Tax Calculation
Question 1
Capital allowance
New plant
Time to the ending period = 10
Allowance for plants =18%
Capital allowance= 10/12 x 18% x 650,000= £97,500
Car
Business use= 70%
Period to 31st October = 9
Allowance for car with emission above 110kg/m =6%
Capital allowance= 70% x 9/12 x 6% x 40,000= £1260
Water saving plant and machinery
Time to the ending period = 8
Allowance for plants =18%
Capital allowance= 8/12 x 18% x 300,000= £36,000
Integral features
Time to the ending period = 7
Allowance for integral features =18%
Capital allowance= 7/12 x 18% x 250,000= £26,250
Plants sold
Time to the ending period = 1
Allowance for plants =18%
Capital allowance= 1/12 x 18% x 20,000= £300
Total capital allowance = 97,500+1260+36000+26250-300= £160,710
Taxable profit
Flat t
Rent = £7000/12 =£583
Lease premium = £5000
Expenses
Insurance = £400
Repair = £4,500
Taxable profit = 5000+583-4500-400= £683
Flat 2
Rent = 7/12 x 8000+ 8500/12= £5375
Expenses
Insurance = 200
Repair = 600
Water rate and council tax= 1200
Taxable profit = 5375-200-600-1200= £3375
Total taxable income = 683+ 3375 = £4058
UK’s government realized that there was an increase in the number of multiple property owners by 30% between 2003-2014. The government introduced a policy of increasing stamp duty land tax by 3% as a strategy to reduce the second homeownership (Chichester, 2016). However, instead of the second home ownership reducing, the number is increasing, and the multiple property owners pay more than 40% of total stamp duty tax in the UK. In 2017, the number of second-home owners increased by 252,000, and the stamp duty increased by £1.8b, which was much higher than the government anticipated (Barker, 2018).
This idea of increasing the stamp duty for the second-home owners aimed at supporting the stamp duty relief for the first-time owners of a property below £300,000 and charging 5% for property worthy between £300,000 and £500,000. Nevertheless, in 2017 the amount of relief claimed by the first-time homeowners was £159m against £1.8b additional tax charged to the multiple homeowners. The figures indicate that the increase in the number of first-time homeowners is insignificant, and hence the policy did not achieve its designed objective (Pickford, 2020).
The measure was criticized by investors and politicians as the schemes of the government to collect more money from the citizens. The accountant of Blick Rotenberg, Namesh Shah, commented that the UK treasury was in need of money and hence the government devised a method of raising it. The statistics show that the measure has not deterred multiple homeownership and has not significantly increased the first-time buyers. At the bottom line, the treasury is left with a lot of money that was meant to offer tax relief to the first-time buyers (Pickford, 2020).
In conclusion, the measures put by the UK government to reduce the number of second-home buyers have been ineffective because its objective was not met. Since the second homeowners are landlords and landladies, the additional tax is transferred to the tenants, and hence by implication, the government is taxing the tenants rather than the homeowners. If the government’s intention was to help the first-time homeowners and not to collect revenue, then the additional 3% tax should be scraped off.
Question 2
income tax
Salary = £15,800
Redundancy pay =£32,000
PAYE= £750
Bank interests = £275
Dividends = 3,090
Fostering income = £16500
Patent loyalties= £720
Trading income= £800
Total taxable income= 15800+750+32000+275+3090+16500+720+800 = 69,935
50,000 -12,500 = £37,500
20% x 37,500 = £7500
69,935-50000= £19,935
40% x 19,935=£7974
Income tax = 7500 + 7974 = £15,474.
Capital gain tax
Residential property
Selling price = £1.3m
Disposal cost = £75,000
Buying price = £2m
Acquisition cost = £50,000
Capital loss = 1.3m -750,000-2m-50,000= -£825,000
Caravan
Buying price = £12000
Selling price = £10500
Disposal cost =£250
Capital loss= 10500- 12000-250= -£1750
Total capital loss= -825,000-1750= -£826,750
The Association of Independent Professionals and the Self-employed (IPSE), is concerned with raising the number of freelance workers. In 2017, there were a total of 4.8m self-employed workers who contributed to a tax £271bn. The government of the UK and IPSE believed that there were some employers abusing the tax system by classifying their employees as self-employed to evade paying the required amount of tax. The unscrupulous behavior of some employers is the most logical theory developed by the UK government to explain the dramatic rise in the number of self-employed workers (CPD, 2018).
The self-employed workers are expected to pay less amount of tax because they do not enjoy job security as do the employees. The tax relief is designed to enable them to invest so that upon retirement they will have finances to support themselves. Nevertheless, the self-employed tax relief has been misused by employers in coordination with employees. Most of the self-employed people are less likely to disclose their actual income since they are able to agree with the client on what financial information to disclose. These underground deals enable the self-employed workers to earn more than the employees and on top of that, they pay less tax than the employees (Pettinger, 2012).
The government of the UK in the past has announced that it will conduct an employment test to ascertain whether the workers who claim to be self-employed are so. However, it is hard to conduct such a test because some employees work online from home and others report into the places at different times. Unlike in the past when employees were reporting to the workplaces in the morning, the working environment has become very flexible and hence employment test is practically impossible to conduct (CPD, 2018).
Considering all the odds brought about by the disparity, it would be more appropriate if the disparity was removed and employees pay the same rate of tax as the self-employed. The scrapping of the disparity will solve the problem of employers miscategorizing the employees as self-employed. Besides, the government of the UK will be able to know the employers who were misusing the tax system by observing a large drastic drop in the number of the self-employed and simultaneous rise in the number of employees in companies.
Question 3
The UK government use tax as a tool of economic and social policy. Tax policy is an important fiscal policy that the government uses to curb inflation by raising and decreasing the tax rate. However, the UK government rarely alters the tax rate to curb inflation but it rather used the monetary policy of altering the loan rates. The UK government income tax is progressive which means that the higher an individual earns, the more they pay for taxes. The low-income earners below £12500 do not pay tax, those who above £50,000 pay tax of 40%, and this who earns above £150,000 pay tax of 45%. The progressive nature of the income tax makes it possible for the government to tax the high income earners and offer relief to the low-income earners (Kuligowski, 2017).
Nevertheless, almost all other types of taxes in UK are regressive in nature. An excellent example is the 20%VAT on the basic goods. The low-income earners use a large percentage of their income to buy basic needs and hence with 20%VAT they purchase pay to a large percentage of the VAT in relation to their income. On the other hand, the high income earners have a low propensity to consume and even if they purchase more goods than the low-income earners, the VAT they pay is only a small percentage of their total income. For this reason, the efforts made by exempting low-income earners in paying income tax are rendered less useful by the high VAT (Pettinger, 2012).
Although there no direct correlation between the tax rates and unemployment, it has been established that the high-income tax rate indirectly contributes to the increasing rate of unemployment in the UK. When the low-income earners just above the threshold are taxed, the net income is almost equal to the benefits they receive when they are not employed. As a strategy of evading high-income tax, some citizens prefer surviving on benefits and hence leading to a high rate of unemployment. Besides, the investors are discouraged in launching job creation ventures since they will be required to p[ay higher salaries to the employees to offset to high taxation (UNU-WIDER, 2020).
Concerning social policy, high taxation is imposed on goods that promote negative social behaviors such as cigarettes, and alcohol. Most of the people who use tobacco-related products and liquor are the low-income earners and hence the tax further diminishes their already low income. Most of the low-income earners have barely received a good education and hence they are not aware of the negative impacts of the tobacco and this is the major reason why they use them. When the government increases the tax of the good related to negative social behavior without taking incentives to educate them on their health impacts, it solves no social problem but rather increases their predicaments (UNU-WIDER, 2020).
The government of the UK has failed to implement the congestion tax to a person driving in high congested areas especially in London. Most of the people who can afford to drive are middle and high-income earners since most of the low-income earners utilize public transport. The reason given by the UK government is that it would be costly to tax the vehicles driving in highly congested areas (Pettinger, 2012). However, the reason is not good enough as the streets and towns in the UK has a strong camera which can be engaged.
In conclusion, it is clear that the taxation of the UK is ineffective as a tool for economic and social policy. It is clear that most of the taxes are regressive and hence the low-income earners pay a higher percentage of tax in relation to their income. The government is taxing the social behaviors commonly practiced by low-income earners while ignoring those done by the high-income earners.
References
Barker, S., 2018. 0HMRC profits as stamp duty hike fails to curb second-home ownership.
[Online]. Available at: https://www.google.com/amp/s/www.telegraph.co.uk/tax/news/hmrc-profits-stamp-duty-hike-fails-curb-second-home-ownership/amp/
Chichester, 2016. multiple home owners beware of the tax change. [Online]
Available at: https://www.thechichesteraccountants.com/news/hot-
topics/article/2017/August/multiple-home-ownership-beware-of-the-tax-changes
CPD, 2018. Its time for tax system to stop treating employess and selfemployed differently.
[Online]
Available at: https://www.accaglobal.com/gb/en/member/discover/cpd-articles/taxation/taxsmith-
Kuligowski, K., 2017. What is fiscal policy?.
[Online] Available at: https://www.businessnewsdaily.com/3484-fiscal-policy.html
Pettinger, T., 2012. Is UK tax system fair?.
[Online] Available at: https://www.economicshelp.org/blog/5256/economics/is-uk-tax-
system-fair/
Pickford, J., 2020. UK property taxation.
[Online] Available at: https://www.google.com/amp/s/amp.ft.com/content/ff5d0032-
5f07-11ea-8033-fa40a0d65a98
UNU-WIDER, 2020. The economic and politics of taxattion and social protection.
[Online] Available at: https://www.wider.unu.edu/project/economics-and-politics-
taxation-and-social-protection