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Taxation

50,760.34 Salary - Tax - NIC Tax brackets Income 10% (starting rate for savings only) 0 - ?2,560 20% for basic rate 0 - ?35,000 40% for higher rate ?35,001 - ?150,000 50% for additional rate Over ?150,000 (HM revenue and Customs 480 (2011) The liability of income tax payable from the above computation is ?25,718.3. A deduction of personal allowance of 7,475 is made in the year 2011/2012 (Great Britain: Parliament: House of Commons: Treasury Committee, 2011,103). This figure was increased by ?1000 (Budget, 2011, pp.1).The National insurance Contributions (NICs) are calculated under the annual brackets for directors. This is payable by the employer – Jumbo Company under the PAYE system on the payroll. The NICs is ?6,027.7. This is computed under the annual rate of the Upper Earnings Limit (UEL) of 12% of ?42484 minus ?7228 = ?35256 and an addition of 2% of the amount exceeding this figure. The company is liable to pay this amount of ?6,027.7 to the tax authorities. Question 2 Value of taxable benefits in kind Car (see appendix) (10% * ?33,464.19) ?3,464.19 Fuel for car ?20,000 Accommodation (higher of 75,000 at the rate of 4.75%) (3,000,000- 75,000) * 4.75% (Malcolm, 2010, 435) ?138,937.5 House benefit ?15,000 Private health ?3,000 Use of furniture ?35,000 ?215,401.69 NICs Class 1A on benefits (13.8% * ?215,401.69) ?29, 725.4 Section 114, 149, 174 of HM revenue and customs in the United Kingdom explains that benefits in kind including cars for private use, incentives etc. given to directors are taxed at special rates. Although they do not qualify as individual employee’s salary, they are levied for tax purposes. They are levied for income tax at normal tax brackets rates and the deduction for NICs Class 1A is calculated at a higher rate of 13.8 % of the total value of benefits. Section 201(2) of HMRC gives a list of the benefits that are liable for tax purposes. House benefit is taken as the figure of rateable rent payable of that house or the annual amount given. A car bought by the company is deemed as benefit for the employer when it is used for part or full time use by the director. In our case, the car is for fulltime use. The Co2 emission is 119g/km hence it is liable for a benefit of 10% of its cost according to HMRC tax regulations i.e. it lies under the category of less than 12og/km Co2 emissions. Fuel benefit is taken for the portion used for private purposes. An assumption is made at a figure of ?20,000 fuel usage. The whole amount is a benefit in kind liable for tax computation purposes. If the employer purchases the director’s house, the only allowable amount not liable for tax is a purchase price below ?75,000. The provision of accommodation benefit is taken at a rate of 4.75% of the figure above ?75,000. The cost of this house is ?3,000,000. The only amount liable is ?2,925,000 as an extra charge for accommodation. The total benefit is therefore ?138, 937.5. Use of furniture is gift or an extra benefit from the employer. The whole amount is liable for tax computation under section 201 (2) HMRC. This is an extra expense borne by the employer – Jumbo Company for the director. Contribution by the employer to private medical schemes for the director is a benefit in kind liable for taxation. It is taken as the whole amount paid to the scheme for the director. (House of Commons – Spending Review Committee, 2010, pp. 1) Income tax payable by Mr. Jedward for year 2011/2012 Salary ?89, 011 Total benefits in kind ?215,401.69 Income ?304,412.69 ...Show more

Summary

Mr. Jedward and Jumbo Company tax computation. Tutor: Subject: Date of birth - 12/01/1989. Question 1 Salary computation for Mr. Jedward 12/01/1989. 890112/10 = ?89 011. Computation for Mr. Jedward’s income tax for the year 2011/2012 Salary ?…
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