Differences Between Employment And Self Employment Accounting Essay

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There are many different between employment and self - employment. Being an employee, you are unable to choose or decide about the work, how, when and where to do it. You do not need to supply your own equipments, do not risk your own money in the business and get the holiday or sick pay. However, self - employed has the right to decide about the work, delegate it to other subordinate. They have to provide their own material and risk the capital when the company go to bankrupt. While the employee pay income tax under the Pay As You Earn system, self - employed has longer time to pay their tax and by instalment.

There are several ways to distinguish the treatment between allowable expenses for employees and allowable expenses for the self - employed. For employee, expense are allowable if it is includes in contribution under payroll giving scheme, travel and other expenses incurred in business purposes, contributions to an occupational pension scheme or professional subscriptions. For example, where an employee is a member of a specific body or institute, such as the Association of Chartered Certified Accountants ("ACCA") or the Institute of Chartered Surveyors, the annual membership fee can be deducted from the employees income when calculating the tax liability. [1] If the employer reimburses employee, by tax purpose, that amount will be get into income and the expenses will be recouped from employee's income. Otherwise, the allowable expenses will be subtracted directly from that income if the employer does not reimburse them. For self- employment, if expenditures are wholly and exclusively paid for the trade purpose, they will be deducted during computing trading profits. Expenditures are allowable if they are business expenses and included in legal and professional fee, patent royalties, compensation payment, trade subscriptions, damage, employee's remuneration, interest e.g. overdraft interest. Travel expenses for business and cost of using vehicles are also allowable with a record of private and business mileage. For instance, cost of going to work from home is disallowed.

http://www.which.co.uk/money/tax/guides/tax-for-the-self-employed/self-employed-tax-allowable-expenses/

http://www.bukisa.com/articles/328071_tax-allowable-expenses-an-employee-can-claim

Question 2

Lulu's taxable income from employment for 2010/2011

£

Salary

300138

Additional benefit (w1)

9005.52

Car (w2)

8100

Fuel (w3)

1800

Loan (w4)

644

Medical insurance

3000

322687.52

(W1) Additional benefit

(300138-75000)*4%= 9005.52

(W2) Car

(90000-9000)*10%= 8100

(W3) Fuel

18000* 10%= 1800

(W4) Loan

16100 * 4%= 644

Question 3 (thieu Nic)

Taxable trading profit for the year 2011/2012

 

 

 

£

 

Net profit

 

-296060

Adjustments

 

 

Lulu's salary

50000

 

Gift to Fleur

13000

 

Lulu car expense (1000*40%)

400

 

Depreciation

1100

 

Entertaining

560

 

Clothing

2000

 

Holiday

3000

 

Furniture

1100

 

Refurbishment of warehouse

200000

 

Clothing manufacturing equipment

120000

 

Other furniture and fittings

15000

 

Computers

18000

 

Car for employee

15000

 

Capital allowance

-30000

 

 

 

409160

Taxable trading profit

 

113100

Taxable trading profit for the year 2012/2013

 

 

Net profit

 

133530

Adjustments

 

 

Lulu's salary

55000

 

Gift to Fleur

15000

 

Lulu car expense (1200*40%)

480

 

Depreciation

1200

 

Entertaining

650

 

Clothing

3000

 

Holiday

4000

 

Furniture

1200

 

 

 

80530

Taxable trading profit

 

214060

Taxable trading profit for the year 2013/2014

 

 

Net profit

 

180770

Adjustments

 

 

Lulu's salary

60000

 

Gift to Fleur

16000

 

Lulu car expense (1300*40%)

520

 

Depreciation

1300

 

Entertaining

700

 

Clothing

3000

 

Holiday

5000

 

Furniture

1300

 

 

 

87820

Taxable trading profit

 

268590

Taxable trading profit for the year 2014/2015

 

 

Net profit

 

121615

Adjustments

 

 

Lulu's salary

70000

 

Gift to Fleur

18000

 

Lulu car expense (1400*40%)

560

 

Depreciation

1400

 

Entertaining

750

 

Clothing

3400

 

Holiday

6000

 

Furniture

1400

 

 

 

101510

Taxable trading profit

 

223125

Question 5:

 

Total

Non-savings

Savings

Dividends

 

£

£

£

£

Employment income

£322,687.52

£322,687.52

 

 

Bank interest (7000* 100/80)

£8,750.00

 

£8,750.00

 

NSB Easy Access Savings A/c

£560.00

 

£560.00

 

UK dividends (£10500 + £1166.67)

£11,666.67

 

 

£11,666.67

 

 

 

 

 

Taxable income

£343,664.19

£322,687.52

£9,310.00

£11,666.67

 

 

 

 

 

Income tax due

 

 

 

 

Non-saving income

Basic rate

£37,400.00

20%

£7,480.00

 

Higher rate

£112,600.00

40%

£45,040.00

 

Additional rate

£172,687.52

50%

£86,343.76

Savings income

Additional rate

£9,310.00

50%

£4,655.00

Dividend

Additional rate

£11,666.67

43%

£4,958.33

 

 

£343,664.19

 

 

Tax borne

 

 

 

£148,477.09

Less: Tax credit on dividends

 

 

 

£1,166.67

Tax payable

 

 

 

£147,310.42

Less: Tax deducted at source

 

 

 

£1,750.00

Tax payable

 

 

 

£145,560.42

Part B: Rex Report

Question 1

Taxable income is an income's part in accordance with the law to define tax rate for that income. For the tax purpose, categories of income combine employment income, property income, trading income, pensions, dividends, interest, social security income and miscellaneous income. [2] There are some requirements for taxable income that need to be applied. Follow the structure of an income tax computation, taxable income is calculated by subtracting personal allowance from net income - the total income after tax reliefs have been deducted. The £6475 for basis personal allowance is available for every individual for the tax year 2010/2011. Treating this figure as a tax threshold, low income person do not have to pay income tax while resulting in reduction of personal allowance for higher income taxpayer. Plus, taxable income is charged depending on income tax rates for 2010/2011, the basic rate band is first £37400 with 20% as basic rate, higher rate band is between £37400 and £150000 at 40% as higher rate, tax is payable at the additional rate of 50% on taxable income over £150000.

Each taxpayer has an obligation of assessing the taxable income by themselves and sends it to HM Revenue & Customs. The income tax is charged from 6 April to 5 April, which is the year of assessment. There are two ways to self assess, which is Self assessment tax return filling on paper with many portions and Notice to file presenting online to consider your personal or company cases. The paper return must reach HM Revenue & Customs (HMRC) by 31 October following the end of the tax year. The online return must be filed by 31 January following the end of the tax year. [3] The tax return can be sent in later if you receive notice to file after 31July for paper form and after 31 October for only form. If you miss the deadline or do not submit your tax return, you will have to pay late filling penalty, surcharges and interest on tax due.

Question 2

As mentioned above, taxpayers must self assess their taxable income and send in HM Revenue & Customs. If any taxpayer realizes that he has not completed, missed or made mistake on tax return, he must notify HMRC without any delay. The taxpayer will have to pay higher interest, surcharge, or higher penalties with any delay. The taxpayers refuse to comply with the law if they do not expose taxable profit, resulting in several financial penalties.

Follow by the new penalty regime, which is not limit on tax income but also various of tax e.g. corporation tax, capital gains tax, failure to notify 's penalty is treated as remaining unpaid tax portion. For a "deliberate and concealed" failure to notify, where the failure is deliberate and the taxpayer has attempted to conceal it, the percentage is 100%. For the failure with is "deliberate but not concealed" the percentage is 70%. Otherwise, the percentage is 30%. [4] The penalties consideration is depend upon many factor such as behavior, prompted or unprompted disclosure, tax years involved, disclosure's time, non-revealed profit level and so on. The penalty can be mitigated by HMRC if the disclosure is unprompted, which is made at a time when the person making it has no reason to believe that we have discovered the error. [5] The penalty charge is even possibly to zero if the taxpayer has a reasonable and satisfactory explanation to each irregularity. On the other hand, a prison conviction can be issued with criminal prosecution to taxpayer in serious case of "failure to notify".

Question 3

PAYE (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance contributions (NICs) from employees' pay as they earn it. [6] All payment related to employment income such as salary, wage, commission must go for this system. Your business are a mystery, HMRC do not even know about its existence, the PAYE do not applied also to any employee. However, as an employer, you have certain obligations under the PAYE system. Your responsibility is that put this system on worker's earning if it reaches the National Insurance Lower Earning Limit (LEL). This is £97 per week, £421 per month and £5044 per year for the tax year 2010-2011. [7] You have to pay employees salary, wages simultaneously take off from them both income tax and National Insurance contributions (NIC). The HM Revenue & Custom must have to received the amount of money resulted from this deduction adding together with employer's secondary NICs. To calculate NICs and tax income of employee, employer can use "tax code", which is issued by HMRC and shows employee's earnings before paying tax, taking account of many factors e.g. personal allowance, charge for tax overpaid, employee's allowable expenses, rates, tax relief. The 19th of each month is deadline for payment or 22nd of each month is for electronic payment. On the other side, if your average payment to HMRC per month does not surpass £1500, you are able to make this payment quarterly. Plus, with P11 form - the deduction of working sheet, employer's responsibility is that keeping record of every single employee's gross income and income tax paid from 6th April to date. Your business employs 36 full-time workers included 1 sales representative, 3 office staff and 10 part-time workers. From April 2011, any business with no more 50 employees will have to send in their in-year form by electronic mean.

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