Task Exercise 1

On 31 December 2012, Joe Jones resigned as an employee of Firstly plc, and on 1 January 2013, commenced employment with Secondly plc. Both companies employed Joe as a financial analyst. The following information is available for the tax year 2012/13:

Employment with Firstly plc (1) From April 6, 2012, to December 31, 2012, Joe was paid a salary of 6,360 per month. In addition to his salary, Joe was paid a bonus of 12,000 on 12 May 2012. He had become entitled to this bonus on 22 March 2012.

(2) Joe contributed 6% of his monthly gross salary of 6,360 into Firstly plc's HM Revenue and Customs' registered occupational pension scheme.

(3) On 1 May 2012, Firstly plc provided Joe with an interest-free loan of 120,000 so that he could purchase a holiday cottage. Joe repaid 50,000 of the loan on 31 July 2012, and repaid the balance of the loan of 70,000 when he ceased employment with Firstly plc on 31 December 2012.

(4) During the period from 6 April 2012 to 31 December 2012, Joe's three-year-old daughter was provided with a place at Firstly plc's workplace nursery. The total cost to the company of providing this nursery place was 11,400 (190 days at 60 per day).

(5) During the period 6 April 2012 to 31 December 2012, Firstly plc paid gym membership fees of 1,650 for Joe.

(6) Firstly PLC provided Joe with a home entertainment system for his personal use, costing 4,400 on 6 April 2012. The company gave the home entertainment system to Joe for free, when he left the company on 31 December 2012, although its market value at that time was 3,860.

Employment with Secondly plc

(1) From 1 January 2013 to 5 April 2013, Joe was paid a salary of 6,120 per month.

(2) During the period 1 January 2013 to 5 April 2013, Joe contributed a total of 3,000 (gross) into a personal pension scheme.

(3) From 1 January 2013 to 5 April 2013, Secondly plc provided Joe with living accommodation. The property has an annual value of 10,400 and is rented by Secondly plc at a cost of 2,250 per month. On 1 January 2013, Secondly plc purchased furniture for the property for 16,320. The company pays for all of the running costs relating to the property, and for the period 1 January 2013 to 5 April 2013, these amounted to 1,900.

(4) During the period 1 January 2013 to 5 April 2013, Secondly plc provided Joe with 13 weeks of childcare vouchers costing 100 per week. Joe used the vouchers to provide childcare for his three-year-old daughter at a registered nursery near to his workplace.

(5) During the period 1 January 2013 to 5 April 2013, Joe used Secondly plc's company gym, which is only open to employees of the company. The cost to Secondly plc of providing this benefit to Joe was 340.

(6) During the period 1 January 2013 to 5 April 2013, Secondly plc provided Joe with a mobile telephone costing 560. The company paid for all of Joe's business and private telephone calls.

Required: Calculate Joe Jones' taxable income for the tax year 2012/13. (50 marks)

Exercise 2:

You are a trainee accountant and your manager has asked for your help regarding three taxpayers who have all made personal pension contributions during the tax year 2012/13.

Ann Peach

Ann, aged 30, is self-employed as an estate agent. Her trading profit for the year ended 5 April 2013 was 44,730. Ann made contributions of 47,000 (gross) into a personal pension scheme during the tax year 2012/13. This was the first year that she had been a member of a pension scheme.

Basil Plum

Basil, aged 42, is employed by the Banana Bank plc as a fund manager. During the tax year 2012/13, Basil was paid a gross salary of 330,000. Basil made contributions of 60,000 (gross) into a personal pension scheme during the tax year 2012/13. This was the first year that he had been a member of a pension scheme.

Chloe Pear

Chloe, aged 54, lets out unfurnished property. For the tax year 2012/13, her property business profit was 26,630. Chloe made contributions of 8,200 (gross) into a personal pension scheme during the tax year 2012/13. This was the first year that she had been a member of a pension scheme.

Required

For each of the three taxpayers, Ann Peach, Basil Plum and Chloe Pear, state, giving reasons, the amount of personal pension contributions that will have qualified for tax relief for the tax year 2012/13, and calculate their income tax liabilities for the year, assuming that they have no other income. (50 marks)

TAX RATES AND ALLOWANCES

The following tax rates and allowances are to be used in answering the questions.

Income tax

Normal rates % Dividend rates rates %

Basic rate 1 - 37,400 20 10

Higher rate 37,401 to 150,000 40 325

Additional rate 150,001 and over 50 425

A starting rate of 10% applies to savings income where it falls within the first 2,440 of taxable income.

Personal allowance

Personal allowance Standard 6,475

Personal allowance 65 - 74 9,490

Personal allowance 75 and over 9,640

Income limit for age-related allowances 22,900

Income limit for standard personal allowance 100,000

Car benefit percentage

The base level of CO2 emissions is 130 grams per kilometre.

A rate of 5% applies to petrol cars with CO2 emissions of 75 grams per kilometre or less, and a rate of 10% applies where emissions are between 76 and 120 grams per kilometre.

Car fuel benefit

The base figure for calculating the car fuel benefit is 18,000.

Pension scheme limit

The maximum contribution that can qualify for tax relief without any earnings is 3,600.

Authorised mileage allowances: cars

Up to 10,000 miles 40p

Over 10,000 miles 25p

Capital allowances: rate of allowances %

Plant and machinery

Main pool 20

Special rate pool 10

Motor cars (purchases since 6 April 2009 (1 April 2009 for limited companies))

CO2 emissions up to 110 grams per kilometre 100

CO2 emissions between 111 and 160 grams per kilometre 20

CO2 emissions over 160 grams per kilometre 10

Annual investment allowance

First 100,000 of expenditure 100

Industrial buildings

Writing down allowance 1

Corporation tax

Financial year 2008 2009 2010

Small profit rate 21% 21% 21%

Main rate 28% 28% 28%

Lower limit 300,000 300,000 300,000

Upper limit 1,500,000 1,500,000 1,500,000

Standard fraction 7/400 7/400 7/400

Marginal relief

Standard fraction x (U - A) x N/A

Value added tax (VAT)

Standard rate - Up to 3 January 2011 175%

- From 4 January 2011 onwards 200%

Registration limit 70,000 Deregistration limit 68,000

Inheritance tax: tax rates

1 - 325,000 Nil

Excess - Death rate 40%

- Lifetime rate 20%

Inheritance tax: taper relief

Years before death Percentage reduction %

Over 3 but less than 4 years 20

Over 4 but less than 5 years 40

Over 5 but less than 6 years 60

Over 6 but less than 7 years 80

Capital gains tax

Rate of tax - Lower rate 18%

- Higher rate 28%

Annual exempt amount 10,100

Entrepreneurs' relief - Lifetime limit 5,000,000

- Rate of tax 10%

National insurance contributions

(Not contracted out rates) %

Class 1 Employee 1 - 5,715 per year Nil

5,716 - 43,875 per year 110

43,876 and above per year 10

Class 1 Employer 1- 5,715 per year Nil

5,716 and above per year 128

Class 1A 128

Class 2 240 per week

Small earnings exemption 5,075

Class 4 1 - 5,715 per year Nil

5,716 - 43,875 per year 80

43,876 and above per year 10

Rates of interest (assumed)

Official rate of interest 40%

Rate of interest on underpaid tax 30%

Rate of interest on overpaid tax 05%

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No word limit. The word limit for this assessment excludes the list of references at the end of the report. Still, it includes all text in the main body (including direct quotations, in-text citations, footnotes, tables, diagrams, and graphs).

Please be aware that exceeding the word limit will affect the academic judgment of the piece of work and may result in the award of a lower mark.

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References should come from academic sources (e.g., journal articles, conference papers, reports, etc.), although you can also utilize area-specific textbooks. You must ensure that you use the APA referencing style (7th edition). References are not included in the word count.