Nana John is a self-employed as a hairdresser and lives in the UK. She has the following
Question:
Nana John is a self-employed as a hairdresser and lives in the UK. She has the following information available for the year ended 2020/21
Trading profit for the year ended 30 June 2020
Nana’s statement of profit or loss for the year ended 30th June 2020 is as follows:
Note £ £
Income 63,635
Expenses
Depreciation. 2,635
Motor Vehicle 1 2,200
Professional fees 2. 1,650
Property expenses 3 12,900
Purchases 4. 4,700
Other expenses 5. 16,550
( 40,635)
Net profit 23,000
1. Nana John charges all the running expenses for her motor car to the business. During the year ended 30 June 2020 Nana drove a total of 8,000 miles of which 7,000 were for private journeys.
2. The figure for professional fees includes £1,260 for legal fees in connection with the grant of a new five-year lease of parking spaces for customers’
motor cars.
3. Nana lives in a flat that is situated above her hairdressing studio and onethird of the total property expenses of £12,900 relate to this flat.
4. During the year ended 30 June 2020 Nana took goods out of her hairdressing business for her personal use without paying for them and no entry has been made in the accounts to record this. The good costs £250 (an amount that has been deducted under purchases) and had a selling price of £450.
5. The figure of other expenses of £16,550 include £480 for a fine in respect of health and safety regulations and £160 for trade subscription to Guild of small Hairdressers.
6. Nana John uses her private telephone to make business telephone calls. The total cost of the private telephone for the year ended 30 June 2020 was
£1200 and 20% of this related to business telephone calls. The cost of the private telephone calls is not included in the statement of profit or loss expenses of £40,635.
7. Capital allowances for the year ended 30 June 2020 are £810. Other information
8. During the tax year 2020/21 Nana John received interest of £310 from an individual savings accounts (ISA) and dividend of £1,200 from quoted company shareholdings.
Required:
(a) Calculate Nana John’s tax adjusted trading profit for the year ended 30 June 2020. Note that your computation should commence with the net profit figure of £23,000 and should list all of the items referred to in (1) to (8) indicating by the use of zero (0) any item that do not require adjustment
(b) Calculate Nana John’s income tax liability for the year 2020/21.
(c) Critically discuss the implications of the IR35 for the director of private limited companies and HMRC.
