TAXATION
COURSEWORK ASSIGNMENT
LEARNING OUTCOMES
The learning outcomes (please refer to the module information document) that are being assessed in this coursework assignment are:
1 Explain and appraise Income Tax and National Insurance Contributions.
2 Prepare tax computations of Income Tax (including National Insurance Contributions), taking account of current rates, exemptions, reliefs and allowances.
4 Demonstrate the ability to synthesise information in a coherent and logical format.
Scenario
You are a taxation consultant, working in the tax department of a firm of Chartered Accountants, Hart & Bannon LLP. Bridget Ashcroft is a client of Hart & Bannon LLP. You have been requested to prepare some calculations for Bridget, setting out the tax and National Insurance consequences of two courses of action that she is considering.
Bridget is employed in Liverpool as a human resources manager. She has decided to leave her current employer on 31 March 2022. She is considering two work opportunities and wants to know about the income tax and National Insurance consequences of both, as well as any other tax or financial issues that she should be aware of.
The two opportunities are as follows:
- The first opportunity is an employment option which Bridget would start on 6 April 2022.
- The second opportunity is for Bridget to be self-employed which she would start on 1 April 2022.
Bridget also has property income and investment income, the tax consequences of which need to be calculated.
This course assessment is asking you to provide advice to a client for a decision yet to be made. Therefore, even though you will be basing your calculations on what Bridget expects to earn in the 2022-23 tax year, you should base all your tax calculations using the current 2021-22 rates for income tax, National Insurance, benefits in kind and capital allowances which are provided. The rates and allowances for 2022-23 have not yet been announced by the UK government.
Required
- Prepare calculations to show the amount of income tax and NIC payable by Bridget in each of the scenarios:
Option 1 – Employment (35 marks)
Option 2 – Self Employment (25 marks)
- Prepare a business memorandum, offering advice to Bridget based on your calculations. (40 marks)
Total (representing 20% of the overall module mark) 100 marks
Note that handwritten calculations or report will not be marked.
SECTION A
Option 1 – Employment
Bridget (age 49) has been offered a job as a Senior Human Resources Manager by Air Engineering Limited. This role is in Bristol and will require Bridget and her family to relocate to Bristol from Liverpool where Bridget and her family currently reside. The new job will start on 6 April 2022. In the tax year 2022-23 she will receive or pay:
- Annual salary, £75,000, PAYE deducted of £38,500.
- Annual bonus £7,250.
- A company car, to the value of £24,150 (list price), which will be 1,800cc, diesel and have CO2 emissions of 112g/km. The car will not be a diesel hybrid car, and will not meet the Real Driving Emissions Step 2 standard to avoid diesel supplement. The employer will be able to purchase the car at a discount of 10%. Bridget will drive 18,000 miles per year, 70% will be business miles. The car will be registered on 6 April 2022 and will be available to Bridget from that date.
- The employer will pay all the running costs of the car, including diesel for private use. Bridget will be required to contribute towards these costs in the amount of £90 per month towards the car running costs, and £45 per month towards the cost of private fuel.
- On 6 August 2022, the employer will give Bridget a loan to help her to purchase furniture for the house that she will move to with her family. The loan will be £25,000 and interest will be charged at 1.5%. The official rate of interest is 4%.
- Air Engineering Limited will pay £17,000 of Bridget’s house removal expenses. Bridget will provide her employer with receipts in connection with the removal costs, and the company will pay them for her.
- Bridget will get the use of a mobile telephone with a contract value of £85 per month.
- The company gives staff an annual staff party, the cost of which is usually about £250 per head. Both Bridget and her husband will attend.
- The company will pay her annual subscription to the Chartered Institute of Personnel and Development (CIPD), a recognised HMRC professional body, costing £575.
- The company will loan Bridget a computer for use at home. The computer will cost £1,850 and will be for her personal use and will be available for use throughout the year.
- The employer will pay a tennis club membership subscription for Bridget of £1,100 during 2022-23. Bridget is not a keen tennis player but she meets fellow professionals at the club.
- Bridget will pay a pension contribution of £12,000, by way of deduction from her salary, into the HMRC approved occupational pension scheme operated by her new employer.
Property income:
Bridget owns four properties in the Liverpool area which are let out. She will retain ownership of the properties regardless of which course of action she takes up. She also receives income from savings and investments. The following information relates to 2022-23:
Property 1 – House let out furnished throughout the year, monthly rent £600, payable in advance. During the year, Bridget will pay cash for repairs of £1,300 and insurance of £350 in connection with the property.
Property 2 – House let out unfurnished. Property purchased on 6 April 2022 and on that date it is advertised as being available to rent. Property is let out from 1 July 2022 to 28 February 2023 at monthly rent £750. On 28 February 2023 the tenant leaves owing three months’ rent that Bridget is unable to recover. Bridget immediately advertises for new tenants but the property is not re-let before 5 April 2023. During the tax year Bridget pays insurance of £305 and spends £610 on advertising for tenants. She also pays loan interest of £600 in respect of a loan that was taken out to purchase this property. There is no loan interest in connection with the other properties.
Property 3 – Leasehold office building that is let out to a trader unfurnished. Bridget pays annual rent of £7,800, and did not pay a premium when she acquired the lease. On 6 April 2022 the property is let to a sub tenant, Bridget receives a premium of £17,500 for the grant of a five year lease. She also receives cash annual rent of £5,600. She pays £375 for insurance in connection with this property.
Property 4 – During 2022-23 Bridget rents out one furnished room in her main residence. She receives rent of £9,000 and incurs allowable expenditure of £1,140 in respect of the room. Bridget calculates the taxable income for the furnished room on the most favourable basis.
Income from property should be calculated on a cash basis.
Investment income:
During 2022-23 Bridget will receive bank interest of £1,050 and dividend income of £2,450.
Required:
- Calculate the amount of property income that is taxable in 2022-23. Provide calculations for each property separately. Provide explanations for the tax treatment of each item of income and expenditure.
(10 marks)
- Calculate the total income tax payable by Bridget for 2022-23, including the tax on the property income and investment income in (1) above. Calculations must be presented in the standard income tax computation format. A proforma income tax calculation was provided in workshop 1. If calculations are provided in a format different to the pro forma, the two marks will be deducted. Provide explanations for the tax treatment of each item in the computation. (20 marks)
- Calculate the National Insurance Contributions payable by Bridget for 2022-23.
(3 marks)
- Calculate the National Insurance Contributions payable by Air Engineering Limited in connection with the employment of Bridget for 2022-23. Note that Air Engineering Limited is not eligible to the NIC employment allowance. (2 marks)
Note that for 2, 3 and 4 above, tax rates for 2021-22 should be used in connection with the income anticipated for 2022-23.
Total 35 marks
Option 2 – Self Employment
Alternatively, Bridget has the opportunity to establish a human resources consultancy business. She would be self -employed, running the business as a sole trader. Bridget has provided a projected Profit and Loss Account for the first year of trading to 31 March 2023:
Bridget Ashcroft – Human Resources Consultant
Projected Profit & Loss Account for the Year Ending 31 March 2023
£ £
Sales – Consultancy fees 156,250
Less: expenses
Entertaining clients and contacts 4,000
Wages – husband 11,000
– son 7,000
General expenses 1,250
Rates and water rates 2,500
Insurance – including insurance premium tax 1,920
Printing, postage and stationery 1,835
Heat and light 2,100
Consumables – suits used for business meetings only 650
Motor expenses and fuel 3,860
Other travel expenses 3,250
Telephone and communications 2,300
Bank interest and charges 5,200
Depreciation of car and office furniture 8,750 ———
(55,615)
—————
Net profit 100,635
—————
Notes:
- Bridget will need to purchase a motor vehicle and office furniture during the year to 31 March 2023:
- The cost of the motor vehicle is £24,000 which is after taking into account a discount from list price of £2,000. This petrol vehicle has CO2 emissions of 163g/km. She estimates she will use the car for 40% private use.
- The cost of the office furniture is £20,000.
- Bridget will pay a contribution of £9,600 net into her personal pension scheme.
- Bridget has identified a suite of offices to use for her business. She will pay the landlord a lease premium of £28,000 for a 6 year lease. The £28,000 premium has not been debited in the above profit and loss account, and no accounts adjustment is required. Tax implications need to be reflected in calculations.
- Other travel expenses include attendance at a human resources conference in Salzburg. Bridget’s husband (age 49) will go with her to do some sight-seeing. He is an employee of the business, but he will not attend the conference and has no business commitments in Salzburg. The cost of hotel, food and travel will be £1,100 each.
- Telephone includes £940 for Bridget’s mobile phone contract. She will use the phone mainly for business but estimates her private use will be 20%.
- Bridget will pay the cost of her home phone herself (the cost of the home phone is not included in the projected profit and loss account of Bridget’s business). The call charges will be £800 and she estimates 60% of the calls will be business related.
- Wages to her husband are in connection with his employment to provide genuine accounting services to the business. Bridget’s husband is an employee, not a partner in the business. He has no other income.
- Wages to Bridget’s son are for his university costs, he does not provide services to the business.
- The amounts in the profit and loss account relating to Bridget’s husband and son do not take into account NIC costs (if any), but please note that no adjustment is required to the profit and loss account for NIC not accrued. Bridget’s husband is not enrolled into any pension scheme.
- General expenses include:
- Subscription to Chartered Institute for Personnel and Development (CIPD) of £575
- Donation to political party £295
- Bridget’s parking fines £40
- Miscellaneous allowable expenses £340
- Bank interest and charges includes £2,100 of interest on a loan to purchase the car.
Other income: Bridget’s property income and investment income are the same as outlined in the first opportunity.
Required:
- Calculate the total income tax payable by Bridget for 2022-23, including the tax on the property income in Question 1. Include capital allowances calculations as appropriate. Calculations must be presented in the standard income tax computation format. A proforma income tax calculation was provided in workshop 1. If calculations are provided in a format different to the pro forma, the two marks will be deducted. For the avoidance of doubt, handwritten calculations will not be marked. Provide explanations for the tax treatment of each item in the computation. (20 marks)
- Calculate the amount of National Insurance Contributions payable by Bridget in connection with her profits for 2022-23. Ignore NIC employment allowance. (3 marks)
- Calculate the amount of employer National Insurance Contributions payable by Bridget. (2 marks)
Total 25 marks
Note that for 1, 2, and 3 above, tax rates for 2021-22 should be used in connection with the income anticipated for 2022-23.
SECTION B
Prepare a business memorandum to Bridget giving advice based on your calculations.
This should include:
- Commentary on the result of the calculations, consider and explain which of the two alternatives you consider to be the most financially advantageous overall, including a comparison of her net income taking account of her tax, NIC, pension contributions and any other items that you consider should be adjusted in making a reasonable comparison. Note that a commentary on the results of the calculations does not mean that you describe the calculations. Instead, you are asked to comment on the implications.
- Notes of any further tax considerations that are not included in your calculations but should be considered. You need to think wider than income tax.
- Details of tax planning ideas or advice for Bridget.
- Explain any non-tax considerations that you consider to be relevant to Bridget’s decision.
- Provide details of any uncertainties in your advice, including a list of further information you feel you require.
- The business memorandum should be addressed to Bridget and should set out the advice in a concise, business – like manner. Use of bullet points and tables is recommended, because these are regularly used in business communications. You will find a pro forma for a business memorandum in the coursework guidance notes. Handwritten reports will not be marked.
- The memorandum should not exceed 1,500 words. Please note that 1,500 words is the maximum allowed, and there is flexibility for +/- 10%. Please include the word count at the beginning of the memorandum. Any narrative in excess of 1,500 + 10% words will not be marked.
- The 1,500 words limit does not include the calculations in part A.
Marking guide for Section B
| % | % | |
| Commentary on calculations (note that this requires you to interpret the impact of the calculations, not to just explain how the tax was calculated). | 8 | |
| Further tax considerations, to cover tax issues not highlighted in the calculations. | 4 | |
| Tax planning ideas (one mark for each) | 10 | |
| Non tax considerations | 6 | |
| Uncertainties in advice | 5 | |
| Conclusion and recommendation | 2 | |
| 35 | ||
| Format, use of language, grammar | 3 | |
| Referencing (see below) | 2 | |
| 5 | ||
| Total for Section B | 40 |
Notes
- Marks will be awarded for the content of the report if the advice given is correct based on the calculations provided.
- Please note that a formal bibliography is not required. This is a business memorandum , not an academic document. If a formal bibliography, or Harvard referencing is provided, 2 marks will be deducted.
- Two references should be provided – to text books that you have used for source material, or any other materials including lecture notes that you have used in preparing the report. Include these at the end of the report.
- Any ethical issues should be referenced to appropriate professional ethical standards.
- You should submit one document to Turnitin, to include both calculations and the report. It is recommended that students submit a Word document that includes screen shots of Excel calculations for Section A. Note that any screen shot needs to be readable when printed out. Please ensure that the font on the calculations is big enough, and that page breaks are set so that calculations can be read easily. This is because the calculations may be printed and hand marked. It is strongly advised that you print out your document before submitting onto Turnitin to check that it is presented in a business – like manner that can be read easily. If the printed version is not readable then marks cannot be awarded for the calculations.
Submission arrangements – TURNITIN ON CANVAS – 10 MARCH 2022 – 16.00
Your document should be submitted via Turnitin on Canvas by 10 March 2022 at 4pm. Any documents submitted late will not be marked, and the deadline will not be extended, unless the Personal Circumstances process has been completed.
If you wish to apply for an extension you will need to complete the extension request form on MY LJMU. Note that any such requests must be submitted more than 48 hours before the coursework submission deadline. Any requests submitted after this deadline will not be considered.
This is an individual assessment. Any instances of collusion or plagiarism will be penalised.
Tax rates and allowances England and Wales
| 2021-22 | 2020-21 | |||
| Income tax | ||||
| Starting rate for savings income only | 0% on first £5,000 | 0% on first £5,000 | ||
| Personal savings allowance (basic rate tax payers only) | £1,000 | £1,000 | ||
| PPersonal savings allowance (higher rate tax payers) | £500 | £500 | ||
| Basic rate | 20% on first £37,700 | 20% on first £37,500 | ||
| Higher rate | 40% on £37,701 to £150,000 | 40% on £37,501 to £150,000 | ||
| Additional rate | 45% on excess over £150,000 | 45% on excess over £150,000 | ||
| Dividend | 7.5%/32.5%/38.1% | 7.5%/32.5%/38.1% | ||
| Dividend allowance | £2,000 | £2,000 | ||
| Personal allowance | £12,570 | £12,500 | ||
| Trading income allowance | £1,000 | £1,000 | ||
| Property income allowance | £1,000 | £1,000 | ||
| Official rate – loan interest | 4% | 4% | ||
| Capital gains tax | ||||
| Annual exemption | £12,300 | £12,300 | ||
| Standard rate | 10% and 18% | 10% and 18% | ||
| Higher rate | 20% and 28% | 20% and 28% | ||
| Business asset disposal relief rate | 10% | 10% | ||
| Business asset disposal lifetime limit | £1,000,000 | £1,000,000 | ||
| Corporation tax | ||||
| Financial year | 2021 | 2020 | ||
| (FY 2021 is the year to 31 March 2022) | ||||
| Main rate | 19% | 19% | ||
| Company cars (Tax year 2021/22) | Benefit in kind based on car CO2 emissions (cars registered before 6 April 2020) % | Benefit in kind based on car CO2 emissions (cars registered on or after 6 April 2020) % | ||
| Zero emissions | 1 | 1 | ||
| 0-50 g / km: | ||||
| Electric range 130 miles or more | 2 | 1 | ||
| Electric range 70-129 miles | 5 | 4 | ||
| Electric range 40-69 miles | 8 | 7 | ||
| Electric range 30-39 miles | 12 | 11 | ||
| Electric range less than 30 miles | 14 | 13 | ||
| 51-54 g /km | 15 | 14 | ||
| 55-59 g /km | 16 | 15 | ||
| 60-64 g /km | 17 | 16 | ||
| 65-69 g /km | 18 | 17 | ||
| 70- 74g/km | 19 | 18 | ||
| 75g/km | 20 | 19 | ||
| Each extra complete 5g / km | +1% | +1% | ||
| Diesel – as above, plus | +4% | +4% | ||
| Maximum % (petrol and diesel) | 37 | 37 | ||
| Car fuel benefit for company cars | £24,600 | £24,600 | ||
Company fuel benefit – employee reimbursement (2021/22)
| Engine size (cc) | Petrol / mile (pence) | Diesel / mile (pence) |
| 0 to 1,400 | 12 | 10 |
| 1,401 to 1,600 | 14 | 10 |
| 1,601 to 2,000 | 14 | 12 |
| 2,001 and over | 20 | 15 |
Approved mileage allowances for employees who use their own vehicles on business (2021/22)
| First 10,000 miles in tax year | Each mile over 10,000 miles | |
| Cars and vans | 45p / mile | 25p / mile |
| Motor cycles | 24p / mile | 24p / mile |
| Bicycles | 20p / mile | 20p / mile |
National Insurance Rates 2021/22 England and Wales
Class 1
Weekly paid
| £ per week earnings | |
| Employee (primary contributions) | |
| Up to £184 | Nil |
| £184.01 – £967 | 12.0% |
| Over £967 per week | 2.0% |
| Employer (secondary contributions) | |
| Up to £170 | Nil |
| On remaining earnings over £170 per week | 13.8% |
Monthly paid
| £ per month earnings | |
| Employee (primary contributions) | |
| Up to £797 | Nil |
| £797.01 – £4,189 | 12.0% |
| Over £4,189 per month | 2.0% |
| Employer (secondary contributions) | |
| Up to £737 | Nil |
| On remaining earnings over £737 per month | 13.8% |
Employment Allowance
Employer can deduct up to £4,000 against their liability to secondary Class 1 NICs. Conditions apply.
Class 1A
Employer rate 13.8%
Class 2
Flat rate £3.05 per week.
Small profits threshold £6,515 per annum
Class 3
2021/22 contribution rate £15.40 per week
Class 4
Up to £9,568 Nil
£9,568 to £50,270 9%
Over £50,270 2%
