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TASK 1
1.1
British taxation systems and tax rates and allowances for the tax year 2021/22 for businesses and individuals
The basic taxes in the UK government include for collecting the tax that is income taxes, capital gains, property taxes, taxes of the UK inheritance, and also collect the taxes from which are value added that mean is VAT, these taxes are collected from the UK’s public to UK government (Melé et al. 2017). In the above taxes many of these taxes are progressive taxes, that also carry the meaning that those who earn or income higher money in the UK pay higher income taxes to the UK government. Before the UK’s citizens can also pay the taxes in the government of the UK, the UK’s citizens need the insurance number which was given by the UK’s government to the UK’s citizens.
The rate of the taxes also depends on the income of the citizens, if someone earns higher money they give the tax at a higher rate and whoever earns minimum money from the UK government they are paying the minimum rate to the UK governments. In the UK also free the tax for some income that also depends on the income money. The personal allowance which is the standard allowance for the individual that is 12,570 Pound is the amount of the income that the government of the UK is not taking any pay tax from the citizens (Huttunen et al. 2019). That the personal allowance the UK’s citizens also claim for the higher personal allowance through the claim of the marriage allowance or the allowance who are blind persons. The UK government also gives the extra allowance for this type of people after the claim of it.
Rates of Income tax in UK
Band
Taxable income
Rate of tax
Personal Allowance
0 - 12,570 Pound
0 percent
Basic rate
12,571 - 50,270 Pound
20 percent
Higher rate
50,271 - 150,000 Pound
40 percent
Additional rate
Over 150,000 Pound
45 percent
The above already says about who is not paying any taxes and why and here also defines who is paying the minimum tax to higher tax. Earns the money in between the 12,571 to the 50,270 Pound they are paying 20 percent of their income money to the UK’s government and that is the basic rates of the income tax. The higher rate is the start who earns the money from 50,271 Pound to the 150,000 Pound they are paying the high rate tax which is 40 percent of the income. And the addition rate starts from those who earn the money above 150,000 Pound they pay the tax 45 percent of the income. That is the recent income tax rates in the UK (Amara and Benelifa, 2017). Who were the sole traders and who opened the companies which are under the limited company they were not paid any taxes and they have not any national insurance in the UK. They are also paid the tax of the corporation on their profit. Here the recent rate of the tax is 19% for those who earn money through their business in the UK.
Property tax
This property tax is basically those tax which are paid for any property using by any an entity or any particular individual. The example of this tax is real estate which is also called as regressive tax and it paid to the area government by that individual who owns that property in that area. Usually, the amount of paid tax is charged according to the value of property owned but it can be charged on some personal assets too. This tax has distinctive scopes which varies nation to nation where the traditions, various income sources, legal administration and other activities of a nation influences the property tax. Land which is likewise called as backward duty and it paid to the area government by that person who possesses that property around there.
Stamp Duty Land Tax
If you purchase between 01/07/2021 and 30/09/2021
If you spent more than £250,000 for the property, you must pay SDLT.
If you purchase from 1 October 2021
If you spent more than £125,000 for the property, you must pay SDLT.
If you’re a first-time buyer
From 1 July 2021
If you spent more than £300,000 for the property, you must pay SDLT.
Capital gains
Capital gains normally happens when the value of a certain assets or any investment grows because of the growth of it prices. This is considered as a tax where numerous countries charge taxes for such gain in resources and investment and the owner of it as to pay it as per the legal administration. However, in the case of increase in mutual funds, the taxes imply on the investors of the fund. Normally, the rate of tax gets impacted due to the holding time of such investments and assets where the gain experienced for a short time is to be called as ordinary rate of income tax. On the other hand, those gains which are experienced for a long time, such taxes are to be called as lower rate of tax.
If you make a profit after selling a home, you'll have to pay 18 percent capital gains tax (CGT) if you're a basic-rate taxpayer, or 28 percent if you're a higher-rate taxpayers. Profits from the sale of other assets are taxed at a rate of 10% for basic-rate taxpayers and 20% for higher-rate taxpayers.
Only the gains that exceed your capital gains allowance will be subject to these rates.
CGT allowance for 2021-22 and 2020-21
Tax year
2020-2021
2021-2022
CGT allowance for an individual
£12,300
£12,300
Couple's allowance (married or in a civil partnership only)
£24,600
£24,600
UK inheritance tax
Inheritance tax is those taxes which are charged by the nation government on the estate of the individual who has died and had property and money on his hand. In the condition if they have nothing to be pay as inheritance tax it is required for his people to report the activity to HMRC. In UK, it has been analyzed that only 1 out of 20 individual is involved in paying this inheritance tax. In UK, this tax applied on all the individuals even if they are residential or from overseas nation, everyone has to pay this tax and report it to the HMRC. Also, it has been analyzed that the standard rate of inheritance tax in the UK is basically 40%.
VAT
This Value added tax (VAT) is considered as an indirect tax imposes on services and particular goods at the time when the value of it increases starting from its production phase to its purchasing phase. This tax was introduced on 1st April, 2005 and under it the added value is determined at every particular stage where all the involvers of services and goods has to pay the charges of this tax. However, the customers have to pay highest VAT during the time they make any purchase and this the reason why VAT is often called as consumption tax.
VAT rates for goods and services
% of VAT
What the rate applies to
Standard rate
20%
Most goods and services
Reduced rate
5%
Some goods and services, e.g. children’s car seats and home energy
Zero rate
0%
Zero-rated goods and services, eg most food and children’s clothes
Taxation liabilities and implications for incorporated, unincorporated organizations and for individuals working as sole traders and partnerships.
The unincorporated association also indicates the association which is not a person who is legal (Malo-Alain et al. 2021). The group of the people who want to enter into the contract to rent a room for the business meeting, but they are not able to do the same things but they are also hiring a person to do that on behalf of them. Similarly, the association of unincorporated people can not own any property but they must appoint someone, and this is usually a committee, and this committee is also able to hold any property like a trusty. For the individual case time the taxable income also minus from the tax deductions and that's equal to the liability of the gross taxation. In the unlimited partnership, the liability of every partner, jointly with the all partners of the other and also the severally, to all the acts of the firm while someone is the partner. That partner can be organized and responsible personally for the other partner’s carelessness. An unincorporated business is a straightforward structure from a tax standpoint. In the hands of partners who own the business, the profits are subject to income tax and Class 4 National Insurance contributions, as adjusted for tax reasons. There will also be a liability for contributions to Class 2 National Insurance.
The sole traders, who have not any existence which is legally, separate from any business. As per the UK governments law, the owner and the business are also the same. And as per result of these things the owner of any business is liable personally for the debts of the firms and might have to pay for the losses through the business off of the owner's pocket. That is known as the unlimited taxation liability. Regardless of whether a sole trader has taken profits for personal use or reinvested them back into the business, a sole trader must pay income tax on the profits of the business. In addition to paying income tax on business profits, sole traders who are self-employed must also pay Class 2 NIC (£3.05 per week in the 2021/22 tax year if profits are £6,515 or more per year) and Class 4 NIC (9% on profits between £9,569 and £50,270 in the 2021/22 tax year, and 2% on profits over £50,270). If the taxable turnover exceeds the VAT registration level, which is £85,000 in 2021/22, a sole trader must additionally register for VAT. All of this is calculated and reported to HMRC as part of the annual self-assessment process, which includes the filing of self-assessment tax forms. (Rogan H. 2021).
The tax liability of a corporation also refers to the obligation which is legal for a company which is limited to their tax pay on annual profits of it. As the directors they must register their company with the HMRC for the taxes of the corporation, and liability pay within the month of nine and the company’s one day it accounts at year end. The company's income will be extracted mostly in the form of salary and dividends by the individual(s) who founded the company and are currently running it (they may also be paid rent in respect of a building or pension contributions may be made on their behalf). When a salary is paid, the corporation is liable for Class 1 employer and employee National Insurance contributions, as well as a deduction when computing taxable profits. Dividends are not tax deductible for the corporation and do not result in a liability for National Insurance contributions. Profits retained in the business are only subject to corporation tax. Corporation tax must be paid by limited liability companies. This tax is now fixed at 19% of profits, although it is set to increase to 25% in 2023 if profits surpass £250,000.
Taxation legislation that will have implications on national and global taxation "Taxation legislation that will have implications on national and global taxation". You are on the right track, but your answer is too short.
The taxation power, that is both legislative and inherent in the character due to it, has been returned by the UK state to it to exercise. This is inherent due to the government's sustenance requires the contribution from them. The taxation power is also legislative in the character due to only can make the legislature the laws of the tax (Hung, 2018). An income tax which is the global tax which is single and it is also imposed on the income of all, whenever it’s the nature. In the system of the benchmark scheduler, the gross income and the expenses which are deductible that also determine the separately to each income type, and in some cases, deductions which are limited or not, the deduction might be allowable.
The legislation of taxes pushes numerous individuals and business owners to contribute some part of their income to the government which can be later utilized for the betterment of poor and middle-class individuals. The non-installments of the assignment’s taxes to the state run administrations and for the influencing is likewise shown the economy improvement region isn't developing and furthermore the economies of the nation’s go down. Because various business runs at global level, the government ensures that there will be discriminative activities relating to the rates of taxes and each and every one receives equal rights along with the obligations.
This is intrinsic because of the public authority's food requires the commitment from them. The tax assessment power is likewise official in the person due to just can make the governing body the laws of the duty. Also, at the worldwide level the legislation of taxes impacts the GDP development of the nation’s likewise down and the cost of any item increment and that is extremely awful for the residents who have a place with these nations, this eventually influences the reserve funds and the venture. Such taxes could be annual and implications of which is single and it is additionally forced on the pay of all, at whatever point it's the nature. In the arrangement of the benchmark scheduler, the gross pay and the costs which are deductible that likewise decide the independently to every pay type.
The impact of the legal and ethical constraints associated with taxation responsibilities at regional, national and international levels.
The tax fairness law or the quality of the tax which is normal that is also important due to it also determines the constituents reach of the obligation to the taxes paying and the voluntary level compliance (Brooks and Oikonomou, 2018). The main important thing is the enforcement of the tax law for ensuring the adequate voluntary level compliance, but the use method is needed to be proportional and balanced. The main impact for not paying any taxes is fair to the government and that shows the results in reduction of the facilities of the healthcare sectors, the programs of the minimum education system, and some impact also seen to the policies of the limited infrastructure. The non-payments of the appropriations taxes to the governments and for the affecting is also shown the economy development area is not growing and also the economies of the countries go down. And at the international level it also saw the GDP growth of the countries also down and the price of any product increase and that is very bad for the citizens who belong to these countries, this ultimately affects the savings and the investment.
The requirement of the taxation law for guaranteeing the satisfactory willful level consistence is utmost beneficial, however the utilization strategy is should have been relative and adjusted. For the singular case time the available taxes is likewise less from the expense allowances and that is equivalent to the obligation of the gross tax assessment. In the limitless association, the obligation of each accomplice, mutually with the all accomplices of the other and furthermore the severally, to every one of the demonstrations of the firm while somebody is the accomplice.
How to minimize the impact of key legal and ethical constraints discussed above.
That is several things to do for reducing the impacts of key and the ethical constraints about avoiding taxation. That is defined in below
Make sure that the citizens paid all the right taxes.
Keep the records of the organization accounting.
Consider automating the system of accounting of all organizations or companies.
Consider computerizing the system of the payroll of every citizen.
That is all things for the planning of the taxation arrangements which go beyond the intent of the policy law and the deliberate approach which is involved in approaches to exploit the system of the tax that are not ethical (Procházka, 2018). To reduce the avoidance of the rate of the tax it makes the law is simplified and designed or it organizes the administration of the tax structure.
Justified recommendations for improvements of effective tax systems.
The recommendation for improve the system to effective tax that is needed to divide all businesses into large, small, and medium with a separate rule for that organization. Most of all credit and the deduction money also eliminate. Move to the system of a territory that taxes only the income of the domestic (Chytis, 2019). Income tax elimination on the dividends received from the companies of the US. The policy maker also can directly increase the revenue through the rates of the increasing tax, break the reducing tax, the basis of the tax is also expanding, improving the enforcement, and levying the taxes which are new (Cockcroft and Russell, 2018). They also can increase the revenue by the policies and that also increases the activity of the economy, wealth and income.
1.2 Calculation of taxation liabilities for both unincorporated and corporate organization
1.2 (A) Calculation of corporation tax 2020/2021
Glen Food Ltd.
Particulars
Amount (£)
Amount (£)
Sales
120000
Add: received interest
100
Total income
120100
Less: Total overheads
(59165)
Profit before accounts
60935
Add: depreciation
600
Add: entertaining
1000
Less: capital equipment’s
(1800)
Profit liable to corporation tax
60735
Corporation tax @ 19% (60735 x 19%)
11539.65
The corporation tax is 19 percent and after calculating the taxes of the corporation that is 11539.65 Pound.
1.2 (B) Calculation of tax for unincorporated
John Hairdressing Ltd.
Particulars
Amount (£)
Amount (£)
Sales
60000
Services
2000
Other income
4000
Total income
66000
Less: expenses
Accounting
500
Advertising expenses
300
Electricity
600
Wages
2500
Other expenses
250
Charity
500
Council tax
1500
Rent
12000
Gas
700
Water
760
Total expenses
(19610)
Less: Personal allowance
(12570)
Income before tax
33820
Income Tax (33820 x 20%)
6764
Income after tax of 20%
27056
For the unincorporated are the calculating liability taxes is 20 percent and that is 6764 Pound, and the income after tax is 20 percent and that amount is 27056 Pound (Ozili, 2021).
1.3 Calculation of income tax payable
Particulars
Amount (£)
Amount (£)
Employment income
16985
Gilt interest received
340
Dividends
15560
Total income
34245
Income
Employment Income
Savings
Dividends
£16,985
£1,700
£15,560
£12,570
Start ->
Dividend Allowance £2000
£4,415
Basic rate £1,000
£13,560
20% of £4,415
20% of £115
7.5% of £13,560
£883
£23
£1,017
1.4(A) Calculation of tax payable and National insurance contribution
Particulars
Amount (£)
Amount (£)
Trading income
21690
Bank interest
500
Total
Non-savings
Savings
Trading income
£21,690
£21,690
Bank Interest
£500
£500
Total Income
£22,190
£21,690
£500
Less: Personal Allowance
£12,570
£12,570
Taxable Income
£9,620
£9,120
£500
Income tax due:
Non-savings income:
Basic rate
£9,120
@20%
£1,824
Savings income:
Nil rate
£500
@0%
£0.00
£9,620
Tax borne
£1,824
NI Class 2 NI Class 4
Balancing =3073.58
Payment on account for tax year 2021-22 are due on 31 January 2022 and 31 July 2022
There are each equal to 50% of 3073.56 (1536.79)
Total tax due on 31 January £4610.37
1.4(B) Calculation of late penalty and payable interest
The tax return for 2020-21 is late (but not more than 3 months late) so there is a penalty of £100. There is also a late payment penalty in relation to the balancing payment of £3,073.58. This is paid more than 30 days late (but not more than 6 months late) so there is a 5% penalty of £153.68. These penalties will attract interest if not paid within 30 days of their imposition.
Tax due on 31 January 2022 is 44 days late. Interest payable is £14.45 (£4,610.37 x 2.6% x 44/365).
Reference list
Journals
Amara, T. and Benelifa, S., 2017. The impact of external and internal factors on the management accounting practices. International Journal of Finance and Accounting, 6(2), pp.46-58.
Brooks, C. and Oikonomou, I., 2018. The effects of environmental, social and governance disclosures and performance on firm value: A review of the literature in accounting and finance. The British Accounting Review, 50(1), pp.1-15.
Chytis, E., 2019. The informative value of taxes: The case of temporal differences in tax accounting. Journal of Accounting and Taxation, 11(8), pp.130-138.
Cockcroft, S. and Russell, M., 2018. Big data opportunities for accounting and finance practice and research. Australian Accounting Review, 28(3), pp.323-333.
Hung, D.N., 2018. Impact of accounting information on financial statements to the stock price of the energy enterprises listed on Vietnam's stock market.
Huttunen, J.E.N.N.I.F.E.R., Jauhiainen, J.A.A.N.A., Lehti, L.A.U.R.A., Nylund, A.N.N.I.N.A., Martikainen, M.I.N.N.A. and Lehner, O.M., 2019. Big data, cloud computing and data science applications in finance and accounting. ACRN Oxford Journal of Finance and Risk Perspectives, 8, pp.16-30.
Malo-Alain, A., Aldoseri, M. and Melegy, M., 2021. Measuring the effect of international financial reporting standards on quality of accounting performance and efficiency of investment decisions. Accounting, 7(1), pp.249-256.
Melé, D., Rosanas, J.M. and Fontrodona, J., 2017. Ethics in finance and accounting: Editorial introduction. Journal of Business Ethics, 140(4), pp.609-613.
Ozili, P.K., 2021. Accounting and financial reporting during a pandemic. In New Challenges for Future Sustainability and Wellbeing. Emerald Publishing Limited.
Procházka, D., 2018. The Impact of Globalization on International Finance and Accounting. Springer.
