Calculating Income Tax Payable for Self-Employed UK Resident Zac Lo - 2020/21

Details of Zac Lo's Accounts for Year Ended March 2021

Zac Lo, a UK resident, has been self-employed for many years, preparing his accounts to 31 March each year. His accounts for year ended 31 March 2021 show the following:

                               note                £

Gross profit                              171,400

Bank interest receivable           4,250

                                                175,650

Rent and rates                         (25,500)

Heat and light                         (6,575)

Administrative expenses (1)    (6,800)

Vehicle expenses  (2)               (2,880)

Legal and professional            (1,420)

Bad debts             (3)               (1,600)

Loss on sale of machine Depreciation  (3,850)

Net profit                                 127,025

(1) Administrative expenses include £575 for a Christmas party for Zac’s employees, and 50 golf umbrellas with Zac’s trade logo costing £26 each, for distribution to clients.

(2) All the vehicle expenses relate to Zac’s car which he estimates he uses 25% for private purposes.

(3) The bad debt expense consists of a specific debt of £2,000 that was written off as the customer had gone into liquidation and the balance is made up of the movement in the general bad debt provision.

Zac has a tax written value on 1 April 2020 on the main pool of £58,000 and £14,000 on a car (CO2 emission 135g/km) that Zac uses 25% for private purposes. During the year Zac bought machinery which cost £32,000 and sold a machine for £1,000 which originally cost £8,000.

Zac received UK dividends of £8,000 in 2020/21. On 1 May 2020 he won £5,000 on a national lottery scratch card. Following his good luck, he gave £3,000 to Oxfam, a national registered charity under gift aid, and spent the rest of his winnings on a holiday.

Zac bought a two bedroomed flat on 1 June 2020 and started to rent it out on 1 July 2020 at a rent of £800 per calendar month, payable in advance on the 1st day of the month. All rent has been received on time.

Details of expenditure actually paid in 20/21 related to the property are as follows:

                                                                                  £

Capital cost of the flat                                              215,000

Cost of furniture, furnishings,
household appliances and kitchenware                   24,000

Advertising costs for new tenants                            200

Insurance costs for the year ended 30 June 2022    1,200

Ignore VAT in this question.

Requirements

a) Calculate Zac’s income tax payable for 2020/21. Assuming Zac has made payments on account towards his 2020/21 liability of £22,000, state the date any income tax payable is due. Disclose all workings and fully explain the tax treatment of the property income and expenditure.

Zac is considering using the remainder of his lottery win to fund a long round the world holiday and to find a location to buy a non UK holiday home to rent out. Zac intends to keep his UK home but he estimates that in 21/22 he will only be in the UK for 14 days but due to him constantly travelling he has no plans to establish an overseas home. Yaling, a friend of Zac, has agreed to run his business whilst he is away, and during 21/22 Zac intends to not even spend 1 hour working. Up to and including 20/21, Zac has always been UK resident and domiciled, and you can assume that residency rules remain the same for 21/22.

b) Explain whether Zac will be classed as UK resident for 21/22 and how any income from the non UK holiday home would be taxed on Zac.