TAXATION

Taxation

Taxation

Introduction

The following is an assignment for guiding two friends on the amount of taxes they need to pay within a fiscal year. The two friends are Thomas and Tiffany who are aging above 20 years and are earning their incomes. Thomas and Tiffany are siblings and each one is individually earning their sources of income. Thomas earns through doing a business and on the other hand his sister earns through doing a job in private run Company. Both of them live in London therefore both will be taxable under the London Tax Act. After analysing the information and the accounts provided by Thomas and Tiffany each will be recommended the following amount of taxes and the contribution of National Insurance Contribution for the year 2012 - 2013. As each one earns his living through different sources of income therefore different amount of tax rates and methods will be applied to calculate tax and NIC for Thomas and Tiffany.

Discussion

The assignment is divided into three requirements to answer and compute the amount of taxes and NIC according to each scenario and the person.

First Requirement

Respected Thomas,

It is to inform you that I have been able to compute your taxable income, National Insurance Contribution for the year 2012 to 2013 and also have computed the amount of capital allowances for the year. The following tables show all the computations and calculations:

Thomas

Income Statement

For the Year Ended 2012/2013

 

 

 

Revenue

 

74,012

less: Expenses

 

 

Rates

6,500

 

Telephone

2685

 

light and Heat

3150

 

Wages (Tiffany)

30000

 

Wages (Self)

16000

 

Interest on Loan

3000

 

Insurance

2480

 

Advertising

1365

 

Speeding Fine

1200

 

Total Expenses

 

70,380

Net Taxable Income

 

7,632

Taxes to be paid by Thomas for the year 2012/2013

Tax on Property Inherited:

 

 

Property Worth Today

600,000

 

Money Inherited

10,000

 

Rent earned from Inherited Property

5000

 

Tax rate

40%

 

Inherited Tax to be paid for the year 2012/2013

 

246000

 

 

 

Income Tax:

 

 

Income for the year

16000

 

Tax rate applicable

20%

 

Income tax to be paid for the year 2012/2013

 

3200

 

 

 

Vehicle Tax:

Band J

 

Car in the category of CO2 emission

186-200

 

Vehicle tax to be paid for the year 2012/2013

 

250

Total taxes to be paid by Thomas for the year

 

249450

National Insurance contribution for the Year 2012/2013

 

 

Property Insurance:

 

 

Property worth

600,000

 

Insurance rate

40%

 

Property Insurance for the year

 

240000

Vehicle Insurance:

 

 

Worth of Vehicle

25,000

 

Insurance rate

30%

 

Vehicle Insurance for the year

 

7500

Total NIC for the Year 2012/2013

 

247500

Capital Allowances for the Year 2012/2013

Car Running Cost

 

2860

Gift Aid

 

1000

Cricket Membership

 

1800

Donations

 

500

Depreciation

4000

Total Capital Allowances

 

10,160

I would like to tell you that capital allowances are the amount of tax which is designed by the Tax Authorities in UK to provide relation on the assets of firm that have got depreciated or are written down by the company. Such amounts are mentioned by the name of depreciation in the financial statements of a firm. According to Sheikh, (1999)Capital allowances are also termed as the amount of wear and tear of assets that were bought by the firm many years ago. Apart from the cost of maintain the assets there are several other kinds of capital allowances which can be claimed by the firm as tax allowances or the capital allowances. For example if you buy an asset like any equipment, tool, machinery or a vehicle you cannot deduct expenditure from the income but instead it will be recorded as a capital allowance for the ...