David is concerned that his wife, Ceri, may have been taxed incorrectly in her new job. He
Question:
David is concerned that his wife, Ceri, may have been taxed incorrectly in her new job. He says that Ceri’s P60 form for the year to 5th April 2021 shows she paid £4,590 income tax and £2,815 national insurance contributions.
David explains that Ceri has chosen to make 5% employee contributions to her pension fund, the school makes a further 3% contribution. Ceri took all the other benefits offered in the school’s letter dated 30 December 2019.
David also tells you that Ceri has received £3,250 Building Society interest and a dividend of £450 from Scottish Newcastle plc.
During the year David bought some land, built a property ‘Rose House’ on the land and
sold it for a profit. David asks your advice on how this profit will be taxed.
Required:
Use the series of Badges of Trade tests to analyse if David is carrying out a trade for tax purposes.
Assuming you conclude David is carrying on a ‘building trade’ which means the profits from his development are taxable under the Income Tax (Trading and Other Income) Act 2005; David asks how much profit will actually be taxable.
Calculate taxable trading profit for David’s ‘building trade’ for the year ended 5 April 2021.
[ answer should indicate by the use of zero (0) where items have been considered but no tax adjustment is required.]
Calculate David’s income tax payable for the 2020/21 tax year.
South Western Federal Taxation 2017 Comprehensive
ISBN: 9781305874169
40th Edition
Authors: William H. Hoffman, David M. Maloney, William A. Raabe, James C. Young