Calculating Income Tax liability for Sarah and Alison in 2020/21

You are required to:

Calculate Sharon’s total income tax liability for the tax year 2020/21 and state when the tax is due. You should provide all the required explanations and use zero for income/benefit that is not used. Assume that the official interest rate is 3%.

Question 2 – background information

Sarah and Alison are sisters. Although they have the same amount of income, Sarah is an employee and Alison is a sole trader.

• Sarah is employed by Taco PLC as a Floor manager in one of the nationwide retail chain’s retail grocery shops. She is paid a gross annual salary of £45,000.

• Paramount PLC has provided Sarah with living accommodation since 2019. The property was purchased in 2011 for £130,000 and was valued at £160,000 when first provided to Sarah. The annual value of the rental is £6,300, and Taco PLC pays for the annual running costs of £4,200.

• Sarah contributes 7% of her gross salary of £45,000 to Taco PLCs HM Revenue &

• Paramount PLC paid Sarah’s Professional membership fees of £600.

Alison

• Alison is self-employed and runs a toy shop. Her statement of profit and loss for the year that ended on 5 April 2021 is as follows:

• During the year that ended on 5 April 2021 Alison drove a total of 25,000 miles, of which 7,500 were for private journeys. Alison’s motor car has emissions of

• 90 g/km, and at 6 April 2020 had a tax written down value of £16,900. She does not own any other assets that qualify for capital allowances. (Note1)

• Alison purchased her grocery shop in 2011 for £200,000. She lives in a flat that is situated above the shop. One-fifth of the total property expenses of £9,000 relate to this flat. (Note2)

• Alison contributed £4,000 (net) into a personal pension scheme during 2020/21. You are required to a) Calculate Sarah ’s income tax and Class 1 NIC liabilities for 2020/21.

b) Calculate Alison’s income tax, Class 2 NIC and Class 4 NIC liabilities for 2020/21.

c) Explain the difference between primary and secondary Class I National Insurance Contributions (NIC)

You must submit your assignment by using the Turnitin gateway in the module’s Canvas site. Please Note: When you submit you will be asked to confirm you have referred to the Submission Checklist and the act of submitting your work electronically will be taken as an acceptance of the Declaration of Authorship.

Learning Outcomes for the assessment

This item of assessment covers the following learning outcomes. For the full list of learning outcomes for the module, please refer to the Module Study Guide.

• Understand the system of UK taxation that applies to individuals and businesses

• Apply the knowledge of various types of taxes in order to calculate and compute liabilities

• Critically explain the overall system of UK taxation and the role of a tax system in a modern economy

• Explain and evaluate the system of tax regulation, compliance, payments and claims, and imposition of penalties for non-compliance

• Explain and evaluate the system of income tax and national insurance contributions, income from employment and self-employment, the role of various reliefs available when calculating taxable income and tax charges, income arising from investments such as property

• Develop key skills: communication (C2), problem solving (C5), processing of numerical data (C7)

1. Have you checked Canvas messages/announcements for any additional/final details of the assessment?

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4. Have you kept to the word limit? Remember, anything greater than 10% above the word count will not be marked.

5. Have you addressed the assessment requirements as outlined in the Assessment Brief?

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9. Is your work written in an appropriate academic style?

10. Have you checked your citations and Reference List/Bibliography?

11. Have you submitted your work to get a similarity report to check you have paraphrased where required?

12. Have you read the Declaration of Authorship (Appendix 2)?