Tax - Business Law and Practice
Income Tax
| Step 1 Calculate grossed up total of all income | Salary Savings Interest (Net Interest x 100/80) Dividends (Net Interest x 100/90) Benefits in Kind Total Income |
|---|---|
| Step 2 Work out net income | Total Income (Pension Contributions) (Charges on Income) Net Income |
| Step 3 Work out taxable income: Person allowance = 10,600 Reduced allowance for income over 100,000 = 10,600 - (Net Income - 100,000) 2 | Net Income (Personal Allowance) Net Income |
| Step 4 Apply tax rates to n0n-savings, savings and dividends using the tax rates provided. Use the tax jug, taxing each part on top of the other. | |
| Step 5 Add all taxes together to create the Total Tax Liability | Non-Savings Income Tax Savings Income Tax Dividend Income Tax Total Tax Liability |
| Step 6 Find the difference between the net and gross savings and deduct for the tax at source | Total Tax Liability (Tax Deducted at Source) Total Tax Payable to HMRC |
Capital Gains Tax
| Step 1 Consideration and Expenditure | Consideration/Proceeds of Sale (Initial Expenditure) (Subsequent Expenditure) (Disposal Costs) Chargeable Gain |
|---|---|
| Step 2 Capital losses | Chargeable Gain (Capital Losses Total Gains |
| Step 3 Annual Exemption | Total Gains (11,1,00) Net Income |
| Step 4 Apply tax rates: Entrepreneurs relief can be used for shares in a trading company where the seller owns 5% of the voting rights and are an officer/employee of the company. Where ER applies the tax rate is 10%. If ER does not apply then apply the taxable income as follows:
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Corporation Tax
Roll Over Relief
| This can be used when a company disposes of a business assets and purchases a replacement asset. It allows the gain to be carried forward and rolled onto the acquisition cost of the replacement asset. This relief can be used for: land/buildings, goodwill, plant/machinery, ships, aircrafts, quotas, space stations/satellites. Both assets must fall into the above categories but do not have to be the same. The replacement must be purchased 12 months before or 3 years after the sale of the asset. | Sale of Old Asset = X Chargeable Gain = Y Cost of New Asset = Z New Deemed Base Cost = Z - Y |
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Capital Allowances
| Year | Allowance | Written Down Value |
|---|---|---|
| 1 | Allowance = 500,000 Cost of Machinery - 500,000 = A 18% of A = B | A - B = WDV1 |
| 2 | 18% of WDV1 = C | WDV1 - C = WDV2 |
| 3 | 18% of WDV2 = D | WDV2 - D = WDV3 |
This allows the spread of cost over a period of time, even though it is capital expenditure it should be treated as income. It applies to qualifying expenditure: plant/machinery, energy saving and water technologies.
Companies can deduct 18% of the value of the plant/machinery from their income each year on a reducing balance basis. The capital allowance is 500,000 which allows a company to deduct this amount (plus 18 % in the first year) and an additional 18% for all other years.
Calculating TTP & Tax Liability
| Step 1 | Calculate the Income Profits:
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