Simon Used a Car of Company. The

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Taxation

Task 1

Simon used a car of company. The car was a 2000cc petrol driven Audi with a CO2

emission rate of 189 grams per kilometer. The recommended list price was $38,000, but

Able plc paid 34,000 because of a company discount scheme. Accessories to the value

of 6,000 were added at the time that Simon took delivery of the vehicle, which was on 6

July 2006

Car benefit:

CO2 emission 189Baseline figure (140)

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Divide by 5 9.8

Starting percentage 15

Final percentage 24.8

List price (38,000 + 6,000) = 44,000

Benefit: 44,000 * 24.8% * 9/12 = 8,184

Fuel benefit: 14,400 * 24.8% * 9/12 = 2,678 (approximately)

Loan

He received an interest free loan of $6,000 and need only be repaid on his leaving the

company. The loan will be used to purchase various household items. The official rate ofinterest is assumed to be 5% per annum

Benefit: 6,000*5%= 300

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Taxation

House benefit:

The house was used permanently by Simon and his family from 6 October 2006. The

house had been purchased by the company for $160,000 in May 1999 and had a market

value when Simon moved in of $180,000. The annual rateable value of the house was$10,000 and Simon paid $800 a month to the company for the use of the property.

House benefit: [10,000 + (180,000 - 75,000) * 5%] * 6/12 800 * 6 = 2,825

Trip:=540

Simon received an amount of 6 a day for 50 days of business trips in the UK and $12 a

day for 20 days of business trips abroad. All of these trips required overnight stays awayfrom home and the amounts paid were used to cover the costs of incidental expenses

such as newspapers and telephone calls home.

Trips inside the UK: 6 * 50 = 300

Trip outside the UK: 12 * 20 = 240

Others:

He received luncheon voucher worth5 per day, an amount equivalent to the normalcost of the meals. The normal working year is 200 working days

Voucher benefit: (5 - 0.15) * 200 = 970

He received bank interest $3,600 Bank interest(gross up): 3600 * 100/80 = 4,500

He received dividends from UK companies ($1,350) and from shares held in a individualSavings Account (450). ISA dividend is exempt.

Dividendbenefit(gross up): 1,350 * 100/90 = 1,500

Charity and fee:

Simon paid 312 (net) to a UK registered charity and a 210 annual fee to an HMRC

approved relevant professional body, require for his position in the company.

Charity (gross up) = 312 * 100/78 = 400 (gift aid donation)

Fee = 210

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Taxation

In tax law: If the property was acquired by the employer more than six years before it

was made available to the employee, then the purchase price of the property may be

replaced for tax purposes by its market value on the date that it was first occupied by the

employee. In addition, the company purchases the house more than 6 years before

The house price is the market price: 180,000

If Simon has the house that company purchased less than 6 years before

The house price will be the purchase price: 160,000.

So the house benefit = [10,000 + (160,000 - 75,000) * 5%] * 6/12 - 800*6 = 2,325

Thus, Simon can reduce the house benefit: 2,825 - 2,325 = 500

At last, he can reduce his tax liability on house benefit if he chooses the house that the

company purchased less than 6 years.

Task 2

1. Olivers tax adjusted trading income for the year ended 31 December

2006

Note 1: Private accommodation

Oliver lives in a flat that is situated above the health food shop. 40% of the expenditure

included in the profit and loss account for light, heat, rent and rates related to the flat.

Light and heat benefit: 1,980 x 40%= 792

Rent and rates benefit: 5,920 x 40% = 2,368

Note 2: Motor expenses

During the year ended 31 December 2006, Oliver drove a total 20,000 miles, of which

12,000 were for business purposes

Motor expenses = 4,700

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Taxation

Private purpose expense = (8,000/20,000)*4,700= 1,880

Business purpose expense = (12,000/20,000)*4,700= 2,820

Note 3: Wages and salaries:

The figure of 78,520 for wages and salaries includes an annual salary of 10,500 paid

to Oliver daughter. She works in the health shop food as a sales assistant. The other

sales assistants doing the same job are paid an annual salary of 10,000.

Disallowed expenses: 10,500 10,000 = 500 (the difference between annual salary

pay for Oliver daughter and other sales assistants when doing the same job).

Note 4: Repair and renewal

According to Melville, repairs may be disallowed if they relate to a newly acquired asset

and are required in order to put the asset into usable condition so the disallowable

expenses is install of new improved heating system = 390

Note 5: Sundry expenses

The cost of entertaining customers is disallowed so the business entertaining of 95 is

disallowable expenses

Note 6: Legal and professional expense include

No disallowable expenses

Note 7: Goods for own use

Selling price* the number of week in a year = 45* 52= 2,340

Net profit 25,485Add: Disallowed expenses:

Depreciation 2,340

Light and heat (1,980 * 30%) 792

Rent and rates (5,920 * 30%) 2,368

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Taxation

Motor expenses (8,000/20,000 *4,700) 1,880

Wages and salaries (10,000 - 10,000) 500

Repair and renewal 390

Sundry expenses 95

Trading income not shown in the accounts

Goods for own use (45* 52 weeks) 2,340

10,705

Trading profit adjusted for tax purpose before deduction capital

allowance 36,190

Less: capital allowance 0

Trading profit after capital allowance 36,190

2. Income tax payable by Oliver for 2006/2007

Total () Non-savings () Savings () Dividend (

Trading profit 36,190 36,190

Part-time salary 5,000 5,000

Building society interest (1,440

* 100/80) 1,800 1,800

Dividends (900 * 100/90) 1,000 1,000

Less: charge on income

payment to a patent royalty (90

* 4 *100/78) (462) (462)

Charge on income payment to

loan (220) (220)

Statutory total income (STI) 43,308 40,508 1,800 1,000

Less: Personal allowance 5,035 5,035

Taxable income 38,273 35,473 1,800 1,000

Income tax

Starting rate: Non-savings 2,150 *10% 215

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Taxation

Basic rate: Non-savings 31,150 *22% 6,853

Higher rate: Non-savings 2,173 *40% 869

Savings 1,800 *40% 720

Dividends 1,000 *32.5% 325

Tax borne 8,982

Less: Tax deducted at source (360)

Tax credits on dividends (100)

Add: tax deducted from charge 102

Tax payable 8,624

3. Capital gain chargeable and capital gains tax payable by Oliver for

2006/07

Oliver has high income and the tax rate of her amounts to 40%. Therefore the whole of

her capital gains tax assessment is charged to capital gains tax at 40%.

The amount of capital gains tax payable is (15,800 5,000)* 40% = 4,320

Task 3

The corporation operating in UK has the accounting period end 31st March 2007

The accounting period: 1st April 2006 31st March 2007

()

Trading profit 180,000

Less capital allowances 25,000

Schedule D Case I 155,000

Schedule A 15,000

Capital gain 6,000

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Taxation

Less capital loss (1,600)

Total profit 174,400

Less charge on income 0

PCTCT 174,400

Gross dividend = 6000 * 100 / 90 = 6,667

To put the corporation operating in the right tax rate, term profits is used. Profits

means profits chargeable to corporation tax plus the grossed-up amount of dividends

received from UK companies (or from unit trusts where treated like company dividends)

profit = 181,067

applying the small companies rate (SCR): 19%

Tax liability = 19 % * PCTCT = 19% * 174,400 = 33,136

If the company is considering to make a gift aid donation of 20,000, the charge onincome = 20,000 PCTCT = 174,400 - 20,000 = 154,400

Tax liability = 19% * 154,400 = 29,336

The company will save 3,800 if making gift aid donation, however, the cost for

gift is 20,000 The company shouldnt do that activity.

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Simon Used a Car of Company. The

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