# Tax - Business Law and Practice

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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:

• Less than 31,785 = 18% tax

• More than 31,785 = 28% tax

• Above & Below = threshold below = 18%, above = 28%

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

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:

1. Work out the income - rental, trading, interest and dividend...

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