You have recently joined a small accountancy practice in the thriving tax team and are required...

 

  
 
 
 

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You have recently joined a small accountancy practice in the thriving tax team and are required to prepare the tax calculations for 2019/20 for a client Matthew Falco. Matthew Falco is a professionally qualified architect who works for an architects firm Modern Offices Limited. Matthew is also a keen baker and runs a small part-time business alongside his employment. Using the information contained on the following pages, you are required to calculate both his income from employment, and from self-employment, and refer to the additional information in order to calculate the tax liabilities payable for Matthew for the 2019/20 tax year. Employment Matthew Falco is an architect with Modern Offices Ltd, a company which designs luxury modern office buildings for organisations of all sizes. The following information is available for the tax year 2019/20: (1) During the tax year 2019/20 Matthew was paid a gross annual salary of £35,000 by Modern Offices Ltd. Income tax of £19,500 was paid under PAYE. (2) In addition to his salary, Matthew receives bonuses related to company profits and performance. Recent bonuses are as follows: i. ii. £5,000 based on profits for the Y.E, 30/6/19, paid 31/7/19 £3,000 based on profits for the P.E. 31/12/19, paid 31/1/20 £4,000 based on the profits for P.E. 31/3/20 paid 30/4/20 iii. (3) Modern Offices Ltd paid a membership fee to GetFitNow gym in the sum of £2,000 for the benefit of Matthew. (4) During the year a membership fee was paid to The Chartered Architects Association by Matthew in the sum of £1,800 (5) Throughout the tax year, Matthew also had small, low interest, loans from the company of £6,000; £3,000; and £2,000. He paid 1% interest. (6) Modern Offices Limited provided Matthew with a mobile phone with an annual cost of £720 which he used primarily for business purposes but approximately 30% of the calls were personal. In addition a second phone was provided for Matthews' wife as part of the company family inclusion policy. This phone had an annual cost of £320. Self-employment Matthew is a keen baker and decided to turn his hobby into a part time business. He bakes on a trading basis in his spare time. He makes up his accounts annually to 30 September. The following information is available for the tax year 2019/20: Trading profit for the year ended 30 September 2019 Matthew's profit and loss account for the year ended 30 September 2019 is as follows: Note £ £ 25,000 Income Expenses 3,500 Depreciation Professional fees 1 1,500 Motor expenses 2 2,000 Property expenses 4,500 Purchases 3 7,000 Other expenses 4 500 (19,000) 6,000 Net profit (1) The figure for professional fees includes £750 for advice regarding a contract review and £350 for advice regarding tax on the disposal of a house. (2) Mathew charges all the running expenses for his motor car to the business. During the year ended 30 September 2019 the total mileage was 10,000 miles, of which 8,000 were for private journeys. (3) The purchases include a new oven which cost £1,500. Other purchases are for ingredients used in baking products for sale to customers. (4) The figure for other expenses includes £20 for a parking ticket incurred whilst in a business meeting. Required: (a) Calculate the income taxable value of all the Benefits In Kind received by Matthew from his employment in 2019/20. Your solution must identify the rules applied and show all workings. (7 marks) (b) Calculate the Adjusted Trading Profits (including Capital Allowances) from self- employment for Matthew for the Y.E. 30/9/19. Your solution must identify the rules applied and show all workings. (7 marks) (c) Calculate the Income Tax payable by Matthew for the tax year 2019/20. (8 marks) (d) Calculate the chargeable gains and Capital Gains Tax for Matthew and explain the rules as a basis for your calculation. (5 marks) (e) Matthew is confused why his calculation includes different time periods for his employment and self-employed income. Please briefly explain why the employment income and self-employment income use different basis periods (dates) of 6/4/19-5/4/20 and Y.E. 30/9/2019. (3 marks) Note: ORI = 3% (5) Mathew uses his private telephone to make business telephone calls. The total cost of the private telephone for the year ended 30 September 2019 was £1,000, and 15% of this related to business telephone calls. The cost of the private telephone is not included in the profit and loss account expenses above. (6) During the year Mathew acquired £6,000 worth of equipment. This equipment will be used by Mathew in his business and will not be re-sold to customers. The balances of the pools brought forwards are as follows: Main pool £5,000 £1,500 Special rate pool In addition, Mathew acquired a new car which cost £20,000 and has emissions of 140g/km. End of self-employment information Other information (1) During the tax year Matthew received building society interest of £1,600, interest on an ISA of £3,000, dividends from a Stocks and Shares ISA of £5,000, and dividends from his shares in UK companies of £3,500. (2) He also received rental income from letting a house in the sum of £10,000. Matthew incurred expenses on the rental property of £500 for insurance and £3,000 mortgage interest. (3) On 28 February 2020 Matthew won £20,000 on the National Lottery. (4) During the tax year Matthew made gift aid donations totalling £3,600 to national charities. (5) Matthew made various capital disposals during the year as follows: i. Sold a painting in December 2019 for £14,000, which originally cost £5,000. Sold an antique vase for £4,500 which originally cost £8,000. ii. iii. Sold an antique for £25,500, which originally cost £25,000. Costs on disposal of £800 were incurred. iv. Sold a holiday cottage for £75,000, which originally cost £50,000. Legal fees on disposal were £750. Legal fees on acquisition were £500. (7) Throughout the tax year Modern Offices Ltd provided Matthew with a diesel powered motor car which has a list price of £27,000. The motor car cost Modern Offices Ltd £25,000, and it has an official CO2 emission rate of 155 grams per kilometre (g/km). Modern Offices Ltd pays all maintenance, service and running costs for the car at a cost of £4,000 per year. Modern Offices Ltd also provided Matthew with fuel for all journeys. Matthew contributed £200 per month towards the cost of the fuel which covered approximately half of the personal usage. (8) Modern Offices Ltd paid for some books for Matthew in the sum of £25. These books were not work-related. (9) Matthew has been provided with living accommodation for several years. The company had purchased the property for £130,000. The annual value of the property is £10,000, the running costs paid by the company are £4,000 and the property is furnished. The furnishings cost £5,000. Matthew contributed £300 per month towards the running costs of the property. End of employment information You have recently joined a small accountancy practice in the thriving tax team and are required to prepare the tax calculations for 2019/20 for a client Matthew Falco. Matthew Falco is a professionally qualified architect who works for an architects firm Modern Offices Limited. Matthew is also a keen baker and runs a small part-time business alongside his employment. Using the information contained on the following pages, you are required to calculate both his income from employment, and from self-employment, and refer to the additional information in order to calculate the tax liabilities payable for Matthew for the 2019/20 tax year. Employment Matthew Falco is an architect with Modern Offices Ltd, a company which designs luxury modern office buildings for organisations of all sizes. The following information is available for the tax year 2019/20: (1) During the tax year 2019/20 Matthew was paid a gross annual salary of £35,000 by Modern Offices Ltd. Income tax of £19,500 was paid under PAYE. (2) In addition to his salary, Matthew receives bonuses related to company profits and performance. Recent bonuses are as follows: i. ii. £5,000 based on profits for the Y.E, 30/6/19, paid 31/7/19 £3,000 based on profits for the P.E. 31/12/19, paid 31/1/20 £4,000 based on the profits for P.E. 31/3/20 paid 30/4/20 iii. (3) Modern Offices Ltd paid a membership fee to GetFitNow gym in the sum of £2,000 for the benefit of Matthew. (4) During the year a membership fee was paid to The Chartered Architects Association by Matthew in the sum of £1,800 (5) Throughout the tax year, Matthew also had small, low interest, loans from the company of £6,000; £3,000; and £2,000. He paid 1% interest. (6) Modern Offices Limited provided Matthew with a mobile phone with an annual cost of £720 which he used primarily for business purposes but approximately 30% of the calls were personal. In addition a second phone was provided for Matthews' wife as part of the company family inclusion policy. This phone had an annual cost of £320. Self-employment Matthew is a keen baker and decided to turn his hobby into a part time business. He bakes on a trading basis in his spare time. He makes up his accounts annually to 30 September. The following information is available for the tax year 2019/20: Trading profit for the year ended 30 September 2019 Matthew's profit and loss account for the year ended 30 September 2019 is as follows: Note £ £ 25,000 Income Expenses 3,500 Depreciation Professional fees 1 1,500 Motor expenses 2 2,000 Property expenses 4,500 Purchases 3 7,000 Other expenses 4 500 (19,000) 6,000 Net profit (1) The figure for professional fees includes £750 for advice regarding a contract review and £350 for advice regarding tax on the disposal of a house. (2) Mathew charges all the running expenses for his motor car to the business. During the year ended 30 September 2019 the total mileage was 10,000 miles, of which 8,000 were for private journeys. (3) The purchases include a new oven which cost £1,500. Other purchases are for ingredients used in baking products for sale to customers. (4) The figure for other expenses includes £20 for a parking ticket incurred whilst in a business meeting. Required: (a) Calculate the income taxable value of all the Benefits In Kind received by Matthew from his employment in 2019/20. Your solution must identify the rules applied and show all workings. (7 marks) (b) Calculate the Adjusted Trading Profits (including Capital Allowances) from self- employment for Matthew for the Y.E. 30/9/19. Your solution must identify the rules applied and show all workings. (7 marks) (c) Calculate the Income Tax payable by Matthew for the tax year 2019/20. (8 marks) (d) Calculate the chargeable gains and Capital Gains Tax for Matthew and explain the rules as a basis for your calculation. (5 marks) (e) Matthew is confused why his calculation includes different time periods for his employment and self-employed income. Please briefly explain why the employment income and self-employment income use different basis periods (dates) of 6/4/19-5/4/20 and Y.E. 30/9/2019. (3 marks) Note: ORI = 3% (5) Mathew uses his private telephone to make business telephone calls. The total cost of the private telephone for the year ended 30 September 2019 was £1,000, and 15% of this related to business telephone calls. The cost of the private telephone is not included in the profit and loss account expenses above. (6) During the year Mathew acquired £6,000 worth of equipment. This equipment will be used by Mathew in his business and will not be re-sold to customers. The balances of the pools brought forwards are as follows: Main pool £5,000 £1,500 Special rate pool In addition, Mathew acquired a new car which cost £20,000 and has emissions of 140g/km. End of self-employment information Other information (1) During the tax year Matthew received building society interest of £1,600, interest on an ISA of £3,000, dividends from a Stocks and Shares ISA of £5,000, and dividends from his shares in UK companies of £3,500. (2) He also received rental income from letting a house in the sum of £10,000. Matthew incurred expenses on the rental property of £500 for insurance and £3,000 mortgage interest. (3) On 28 February 2020 Matthew won £20,000 on the National Lottery. (4) During the tax year Matthew made gift aid donations totalling £3,600 to national charities. (5) Matthew made various capital disposals during the year as follows: i. Sold a painting in December 2019 for £14,000, which originally cost £5,000. Sold an antique vase for £4,500 which originally cost £8,000. ii. iii. Sold an antique for £25,500, which originally cost £25,000. Costs on disposal of £800 were incurred. iv. Sold a holiday cottage for £75,000, which originally cost £50,000. Legal fees on disposal were £750. Legal fees on acquisition were £500. (7) Throughout the tax year Modern Offices Ltd provided Matthew with a diesel powered motor car which has a list price of £27,000. The motor car cost Modern Offices Ltd £25,000, and it has an official CO2 emission rate of 155 grams per kilometre (g/km). Modern Offices Ltd pays all maintenance, service and running costs for the car at a cost of £4,000 per year. Modern Offices Ltd also provided Matthew with fuel for all journeys. Matthew contributed £200 per month towards the cost of the fuel which covered approximately half of the personal usage. (8) Modern Offices Ltd paid for some books for Matthew in the sum of £25. These books were not work-related. (9) Matthew has been provided with living accommodation for several years. The company had purchased the property for £130,000. The annual value of the property is £10,000, the running costs paid by the company are £4,000 and the property is furnished. The furnishings cost £5,000. Matthew contributed £300 per month towards the running costs of the property. End of employment information

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lets go through each part stepbystep to calculate Matthew Falcos income and tax liabilities for the tax year 201920 a Calculate the income taxable value of all the Benefits In Kind received by Matthew ... View the full answer