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Finance and Accounting Problem - Essay Example

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Finance and Accounting Problem

Bank interest is deducted at source at the rate of 20%. Therefore, they cannot be included as taxable income. Depreciation reflects how fixed assets of business reduce in value through wear and tear. However, depreciation is just an accounting concept with nothing to do with taxation. Depreciation can be manipulated and taxmen do not recognize it as an allowable tax. Instead, annual capital allowance is computed. Vehicle of businesses have a standard rate of 25% on a reducing balance. In April 2008, Annual Investment Allowance (AIA) of ?50,000 per annum was introduced. This allowed business entities to spend ?50,000 annually and claim the full cost against tax. For Sam’s case, the tax written down value for the car in 2012 is ?6,750. According to the tax law in the UK the capital allowance on the car is the lower of 25% of the written down value of the car or ?3000 each year. ...
234.00 Add Car Tax (178 g/km) ? 210.00 Less those form charity ? 100.00   ? 31,542.08 Notes PAYE tax and NIC thresholds are ?7,475 and ?7,225 per year respectively. Table 3- Computation of PAYE Income  Rate  Amount Amount ?7,475.00 ?35,000.00 20% ?27,525.00 ? 5,505.00 ?35,001.00 ?80,771.25 40% ?45,770.25 ? 18,308.10  Total ?23,813.10 Table 4- Computation National Insurance Contribution (Sam is categorized as in class 4) Income  Rate  Amount Amount ?7,225.00 ?42,475.00 9% ?35,250.00 ? 3,172.50 ?42,476.00 ?80,771.25 11% ?38,295.25 ?4,212.48 Total ?7,384.98 The dividends paid as tax was 32.5% of ?720=?234 Car tax for a car producing 178 g/km CO2 is ? 210.00. Contribution to charity is computed taking into consideration that Sam declared that he is UK’s tax payer. Therefore, Sam has to be refunded some money, which is computed as follows. The amount to be refunded = ?400? ((40-20) ?80) = ?100 Question 3 Table 5- Sam’s Income Tax and National Insurance Computation for 2011/12 if he is classified as an employee of West London Ltd. Add PAYE ?22,303.12 Add NIC class 1D ? 11174.06 Add taxable dividends ?234.00 Add Car Tax (178 g/km) ?210.00 Income tax ? 3,477.18 Notes Table 6- Taxable income Item Amount Basic Salary ? 76,996.31 Benefits 0  Taxable income ? 76,996.31 Table 7- PAYE computation Income Amount Used Rate Amount ?7475.00 ?35000.00 ?27525.00 20% ?5505.00 ?35001.00 ?76996.31 ?41995.31 40% ?16798.12 Total PAYE   ?22303.12 Sam earns higher income and will be paid ?90,000 annually inclusive of National Insurance Contributions. No reimbursement for any travelling or accommodation when away from home on branch visits and no refund for trade subscription and reference materials. Mileage payments for business travel. The mileage expenses are qualifying amounts ...Show more
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Question 1 Table 1-Taxable Trading Income of Sam Smith for 2011/12 Item Amount in ? Amount in ? Business income (fees)   90000 Expenses     motor vehicle capital allowance (50% of 1687.50) 843.75   Computer capital allowance 0   Motor insurance (50% of 800) 400   Repairs and servicing (50% of 650) 325   Road license (50% of 150) 75   Petrol – home to office 400   branch visits (no refunds) 1,200   Repairs and software for the computer 1,500   Hotel bills regarding branch visits (50% of 2400) 1,200   Stationery (50% of 150) 150   Telephone (50% of 360) 360   Trade subscription (50% of 500) 500   Books and reference materials (50% of 3750) 1,875   charity under the Gift Aid sc…
Finance and Accounting Problem
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