Tax Implications of Business Transactions and Employment Benefits

Part A

Your analysis will need to be supported by argument evidenced by law and academic research or commentary from academic journals covered in your module of study.

Question1

Jools runs her own high end grocery business delivering to wealthy clients all over London. She also sells luxury gift hampers of groceries for special occasions like birthdays, Christmas and Easter. She started the business in July 2020, and it has proved lucrative. She has realised that although she has all the transactions recorded, she is yet to prepare accounts as she is not sure of the tax implications of some of the transactions. Please advise her on the tax implications of the following transactions:

a) In December 2020, Jools provided hampers to several members of her family for Christmas. The hampers have a retail value of £180. She also gave hampers to each of her four members of staff at Christmas.

b) Every week, Jools takes groceries worth £100 from the business for her own family’s consumption.

c) She has received £1000 as a gift from a wealthy client who is very happy with the service. This is a long-term client who has assured her that she will use her delivery service for all her grocery shopping.

d) In January 2021, she received £2500 deposit from Jackie who had ordered several deliveries for a big party she was due to host. Unfortunately, the party had to be cancelled at the last minute and Jackie told Jools to keep the deposit given the circumstances. Jools did not suffer any loss as a result of the cancellation as she was able to sell all the groceries.

e) Jools runs her business from home and spent £17000 to extend the house and fit out the garage for storage of the groceries.

f) In November 2021, Jools was issued with several parking fines for parking on red lines as she makes deliveries. She has also been issued with ULEZ charges owing to the fact that most of her customers live within Central London and she incurs a charge under the TFL ULEZ scheme as she drives an old diesel van.

g) Recently, she spent £45000 buying a florist business that operates in Central London in order to expand her business and also use the premises as a base for her grocery business.

Question 1

h) She also started trading on the stock exchange in 2021 in order to expand her income streams. She used money from the business to trade. She opened a trading account on an online trading platform and carried out some 800 transactions between April and November 2021. Although she made some profits at the start, she has lost more than £5000 during this period. She is worried about the tax treatment of this loss and its implications for her business.

Advise Jools on the tax implications of the transactions outlined above.

Part B:

Question 2

Meera is an architect and has been offered a job at ABC Architects in Wimbledon. As a partner she will earn £70,000 a year as a gross salary. She will also receive other benefits and consults you on the tax implications of the following:

a) She pays £2400 a year as professional subscription to the Royal Institute of Chartered Architects. This will be paid by the firm.

b) The firm provided her with £1000 in vouchers to buy smart clothes suitable for her role as a partner.

c) An interest free loan of £40000 will be provided for her to build a studio in her garden so she can work from home one day a week.

d) A car with a list price of £12,000 will be provided by the firm for both business and private use. The running costs of the car, including fuel, are £5,320 for this year. She will make a contribution of £20 per week towards the provision of the car.

e) She will have to sell her house in the North of England in order to move to London in order to take up the role. She will be reimbursed for all her removal expenses as well as any loss she may incur on the sale of her house. The firm will provide temporary accommodation to her until she finds a suitable property. She will live in a house owned by the firm which is normally rented out for £2500 monthly. 

Advise Meera on the tax implications of the proposal.

Question 3 

Isobel is a senior consultant therapist employed by the NHS (National Health Service) on a salary of £90,000 a year. Isobel is thinking about starting her own practice because of the unbearable workload due to increased demand for therapy services. She has complained to her manager on several occasions but has not been listened to. She filed a formal complaint and has been offered a settlement to terminate her role. She would like to understand the tax implications of some of the terms being proposed.

a) She has been offered £45 000 as termination payment as well as three months’ pay in lieu of notice. She has also been offered £1500 for hurt feelings.

b) Isobel reckons her turnover each year will be about the same as her salary. She thinks that the tax treatment of her sales may be better than the tax treatment of her salary. During a conversation, Isobel asks you to explain the distinction between tax treatment of employment and self-employment.

c) She is undertaking a course on Health and Safety which she needs in order to run the business as a self-employed person. It costs £3000.

d) Isobel hopes to employ her daughter and another employee. She proposes to pay her daughter £30000 pa even though she has no qualifications. She will pay the qualified employee £20000 pa which is the standard rate of pay for the role.

e)She also hopes to fund the political campaign of a local politician who is running in a by-election in her constituency. Although she does not belong to his party, she supports his views on mandating the NHS to prescribe therapy more widely instead of medication as this will expand her opportunities. 

Advise Isobel on the tax implications of these proposals in these circumstances.

Question 4

Critically examine the definition of a trade for tax purposes and its utility in a modern economy.

Question 5 Do this question!! And one more from part B

With reference to caselaw, critically analyse the approach of the UK courts to the interpretation of tax legislation.