Taxation Principles and Concepts Coursework
Toby and Tamara
This assignment has three requirements:-
1. A letter to Toby
2. A Report to Tamara
3. An Appendix Report to Tamara
Toby and Tamara are cousins and both have attended London South Bank University.
Toby has graduated from University and has now decided to set up his own business. He inherited a property from his aunt and has set up business designing and selling men’s clothing. It is called œTo Be. You became friends with Toby at University. He knows you are studying taxation and would like you to give him some tax advice. His circumstances are as follows:-
1. He is 25 and has just set up a business in Peckham. He lives at the property in Peckham Park in a flat above his shop.
2. Toby has prepared his own accounts for his first year of business because he says he can’t afford an accountant. He set up full time on 1st August 2012 and his first accounts are to 31stJuly 2013. He would like to know whether they would be acceptable to Her Majesty’s Revenue and Customs and whether you would make any changes for him.
3. He works from his shop below the flat which he shares with his cousin Tamara. He inherited the building from his aunt when she died recently. It is worth approx. Â£500,000 in today’s market. He also inherited Â£10,000 from his aunt with which up his business.
4. He has not yet advised Her Majesty’s Revenue and Customs that he has started in business. He has not yet got round to it.
5. Tamara pays Toby Â£4,000 a year to rent one room from him in the flat. She has heard this may not be taxable. She receives wages of Â£20,000 a year from Lewis for working in his business part time doing general administrative duties. She does this in addition to her other full time job.
6. He has bought a car for Â£27,000 on 1st August 2012. It has CO 2 emissions of 200g/km. He says he needs to visit some customers etc. He also uses the car to get away at the weekend and drive down around to see his friends who live out of London. He thinks he drives about 300 miles every weekend and about 50 miles on business each week.
Toby would like you to tell him what his taxable profits will be for the tax years 2012/2013 and 2013/2014. Also he would like to know what income tax and National Insurance Contributions (NICs) he will have to pay for 2013/2014 from all sources of his taxable income.
In addition he is concerned whether 31st July is a good accounting date to choose. He would like you to advise him on this and whether a different date might be more beneficial for his tax position.
TOBY’S TRADING AND PROFIT AND LOSS ACCOUNT œ TO BE for year ended 31ST July 2013
Turnover (see Note One) Â£
Purchase of computer equipment 2,000
Telephone (business calls only) 1,000
Light and Heat (whole property) 3,000
NIC (self) 1,000
Wages (Lily) 20,000
Wages (self) 25,000
Purchase of car 27,000
Car running costs 6,000
Depreciation of car 4,000
Interest on loan to buy car 5,000
Repayment of loan to purchase car 3,500
Property insurance 1,800
Advertising- local paper 1,500
Parking fines- Toby 1,000
Gift Aid donation (gross) 1,000
Sports club membership 900
Donations to Lewisham hospital 1,000
Toby wants to claim Capital Allowances on the car and the computers.
Toby has no other income except as detailed above.
Toby’s Turnover “ Â£90,102
FIRST REQUIREMENT for 40 marks
Write a letter to Toby explaining to him the information he wishes to know. In particular the letter should contain following information:
1. An explanation as to Toby of his capital allowances position and how much capital allowances he may claim for the period of his accounts.
2. What are Lewis’ taxable profits for the year ended 31st July 2013 and what will be his assessable profits for 2012/2013 and 2013/2014. Also advise him on his choice of accounting date and how this will affect his tax position.
3. How much income tax and NICs will he pay for 2013/2014 and how will the liabilities be paid and by what payment dates.
The remaining 8 marks are for the quality of the letter. The quality will be assessed as follows:
Letter format 2
Sentence structure 1
Use of paragraphs 1
Spelling and grammar 1
Excel formulae 3
All your calculations should be produced using Excel. You should hand in TWO hard copies, one showing the numbers and the other the formulas used. Marks will be awarded or the use of appropriate Excel formulae.
So to summarise, you should hand in your letter with two hard copies of your spreadsheet attached. Also hand in the disk containing ONLY your spreadsheet.
Maximum word length, not including the spreadsheet, should be 1,000 words.
Tamara is 22 and she works for fashion house in the west end of London. She receives an annual salary Â£45,051 and has worked for the company since 1st June 2012. In addition to the salary she receives several benefits in kind from her employer.
Since Tamara lives with Toby in south east London and she has to deal with high level fashion customers from overseas sometimes in the evenings, the company has provided Tamara with a flat in west London near to the office. The flat cost the employer Â£300,000 and has an annual value of Â£25,000. Tamara has free use of the flat whenever she wishes.
In addition to the flat, the employer has provided furniture at a cost of Â£20,000 and will pay all the ancillary costs of the flat which are Â£6000 per year. Tamara is also provided with a company car so that she can collect clients from the airport and drive them to various destinations whilst they are in London. The rest of the time she can use the car privately. The car has a list price of Â£22,000 and CO2 emissions of 175 g/km. The employer will pay Â£3,000 running costs which includes 25% of the fuel costs.
Tamara is also provided with a mobile phone costing Â£1,000 for which the employer pays all the costs. The employer has also lent Tamara expensive computer equipment costing Â£5,000. Finally she has a loan from her employer of Â£4,500 at no interest. The loan is for clothing and other personal items. It is not repayable until 2015 or when she leaves the company.
Tamara is worried that the salary and benefits will result in her paying a lot of tax and NIC but she does not know how much. She is also concerned for the future. Her employer has not run a pension scheme in the past and Tamara wonders whether she can pay into a private pension scheme but she does not know how or if she will receive tax relief for it. She would like to know if it is a good idea for her to enter a private pension scheme.
Tamara also inherited property from her uncle. She has a property in Peckham very near the property inherited by her cousin Toby. Since she does not need to use it herself, she has rented it out to students. She first started to let out the property in July 2012. It has five bedrooms and she has five students each paying Â£4,000 a year. Tamara has allowable property expenses of Â£6,000 a year but she has not paid any tax on this income and believes that no tax should be payable since the tenants are students.
As you are a friend of her cousin Toby, Tamara would like you to write her a separate report answering some of her tax concerns and particularly the following issues:-
Tamara’s Salary “ Â£45051
SECOND REQUIREMENT for 30 marks
Prepare a Report for Tamara which should include the following:-
1. A computation of the tax and NIC she should pay for 2013/2014 in respect of her employment income.
2. Whether it is a good idea for her to make pension provisions and if and how she can obtain tax relief
3. Whether she is due to pay any tax on her property income and how much this will be for 2013/ 2014. Also how does she notify her Majesty’s Revenue and Customs and pay any tax on this income.
The remaining 8 marks will be for the quality of the letter. This will be assessed as follows:
Report format 2
Use of correct layout 1
Sentence structure 1
Use of paragraphs 1
Havard referencing 2
Maximum word length, not including computations, should be 500 words.
THIRD REQUIREMENT for 30 marks
As an appendix to your report to Tamara, she would like you to prepare a brief report on the following lines:-
Tamara is not really happy in her present employment and is looking for another job opportunity. So far she has had two separate offers. Both are within her field but she is unsure which to choose and would like to choose the one which enables her to pay less tax and NIC.
The first job is with the Local Authority helping young people to get into the fashion industry. It is in Southwark near where she lives and would pay her 15% above her current salary (Use the salary as calculated by your date of birth above“ see Note 2 above). There is a non- contributory pension scheme, free parking (worth Â£5,000 a year) and use of the staff canteen (worth Â£8,000 a year) but no other benefits in kind although the job does have career prospects.
The second job is for private fashion agency in central London. It offers a basic salary which is 20% less than her present salary (Use the salary as calculated by your date of birth as above- see Note 2 above), but commission of 10% on all sales she makes which is expected to be worth Â£5,000. She will also have the use of a company car worth Â£23,000 (co2 emissions 210g/kg) plus all fuel paid by the company, the use of a flat worth Â£175,000 and with an annual value of Â£10,000 plus furniture worth Â£15,000 but no bills paid. In addition she would receive a loan of Â£12,000 with no interest payments and the capital to be paid back in five years. There is also the use of a mobile phone worth Â£800 and use of a bicycle worth Â£1,200 to get to work.
She would like to know which job opportunity would be the most œtax efficient for her and she would like you to show your calculations for both options.
Maximum word length, not including computation, 500 words.