Taxation Fundamentals Assignment Sample

Introduction of Taxation Fundamentals Assignment

1: SECTION A

i) Explanation of P11D employees

The relevance of P11D enables an employer or an organisation to compulsorily oblige about the taxable returns for an individual (.riftrefunds.co.uk, 2022). The P11D employees are further required to be registered in the HMRC portal and employers are compulsorily required to provide minute details about employee benefits and perquisites being offered.

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ii) Calculation of Taxable benefits

The calculation of Taxable benefits is considered for three main individuals known as Andrew Lawson., Benson Salam and Charles Trinidad. The items involved in the calculation of taxable benefits for Andrew Lawson include Motor Car, Fuel and Maintenance, Building, Maintenance of Building, Furniture and Mobile Phone. The total computed value of taxable benefits for Andrew Lawson includes £390,400.00. In order to establish feasible findings of tax benefits for Benson Salam includes key items such as Loan, Relocation cost and motor car. The total computed value of taxable benefits for Mr Benson Salam includes £140,500.00. Further computation of taxable benefits also considers the repercussions and implications for Mr Charles Trinidad, where key items considered for the taxable benefit calculation includes Television, Membership Fees and computer. The total computed value of taxable benefits for Mr Charles Trinidad for the financial year 2020-21 includes a total of £3,500.00. The necessary calculations have been made based on key taxable metrics available and important for the HMRC to consider for suitable and reliable tax calculations of an individual for a specified time period.

iii) Explanation of Income Tax Liability

The collection of income tax liability is being collected by HMRC on the basis of actual taxable benefits being availed by individuals. Income taxes are generally considered direct taxes and the minimum threshold for taxable income in the United Kingdom is £10,400 (economicshelp.org, 2022). The basic rate is applied for the calculation of Income Taxes in the United Kingdom consisting of 20% on gross annual incomes.

 Share of Taxes being collected by HMRC

(Source: economicshelp.org, 2022)

iv) Critical discussion on HMRC policies

The basic focus and modus operandi of Her Majesty’s Revenue and Customs (HMRC), is to collect revenues and taxes from individuals to ensure proper and suitable growth of the nation and economy on the whole. HMRC is also responsible for collecting taxable benefits and claims of individuals, thereby ensuring minimum wages being paid to individuals for professional commitment. The collected amount of taxable claims is further replenished into enhancing the basic lifestyle of individuals thereby providing basic amenities important for the survival of an individual (Investopedia.com, 2022). The basic amenities available for a common individual include housing, water, food and shelter at reasonable and affordable prices.

The background of HMRC dates back to the early 21st century when inland revenue was consolidated with the Board of Customs and Excise which is mainly involved in ensuring harmony and accord to facilitate smooth collection of taxable incomes. Key components involved in the taxation module include direct and indirect taxes, where direct taxes are connected with taxes on salaries, taxes on house property, taxes on capital gains, taxes on business and profession and taxes on other source incomes. As per the statement of Auerbach et al. (2020), the key components of indirect taxes include Value-added taxes, service taxes and customs duties which are generally being levied upon by HMRC in lieu of services being provided by service providers (ictsd.org, 2022).

In order to establish feasibility and reliability in the tax collection modules and paradigms, the HMRC also considers major tax exemptions and rebates to be availed by the respective individuals. Major exemptions for taxes that are being provided by the HMRC largely include payments being considered for sickness, health ailments, maternity or any significant health consideration. The rebates are also being provided by the HMRC in lieu of excess taxes being collected by the HMRC from a particular individual, business concern or a major corporate organisation. As per the observations and explanations of Reverdo-Giha, Chalmers and Akaichi (2018), HMRC is also responsible for policing any major uncalled activities involved in the process of tax collection. Melville (2019), expressed that the major activities are concerned with tax evasion, fraudulent and wrong representation of actual incomes or any other serious incriminating offences. Due actions and penalties are being enforced by the HMRC for ensuring strict punishment and ramifications to the perpetrator.

The additional role of HMRC is also to encourage collection and levy of taxes for the purpose of encouraging international trade. This major consideration also involves the focus to promote import oriented activities in the UK economy, to justify the inward financial movement arising out of those activities. Best and Kleven (2018), illustrated that major taxes are being imposed on economic activities such as petroleum, alcohol and tobacco, thereby ensuring feasible and justifiable collection of taxable amounts. Due diligence, ethical consideration and compliances are also considered to be an integral part of the revenue and tax collection process of HMRC. Major implications are being imposed upon by the management of HMRC to ensure the availability of social support, financial support and other considerable advances for ensuring the growth of individuals in the society and communities.

2: SECTION B:

2.1: Part 1:

i) Calculation of Income Tax Liabilities

The calculated gross total income for Diego Fernandez for the financial year 2020-21 include a total value of £21,800.00. A tax rate of 20% has been charged on his gross total income which includes a computed value of £ 4,360. The calculated Net Total Income for Diego Fernandez during the same period including tax computation includes £ 17,440. The calculated gross total income for Armando Fernandez during the financial year 2020-21, includes a gross total income of £ 54,360 and the taxable income for the same period was calculated as £ 10,632. The calculated gross total income for James Fernandez includes a gross total computation of £ 53,600 and the total tax payable for the same period was attributed as £ 8,940. The tax slabs for computation of taxable income for James Fernandez includes slab rates as 20% and 40% respectively [Refer to Appendix 2].

ii) Discussion on Return Submission

In order to feasibly understand the return submission dates for the concerned individuals including Diego, Armando and James Fernandez, the basic considerations are to be made on the basis of tax filing preferences. The tax filing date for Diego Fernandez should be 31st of December, 2021 as self-assessment is involved. The return submission for Armando Fernandez for his taxable incomes for the year 2020-21 include 31st December 2021 as his returns are to be filed based on self-assessment (Heffer-Flaata, Voltes-Dorta and Suau-Sanchez, 2021). The return submission for James Fernandez for the tax filing of 2020-21 includes 31st January 2022 as James is mostly concerned with filing his income returns through online processes. 

iii) Recommendation on the preparation of Returns

In order to maintain the records and data for the relevant income computation of Diego, Armando and James Fernandez minimum of three years should be considered for maintenance of financial records to justify record maintenance. The perennial consequences of not maintaining financial records can result in incorrect data representation and income computation, thereby reducing the significance of filing returns. As stated by Geringer, (2021), the additional repercussions involved for not maintaining through records can attract hefty fines and penalties from the HMRC, in the prolonged financial period. Moreover, necessary tax benefits and rebates cannot be claimed by all three of them to ensure reduced taxable incomes for a particular financial period.

Part 2:

a. The rules governing registration and deregistration with the HMRC

The process of registration with HMRC involves compulsory obligation from the business owner's point of view concerned with the provision of necessary supplies for taxable purposes. Moreover, the process of registration with HMRC exempts all necessary business concerns whose services provided are concerned with exempted services. The minimum threshold required and compulsory for a service provider to register with HMRC includes an annual turnover of £85,000 or above. The process of deregistration simply deals with the closure of a business organisation and the provision of dissolution certificates and documents to the authorities of HMRC. The process of deregistration also includes a business owner incurring less than £85,000 as annual turnover for more than a year.

b. A critical analysis of the various VAT special schemes that could be considered

In order to further consider the available advantages for Francis Addo in lieu of providing supply chain operator services, the consideration of special VAT schemes is necessary to justify the prolonged sustainability of business operations. According to Mclaughlin et al. (2019), the facilitation of various VAT schemes by Francis also helps to encourage business growth and flourishment in the short as well as the long run. The various VAT schemes that are available for Francis to further justify business growth and credible tax filing includes the following metrics.

Flat Rate Schemes

The first available VAT scheme that could be capitalised by Francis includes flat-rate schemes. The necessary implications for flat rate schemes include paying off the difference amount accrued from customers and the profitability that is to be retained by Francis. This scheme also discourages the facilitation of reclaiming Value-added Taxes on purchases that are being made by Francis.

Annual Accounting Schemes

The second available VAT scheme, which could be encased upon by Francis includes Annual accounting schemes. The structural implications of annual accounting schemes include paying off necessary taxable liabilities in instalments, in addition to making payments considered for balancing the return value. This VAT scheme is more applicable and reliable for small business concerns as filing is encouraged to be done on an annual basis.

Cash Accounting Schemes

The third major VAT scheme available for Francis to be capitalised upon includes Cash accounting schemes, where VAT is raised on the basis of sales value generated. This VAT scheme encourages business owners to neglect the VAT payable on invoice value, even when payments from customers are yet to be received.

VAT Retail scheme

The fourth Value Added Tax scheme that could be availed by Francis to further strengthen his business includes VAT retail scheme. VAT retail scheme is also known as Point of Sale (POS) Scheme, which usually allows the business owner or the service provider to apportion different VAT rates for different sales values.

VAT Margin scheme

The fifth major VAT scheme available for Francis to further certify and improvise these daily operational modules for business includes the VAT margin scheme. The major implication of selecting this method allows business owners and service providers to charge and pay VAT on value-added services provided rather than the actual sales value that is being charged from customers (?ejková, 2019).

Capital Goods Scheme

The sixth major VAT scheme available to Francis for suitably justifying VAT calculations and tax filings with HMRC includes the capital goods scheme. As the name suggests, the application of the capital goods scheme allows business owners and service providers to prolong the expected lifespan of assets to claim discounted Value Added taxation based on the fulfilment of essential supplies.

Reverse Charge VAT Scheme

The seventh major VAT scheme available to Francis for suitable application and justification of value-added taxation with HMRC includes Reverse Charge VAT schemes. The major implications and benefits awarded to business owners and service providers for applying this method are largely attributed to minimising risks of incriminating activities involved with the VAT charging procedures.

Limited Cost Trader

The eighth and the final important VAT scheme available for Francis to be availed for ensuing harmony and simplicity in the VAT filing process includes a limited cost trader scheme. The major benefits available for the service providers to be availed include submission of VAT returns by business owners, whose spending are generally considered to be less than 2%.

c. A detailed explanation of the fines and penalties applicable when VAT returns are not submitted on time.

In order to suitably and reliably assess the relevant importance of submission of returns on time, the business owners, as well as the service providers, are required to ensure due diligence and timely submission of returns. A subsequent failure in the timely filing of returns further attracts hefty fines and penalties from HMRC, which can cause disharmony and reduction in the perpetual business growth for business owners and service providers. The fines and penalties applicable for late filing of VAT return to the business owners largely can be further classified as follows.

Drop-in Points System

The first major implication associated with late filing of VAT returns primarily includes a reduction and slip up in the points system. The drop in points system is largely attributed on the basis of a two year period which implies a reduction of four total points on the basis of annual return filings. Additionally, the drop in points system also considers a resetting value and trigger movement which can be reset after a period of 48 weeks for annual returns. The points resetting period for quarterly return filings includes 11 weeks and for monthly returns includes 2 weeks.

Financial Penalties and Fines

The second type of penalties that attract hefty attention from the concerned authorities of HMRC includes financial penalties and Fines. The repercussions and implications of these types of fines are directly linked with the financial and monetary interests of service providers, thereby affecting the short-run and long-run business paradigms. As per the observations and explanations of a penalty of 2% is charged for late payment up to 15 days and a penalty of 4% on gross taxable value is being imposed after-tax filing deadline is missed by 31 days or more. The financial fines and penalties associated with HMRC also consider interest rate calculations applicable from the due date of payment. As a result of these fines, business owners can possibly lose out on the possibilities of availing surcharges, necessary to justify prolonged business sustainability in the market (hillierhopkins.co.uk, 2022).

References

Books

Auerbach, A. J., Devereux, M. P., Schön, W., Vella, J., Keen, M. and Oosterhuis, P. (2020).

Melville, A. (2019), Taxing Profit in a Global Economy. United Kingdom: Oxford University Press.Taxation: Finance Act 2019. United Kingdom: Pearson.

Journals

Best, M.C. and Kleven, H.J., 2018. Housing market responses to transaction taxes: Evidence from notches and stimulus in the UK. The Review of Economic Studies, 85(1), pp.157-193.

?ejková, T., 2019. Impact of Brexit on Corporate Taxes in the European Union. Financial Law Review, (15 (3)), pp.38-52.

Cornelsen, L. and Smith, R.D., 2018. Soda taxes–four questions economists need to address. Food Policy, 74, pp.138-142.

Geringer, S., 2021. National digital taxes–Lessons from Europe. South African Journal of Accounting Research, 35(1), pp.1-19.

Heffer-Flaata, H., Voltes-Dorta, A. and Suau-Sanchez, P., 2021. The impact of accommodation taxes on outbound travel demand from the United Kingdom to European destinations. Journal of Travel Research, 60(4), pp.749-760.

McLaughlin, C., Elamer, A.A., Glen, T., AlHares, A. and Gaber, H.R., 2019. Accounting society's acceptability of carbon taxes: Expectations and reality. Energy Policy, 131, pp.302-311.

Revoredo-Giha, C., Chalmers, N. and Akaichi, F., 2018. Simulating the impact of carbon taxes on greenhouse gas emission and nutrition in the UK. Sustainability, 10(1), p.134.

Online Articles

2022, inequality index of tax [online], Available at:https://www.economicshelp.org/macroeconomics/inequality/tax_uk/#:~:text=Income%20tax%20%E2%80%93%20This%20a%20tax,a%20certain%20percentage%20of%20income. [Accessed on: 24.03.2022]

ictsd.org, 2022, indirect taxes [online], Available at:https://www.ictsd.org/what-is-indirect-tax-uk/ [Accessed on: 24.03.2022]

lexisnexis.co.uk, 2022, registration and deregistration [online], Available at:https://www.lexisnexis.co.uk/tolley/tax/glossary/registration-and-deregistration [Accessed on: 24.03.2022]

riftrefunds.co.uk, 2022, tax codes [online], Available at: https://www.riftrefunds.co.uk/advice/tax-codes/what-is-a-p11d/#:~:text=%E2%80%8B,provided%20during%20the%20tax%20year. [Accessed on: 24.03.2022]

Websites

Hillierhopkins.co.uk, 2022, penalties and fines [online], Available at: https://hillierhopkins.co.uk/insight-posts/budget-update-penalties-for-late-vat-filings-points-do-not-mean-prizes/ [Accessed on: 24.03.2022]

Investopedia.com, 2022, HMRC [online], Available at: www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp [Accessed on: 24.03.2022]

Appendices

Appendix 1: Calculation of Taxable Benefits

Column1	Column2
Particulars	Amount
Taxable Benfits for Andrew Lawson
Motor Car	£ 19,400.00
Fuel and Maintenance of Motor Car	£ 62,000.00
Building	£ 230,000.00
Maintenance of Building	£ 14,000.00
Furniture	£ 60,000.00
Mobile Phone	£ 5,000.00
Total	£ 390,400.00
Taxable Benfits for Benson Salam
Loan	£ 120,000.00
Relocation Cost	£ 9,300.00
Motor Car	£ 11,200.00
Total	£ 140,500.00
Taxable Benfits for Charles Trinidad
Televsion	£ 800.00
Membership Fee	£ 800.00
Computer	£ 1,900.00
Total	£ 3,500.00

Appendix 1: Calculation of Taxable Benefits

(Source: Created by Learner)

Appendix 2: Calculation of Income Tax Payable

Column1	Column2
Particulars	Amount
Income Tax liability of Diego Fernandez
State Pension	£ 4,500.00
Private Pension	£ 2,300.00
Interest Received on Building Scociety	£ 14,400.00
Interest Received on Savings Certificate	£ 600.00
Gross Total Income	£ 21,800.00
Taxable Income(@20%)	£ 4,360.00
Net Total Income	£ 17,440.00
Income Tax liability of Armando Fernandez
Gross Annual Salary	£ 36,000.00
Travel Allowance	£ 3,600.00
Relocation Allowance	£ 11,400.00
Contribution to Pension Scheme (6% on Salary)	£ 2,160.00
Donation to Charity (100*12)[Non-taxable]	£ 1,200.00
Gross Total Income	£ 54,360.00
Taxable Income(20%)	£ 10,632.00
Net Total Income	£ 43,728.00
Income Tax liability of James Fernandez
Trading Profit	£ 64,800.00
Advertising Expenditures	£ 2,600.00
Motor Car	£ 11,000.00
Contribution to Donations	£ 2,400.00
Gross Total Income	£ 53,600.00
Tax Payable(@ 20%[12500-50000]	£ 7,500.00
Tax Payable(@ 40%[50000-53600]	£ 1,440.00
Taxable Income	£ 8,940.00
Net Total Income	£ 44,660.00

Appendix 2: Calculation of Income Tax Payable

(Source: Created by Learner)