
after completion of financial year (Blundell
and et.al., 2009).
Prior to the 12 months from the date of
Filing Company Tax Return
completion of financial year
Adjusted profits
Adjusted profits are computed by making adjustment of disallowed
expenses and income from trading income or losses of the company. By
considering the amount of adjusted profit taxable amount is determined.
Treatment of losses
Losses are adjusted from the amount of adjusted profits. This amount
is reduced from the adjusted profit to determine net taxable income.
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Corporation tax rates

Corporation tax rate for company is 24%. On this percentage company
is required to pay taxes on business income.
Capital expenditure and allowance
Capital expenditure allowance is a deduction provided to the company
for the usage of non current assets in the business. For this aspect two pool
is prepared i.e. general pool and special rate pool.
Treatment of income tax deductions
Provisions of tax deduction has been developed to make reduction in
the tax liability of the corporate entity. In this aspect, provisions of
exemptions such as marginal relief, charity and pension plan has been
introduced (Alzahrani and Lasfer, 2012).
3.2 Computation of corporate tax liabilities and computation of due payment
dates
Step 1: Computation of chargeable adjusted profits by considering
allowable and non allowable income and expenses
Initially adjusted profits are computed by adding disallowed expenses
and deducing allowances and other expenses. By considering this aspect, in
present scenario depreciation will be added back and dividend & wear
allowances will be reduced. In this amount other income such as dividend
and rental will be added.
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Table 6: Adjusted profits of Fast and Forward Ltd

Particulars
Amount ()
Operating profit
365,000.00
Add: Disallowed expenses
Depreciation of asset
45,000.00
Total disallowed expenses
45,000.00
Allowances and other expenses
Less: Dividend paid
60,000.00
Less: Wear and tear allowances
1,800.00
Total allowed expenses
84,800.00
Trading profit
325,200.00
Add:
Income from letting out building
20000
Interest and dividend income [7500*+3000**]
10,500.00
Chargeable gain [12000-4500]
7,500.00
Adjusted profits
386,200.00
Step 2: Computation of chargeable profits by capital allowances
In second step chargeable profits are computed by reducing capital
allowances from the amount of adjusted profits.
Table 7: Computation of chargeable profits
Trading income
Adjusted profits before capital allowances
Less: capital allowances
386,200.00
230000.00
Chargeable profits
363,000.00
Step 3: Computation of taxable amount

It is last step of tax computation. In this step final adjustments are
made regarding tax losses. By deducting this amount net profit will be
determined and on this amount rate of corporation tax will be applied.
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Table 8: Taxable amount of Fast and Forward Ltd by considering additional

items
Particulars
Taxable profit (a)
Tax losses
Corporation tax (24%) (b)
Marginal relief (c) (Consider task 3.3)
Tax liabilities (d)=(a-b)+c
Relief from double taxation (e)
Taxable amount (f)= (d-e)
Amount ()
363,200.00
0
87,168.00
21604
65,564.00
1,050.00
64,154.00
In the table 8, taxable profit is 363200. Due to absence of taxable

losses this amount will be considered for the computation of tax liability.
Rate of corporation tax as per UK norms is 24%. From this taxable amount
marginal relief and amount linked to double taxable has been reduced and
tax able amount is 64,154.00.
3.3 Provisions of income tax deductions
Income tax deduction are reduced from the taxable amount of the
company in order to reduce its obligation. These deductions are provided on
the several transactions such as charity, allowances, marginal relief.
Computation of marginal relief by considering above described scenario is as
follows-
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Marginal relief
= Standard Fraction x (U A) x N / A
In this formula:
U
Upper profit limit
Profits
Total profits
Standard Fraction
(7/400)
Marginal relief = ((7/400)*(1500000-300000)*(250200/243200))

=21604
Working note:
Total profits = Total profits + the grossed-up dividends received
= 243200 + (6750*100/90)
=243200+7000
=250200
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TASK4
4.1 Identification of chargeable assets
Chargeable persons
Chargeable person can be defined as a tax payer who is obliged to pay
statutory charges on the benefit earned on the disposal of assets (Dowell,
2013).
Assets and disposals
For the computation of capital gain tax, those assets are covered which
are capital in nature. On certain assets, exemption is provided by
government such as government securities, car, investment in personal
equity plan etc (McGuire, 2013). Further, liability for capital gain tax is
payable if value of disposal asset is more than equal to 6,000. In this
transfer of shares other NISA, PEP or ISA and business assets are also
taxable.
Payment dates
Tax payer is required to pay tax charges on 5th April after the end of
accounting year. Further, general due date of capital gain tax liability is 31st
January after the taxation year (Preshaw, 2015).
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4.2 Computation of capital gains and losses and tax payable on it

Case situation 1
James is running a furniture outlet. He had acquired paintings some
year ago and now he is planning for the sale of the paintings to the Janet.
Financial information of this transaction is enumerated below:
Particulars
Amount ()
Trading Profit
5000
Cost of acquisition of paintings (purchased on
4500
1st September 2012)

Above assets was sold on 31st March 2014
Exemption on Capital gains tax
5000
790
Computation of capital gain tax or loss for transfer of disposal assets

through indexation method is as followsStep 1: Determination of Income from transfer of property (A). In second step
cost of acquisition is deducted from the income. In step three capital gain is
determined. In fourth step indexation benefit is determined. Indexation
benefit is applicable in present case as asset is purchased in later date. In
last step net capital or gain is determined
by considering other capital
losses and gains.
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Particulars
Amount ()
Step 1: Income from transfer of
5000
property (A)
Step 2: Cost of acquisition (B)
4500
Step 3: Capital gain (A-B)
500
Step 4:Indexation benefit
Step 5: Net capital loss (500-
-290
790)
By considering above calculation it can be said that capital gain tax will
be payable on amount 710. This amount is computed after considering
exemption on capital gain tax.
Computation of capital gain tax or loss for transfer of disposal assets through
taper relief method is as follows-
Particulars
Amount ()
Step 1: Income from transfer of
5000
property (A)
Step 2: Cost of acquisition (B)
4500
Step 3: Capital gain (A-B)
500
Step 4: Taper relief (30%)
150
Step 5: Net capital loss (500-790)
-640
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This aspect shows that method of taper relief is more appropriate for
client because they are not able to take benefit of indexation because asset
is purchased after 1998.
4.3 Computation of liability for capital gain tax
In accordance with the above computation company will not be liable
to pay capital gain tax because there is situation of net loss. Benefit of this
loss can be taken by organization in next accounting year. In situation of
gain, James will be liable to pay tax at the rate of 18%. In the above describe
example, if there will be capital gain be of amount to 500 then computation
of capital gain tax will be as follows=500*18%
=90
*28% rate has not been considered because trading profit is less than the
basic limit of the James.
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CONCLUSION
In accordance with the present study, it can be concluded that taxation
is imposed by government in order to generate revenue for the public
expenditure and to provide necessary service and products. Tax payers and
tax agents are required to comply their obligations in an appropriate manner
by considering provisions described by HMRC. In situation where they to
comply these provisions, then they will be liable to provide damages or
penalty charges described by legislation.
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REFERENCES
Books and journals
Alzahrani, M. and Lasfer, M., 2012. Investor protection, taxation, and
dividends. Journal of Corporate Finance.
Becker, J. and Fuest, C., 2011. The taxation of foreign profitsThe old
view, the new view and a pragmatic view. Intereconomics.
Blundell, R. and et.al., 2009. Optimal Income Taxation of Lone Mothers:
An Empirical Comparison of the UK and Germany. The Economic Journal.
Cairncross, A., 2013. Essays in economic management. Routledge.
Citron, D. B., 2001. The valuation of deferred taxation: Evidence from the
UK partial provision approach. Journal of Business Finance & Accounting.
Online
Income Tax rates and Personal Allowances. 2015. [Online]. Available
at:<https://www.gov.uk/income-tax-rates>.
Preshaw, J., 2015. Management of Taxes Sub-Committee. [Online].
Available at:<https://www.tax.org.uk/tax-policy/remit-of-technicalcommittee/ManagementofTaxes>.
Working for yourself. 2015. [Online]. Available
at:<https://www.gov.uk/working-for-yourself/overview>.
Inherent tax. 2015. [Online]. Available
at:<https://www.gov.uk/inheritance-tax/overview>.
Rates and thresholds for employers 2015 to 2016. 2015. [Online].
Available at:<https://www.gov.uk/guidance/rates-and-thresholds-foremployers-2015-to-2016>.
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Income statement of Mr. Jones.......................................................................... 7

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Income tax rates.........................................................................................10

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31785 then 40% tax is payable on additional income and if it exceeds

Lasfer, 2012). In this scheme, tax will be automatically

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deducted by employer side on the earning. However, in following situation

Providing appropriate advise- Tax practitioners provides advise to

Obligation of tax agent

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Table 1: Income statement of Mr. Jones

Table 2: Statement showing computation of taxable income

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Taxable amount =(Adjusted-tax losses)

Tax payable= (150000-42385)*.40 + (167290-150000)*.45

Illustration 1: Income tax rates

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Illustration 2: Form P45

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Illustration 4: Form P60

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Table 4: Financial facts and figures of Running Limited

Wear & Tear allowance

Table 5: Operating profit of Fast and Forward Ltd

3.1 Computation of chargeable profits

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Corporation tax rates

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Table 6: Adjusted profits of Fast and Forward Ltd

Step 3: Computation of taxable amount

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Table 8: Taxable amount of Fast and Forward Ltd by considering additional

In the table 8, taxable profit is 363200. Due to absence of taxable

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Upper profit limit

Marginal relief = ((7/400)*(1500000-300000)*(250200/243200))

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4.2 Computation of capital gains and losses and tax payable on it

Cost of acquisition of paintings (purchased on

1st September 2012)

Computation of capital gain tax or loss for transfer of disposal assets

by considering other capital

losses and gains.

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Step 1: Income from transfer of

Step 3: Capital gain (A-B)

Step 4:Indexation benefit

Step 5: Net capital loss (500-

Tax payable= (150000-42385).40 + (167290-150000).45

Marginal relief = ((7/400)(1500000-300000)(250200/243200))