UK Taxation

Case Study

Sally Forth lives in the UK and is a marketing manager for a large corporation. Unfortunately, the company she works for has asked for members of staff to volunteer for redundancy in a re-structuring programme. Should she volunteer, Sally would receive a 50,000 lump sum from her employer. Sally would then use the money to start her own business as a marketing consultant. She has a lot of contacts in the industry and believes that she could build a successful business, although this might take several years. One of her concerns is what might happen if she were to secure a job with another company. Another is what would happen if she wanted to sell the business or just cease trading in the future.

What she is not very sure of is the UK taxation implication of starting her own business. Friends have said that she may have to register with Companies House and that as long as she does everything in cash, she will not have to worry about VAT or any other taxes. Another friend has said that if Sally starts a limited company, she will not pay tax, as the company will pay it for her, but, she may have to pay National Insurance.

Assignment briefing

Required

Prepare a comprehensive written report, in Microsoft Word, for Sally Forth that addresses the personal taxation consequences of her commencing self-employment as well as the general taxation principles and considerations involved with her running a business and its subsequent development over time. This will include aspects of Capital Gains, Inheritance and Corporation tax as they may apply to Sally in the future should she wish to dispose of her business. Your report must include the subjects of National Insurance and VAT and how they will impact in this instance. The administration and penalty regime for relevant taxes must also be examined. Wherever possible, your discussion should include worked examples to illustrate principles, offer guidance and inform decision-making.

You will be expected to review and research the appropriate chapters in the Set Text, on-line sources and review other texts & journals in the Hive library to develop your lecture/seminar knowledge and understanding.

Learning Outcomes

1.Explain and appreciate the scope, operation and administration of the tax system as it applies to
– individuals
– and companies.
2.Investigate the VAT system and make decisions regarding registration for individuals and companies.
Pro Forma for Income Tax Computation
Income tax computation for 2013 – 14
BR:  £32,010                    Total        Non-Savings        Savings        Dividends        Compensation
Upper Limit:  £150,000                    £        £        £        £        £
Salary/Wages/Pension (gross)
Business Profits
Rental Income
Savings interest  (gross)
Debenture (privately loaned) interest (gross)
Dividends Received (gross)
Total Income

Less: Personal allowance
Taxable income                 A =

Income tax
Non Savings Income            :Ordinary rate        @ 20%
:Upper rate        @ 40%
:Additional rate        @ 45%
Savings income
(remember: 1st £2,790 in BR ?!)            :Starting rate        @ 10%
:Basic Rate        @ 20%
: Higher rate        @ 40%
: Additional rate        @ 45%
Dividend income        ( in BR ?!)    :Ordinary rate        @ 10%
:Upper rate        @ 32.5%
:Additional rate        @ 37.5%                                             A =
Tax Borne

Less:    PAYE deducted at source
Less: Interest Tax deducted at source                X 20%
Less: Tax credits on dividends                X 10%
Tax payable