TAX ANALYSIS

Tax Analysis of Lewis & Lily

Tax Analysis of Lewis & Lily

First Request requirement:

Mr. Lewis

-20-7-2013

Subject: Reply to request for tax information

With reference to your request for information regarding certain tax issues pertaining to your taxable trading income I would like to provide following information in such regards.

Part 1

Capital allowance position of Mr. Lewis

Purchase of computer amounting to 3000 is eligible for 100% annual investment allowance. While purchase of car amounting to 30,000 is eligible for 8% of capital allowance on the reducing balance basis.

Capital Allowance for the period ended 30th June 2013

Mr. Lewis can claim following amount of capital allowance for his accounts.

Purchase of computer equipment (3000 * 100%) 3,000

Purchase of car(30000*8%)2,400

Total Capital Allowance5,400

Part 2

Taxable profit for the period ended 30th June 2013

The computation of taxable profit of Lewis from trading profit is given below and is computed from the given data

LEWIS' TRADING AND PROFIT AND LOSS ACCOUNT

For The Year Ended June 30, 2013

Note

Amount in £

Amount in £

Turnover

1

90,041

Expenses:

Rates

2,000

Telephone (business calls only) 1,500

Light and Heat (whole property)

3,500

NIC (self) 1,000

Wages (Lily) 18,000

Wages (self) 25,000

Car running costs 4,865

Depreciation of car 4,000

Interest on loan to buy car 3,000

Repayment of loan to purchase car 3,000

Property insurance 2,500

Advertising- local paper 1,500

Parking fines- Luther 1,000

Gift Aid donation (gross) 1,000

Cricket club membership 2,000

Donations to SouthWark hospital 1,000 74,865

Net Profit Before Tax

15,176

Notes to the Financial Statements

For the year Ended June 30, 2013

1

Lewis' turnover is based on your date of birth. Reverse your birth date, for example 5 April 1990, to give a number of 900405. Then divide by ten giving a turnover of £ 90,040

(Table 1.1)

LEWIS' CORPORATE TAX COMPUTATION

For The tax Year Ended June 30, 2013

Note

Amount in £

Amount in £

Accounting Profit Before corporate tax

15,176

Add Back: Expenditures not deductibles for tax purpose

Gift Aid donation (gross)

1 1,000

Parking fines- Luther 3 1,000

Depreciation of car

4 4,000

Interest on loan to buy car and car running cost

5 7,972

Cricket club membership 6 2,000

Wages (self) 7 25,000 8 3,000 30,000

NIC (self) 9 1,000

Light and Heat (whole property)

10 1,750 76,722

Taxable profit

91,898

Adjusted Profits

Less: Capital Allowances

Purchase of computer equipment (3000*100%)

3,000

Purchase of car (30,000*8%)

2,400 -5,400

Tax Adjusted Trading Profit

86,498

Applicable tax Rate

20%

Tax Liability

17,300

Notes to the Corporate tax

For the year Ended June 30, 2013

1

Charitable donations (made under Gift Aid) these are not allowable.

2

It is assumed that Donation to Southwark hospital is wholly and exclusively for trading purposes (e.g. promoting business' name), and it is to a local charity then it is allowable.

3

These are disallowed and allowed unless the fine is paid on behalf of an employee and incurred whilst on business

4

Capital expenditure including depreciation is not allowable

5

He has bought a car for £30,000 on 1st July 2012. It has CO 2 emissions of 198g/km. So therefore 85% of the Lease rental (comprising of interest on loan to buy a car along with repayment of loan) ...