Tax residency: Personal inc tax computation: Exempted tax:

- Ind who is UK resident is Non saving – trading inc, - Inc from certain investment
taxed on worldwide inc employmt inc, pension, prop bus that held ind saving acct
- UK resident liable to UK inc. (ISA)
inc n oversee inc Saving inc – bank/uilding society - ISA – tax eff sav acc
- Non-UK resident liable int & other int inc. (cash/stock/share)
to UK inc tax only on inc Div inc – inc from ownership of - Div/int/cap gain recv from
↑ in the UK. share held in a comp. ISA.
An ind treated as UK - Saving certify from NS&I r
resident: fixed % / fixed period bet (2-
- Spend 183 days/more in 5 yrs). Matrity prof exemptd
UK during tax yr - Price received from prem
- Hs a home in UK & no bonds
home ovrsea - Child benf paid to ppl res for
- Work full time in UK caring ar least 1 child
during tax yr.
Qualifying intr: given tax Personal allowance (PA): Income tax Norm t div
relief by deducted from ttl - All ind entitle PA %
inc to compute net inc. - Deduct from net inc 1st against (23/24)
loan made for the non sav inc, then sav inc then Basic % :
purpose: div inc. £1-£37,700 20% 8.75%
- Loan to buy - PA = £12,570 Higher %:
plant&machry for - If ind inc > £100k, PA  by £1 for £37,701 – 40% 33.75%
partnership & each £2, £125,140
employment use - In this case, - where adjusted Add. %:
- Loan to buy inr in net inc > £125,140. £125,141 & ↑ 45%
employee-ctrl comp 39.35%
- Loan to invest in a Transfer amount: £1,260
partnership & operative. Inc limit: £100k Start % - 0% for 1st £5k:
[ttl relief – given deduct Basic % taxpayer: £1k
the int from ttl inc to cal Higher %taxpayer: £500
net inc for the tax yr. Div inc: all Taxp: £1k (23/24)
** if net inc: £125,140 or
more PA = 0.
Allowable deduction: Employment inc: Income tax Norm t div
- Exp can only deducted - General earning r tax in the yr of %
from earning if they receipt inc cash earning & cash (22/23)
incurred wholly, equivalent. Basic % :
exclusively & necessarily - Earning – salary/wages/fee/ £1-£37,700 20% 8.75%
in preforming the any gratuity/other prof of Higher %:
employment duties. incidental ben obtained by £37,701 – 40% 33.75%
- E.g: worker if it is $$ worth. £150,000
- Insurance premium Date of receipt is the earlier of: Add. %:
(cover - Time payment is made £150,001 & ↑ 45%
directors&workers - Time entitlement to payt ↑ 39.35%
liabilities Ttl taxable earning lee ttl Start % - 0% for 1st £5k:
- Subscription deduction = taxable earning of a Basic % taxpayer: £1k
- Qalifying travel exp tax yr. Higher %taxpayer: £500
Div inc : £2k (22/23)
- Contribution e.g ** deduction cannot create a
pension loss but can  net taxable
- Payment to charity earning to 0.

TAXABLE BENEFIT TAXABLE BENEFIT TAXABLE BENEFIT

Employmnt inc: Type of benefit: Living Accommodation:
Taxable benefit: 1. Principles – amt assessed is Ben of accom: its annual
Employee r tax on: generally the cost of providing val.
$$ earnings & benefits, the ben. Add ben if prop cost >
Benefits under benefit 2. Voucher – taxable benefit → £75k
code. employer prov employee w Taxable accom val prov
Generally, amt of taxable voucher/ use of credit cards. to employee – rent tht is
ben  by any amt paid by Hence if an employee: payable
the employee to  Receives $$ vouchers which E.g rented premises:
employer by 6 Jul are exchangeable for $$; taxable ben is ↑ of the
following the end of the  Uses a credit token e.g a credit rent act paid & its
tax yr. card to obtain $$, g/s; annual val.
Employees receive non-  Receives exchange vouchers property bought by the
$$ ben as part of their e.g book tokens also known as employer for a cost: >
remuneration package. non-$$ vouchers £75k, there is an add
Some ben may be fully Then the employee is taxed on ben charge of [cost of
taxable & other may be the cost to the employer of prov the living accomm-
wholly or partly prov the ben, less any amt the £75k] X off% of interest
exempted. employee pays the employer at the start of the tax
for prov the ben. year]. For the
2022/2023 the rate is
2.0%.
Example: Jones, a sales manager, occupies a flat owned by his employer. Its annual value is
£4,000 and Jones pays his employer £500 p.a. for use of the flat. The flat was originally
purchased in 2020 for £100,000. Calculate the total benefit assessable on Jones for
2023/24 assuming an official rate of interest of 2%.
 Benefit = £4K - £500 = £3.5k.
Notional rent = mkt val x official % = £100k x 2% = £2k.
Total benefit = £3.5k + £2k - £500 = £5k.

TAXABLE BENEFIT TAXABLE BENEFIT TAXABLE BENEFIT

Job-related accomm: Expenses: Gen bus expenses: Employees who hv a
- No taxable ben of job If the bus exp r for travel/hotel & r company car are taxed
related accom. reimbursed by the employer, the on a % of the car’s
- Job related if: basic rule is that the reimbursed amt price list & depends on
- Residence in the is a taxable benefit for the the lvl of the car’s CO2
accom is necessary employee. emissions.
for proper To avoid being taxed on the amt an The same % is X by
performance of the empl must make claim to deduct it £25,300 ( as per the tax
employee’s duties. as an allowable deduction. % under car fuel
- Accom; prov for Ex related to living accommodation benefit) where private
better performance employee are taxed on related fuel is also provided.
- Accom is provided as expenses paid by the employer: Diesel cars: +4%
part of arrangement Heating/lighting/cleaning/repairing, taxable ben.
in force bc of a special maintaining/decorating premises. Pool car exempted:
threat to the Provision of furniture. - Car use by > 1 empl
employee’s security. It should be noted that if the accom - Any priv use is merely
is ‘job-related’, the taxable amount for bus use.
is restricted to a max of 10% of the - Not kept
employee’s “net earnings”. overnight/near the
emp’s residence.
Taxable ben – others: PROPERTY INCOME RESINDENTAL PROPERTY:
- Scholarship – taxable In business: - If a residential property
at cost if given to - Prop bus prof&loss – for ind r is let furnished,
members of the calculated for a tax yr, on a $ basis. replacement of
employee’s family - Special rule abt financial cost for domestic items relief
- Childcare – this is an ind. can be claimed.
exempt benefit - Inc from land& building in UK – tax - No relief is given for the
- Gift of goods – must as non-saving inc initial cost of providing
be less than £250. if - All receipt&exp for prop r pool, to - Relief given if domestic
more the whole give a single prof/loss item is replaced.
amount is taxable not - Main taxable receipt for prop: rent - Dom item: furniture/
the excess. paid by the tenant to the landlord furnishing/household
- Non-cash awards for taxpayer. appliances
long service – at least - Deductible exp: repair - Relief amt = new asset
20 years service prop/agent’s fee/insurance val – old asset val sold
- The first £8,000 of - Prop bus inc can alternatively be - The old and new asset
removal expenses is calculated on the accruals basis as no need to be the same
exempted. receivable (rather than received) items, only cost of an
- Workplace parking and expenses payable (rather than equivalent asset is given
- Work related training paid). (jadi accrued) relief.
- Employer provided - a taxpayer may choose to use the PROPER BUSINESS LOSSES
uniforms accruals basis, property income - Loss from UK prop bus
receipts must > £150k. → carried forward to set
- Staff parties which against thr first future
are opened to all staff profits from the UK prob
and cost per head is bus until the UK prop
£150 or less bus ends.
- Recommended - Loss from FHL bus must
medical treatment kept separate & can only
costing up to £500 per be used against prof of
employee per tax year the FHL bus.
ADJUSTED TRADING Use SOFIRM:
PROFIT 1. Subject matter: Whether a person is trading or not may
Badge of trade: sometimes be decided by looking at the subject matter of the
Test if a transaction transaction.
should be treated as 2. Length of ownership: Where items purchased are sold soon
trading and taxed as inc afterwards, the transactions are likely to be treated as a trade. If
under tax adjusted acquired unintentionally (e.g. by inheritance) and then sold, it is
trading prof rules/ unlikely that trading has taken place.
treated as cap 3. Frequency of transactions: Transactions of a capital nature will
transaction & cap gain. be interpreted as trading transactions where their frequency
indicates the carrying on of a trade.
4. Supplementary work: When work is done to make an item
more marketable, or attempts are made to find purchasers, the
transactions are more likely to be treated as a trade.
5. Reason for sale: The circumstances/reason for the sale (being
forced to make a sale to raise cash may indicate not trading).
6. Profit motive: The presence of a profit motive will be a strong
indication that a person is trading.
Disallowed Expenditures
expenditures hv been deducted from the acc, then exp amt must be "added back" to prof
shown by the acc in order to arrive at the trading profit for tax purposes.
main classes of disallowed expenditure:
1. Capital expenditure: including depreciation is not allowable;
‣ repair to an asset is revenue expenditure and is allowable.
‣ improvement to an asset is capital expenditure and is not allowable.
2. Reliefs, Irrecoverable / Impaired Debts, Entertaining & gift, Subscription &
donation, Legal & professional charges, Int payable, Lease rental on cars, Fines &
penalties, Any deduction on owner salary, int paid on overdue tax, any salary paid
to owner fam
3. if owner removes goods from bus for his own use, sale at mkt val.
4. Pre-trading expenditure
 The Calculation of Trading Profit

CAPITAL ALLOWANCE: 3type of cap allowances: 1. Special % pool,

Tax vr of dept charge in (a) Annual Investment condition:
adjustment of prof. Allowance (AIA) - a. Integral features of a
Plant → assets that perform provides an allowance of building:
an active function in the bus 100% for the first £1M of ‣ Lifts and escalators ‣
eg office furniture & equip. expenditure on P&M in a Electrical & general
Machinery → MV & comp, 12 month period. lighting systems
inc building (b) Writing Down ‣ Cold water systems ‣
Allowance (WDA) – cost Space or water heating
of P&M that r not systems
qualified for AIA. ‣ Systems of ventilation, air
Egligible for annual WDA cooling or purification
!8% (main pool), 6% b. Long life asset:
(special % pool) Working life 25years/↑,
(c) First Year Allowance Based on 12mth acc
(FYA) - New electric cars period, > £100k
with zero CO2 emissions c. Motor car with CO2
attract a 100% FYA. The FYA emission over 50grams
is never time apportioned. per km.

SALES of P&M: Non pool asset:

- P&M sold in accounting Asset tht not go either main
period, sales amt is pool / special %, but
deduct from the pool b4 separate coloumn on cap
computing the WDA of allowance.
acc in the normal way. 1. Asset w priv use
- If the disposal asset 2. Short life asset
make the pool bal -ve,
then claim allowance.
 6. Preparing the Capital Allowance Computation

TRADING LOSSES:
1. Trading Profit assessment
(a) Sole traders are assessed on a tax year basis. If there is a trading loss, the trading profit
assessment to include in the income tax computation is nil.
(b) The trading profit figure in an income tax computation can never be negative.
2. Relieving the loss
- The loss may be relieved according to the following rules. A repayment of income tax
may result in some circumstances.
- Carry forward to future trading profits of the same trade
- Relief against total income of current and/or preceding tax year.
- Following a claim in (b) above if any trading loss still remains, the taxpayer may choose
to extend the loss claim against chargeable gains of that tax year.
 - Opening years loss relief against total income of preceding 3 tax years.
- Terminal loss relief (on cessation of trading) against previous 3 yrs of trading.
- A trading loss may be carried forward and set against the first trading profits arising
from the same trade.
- The trading loss must be set off in full against the next available trading profit if this
option is chosen.
- Any loss remaining is carried forward until further profits arise.
- The loss may be carried forward indefinitely.
Loss relief against total income
A trading loss may be relieved against total income (after any qualifying loan interest
payments) of the tax year of the loss and/or the preceding tax year.
The loss in the accounting period is then assessed on a tax year basis.
A loss for the year ended 31 March 2024 - assessable in 2023/24 on a tax year basis may be
relieved against total income in the current year (2023/24) and/or in the previous year
(2022/23).
Losses in opening years
๏ Loss is carried back three tax years on a FIFO basis, against total income.
Terminal loss relief
The terminal loss is the loss of the final 12 months of trading.
the trading profits of the previous three tax years on a LIFO basis.

LECTURE 2:

Act 1
Mr. Smeth has been working for many years and received a salary of £ 62,500 per annum in
2022/2023 (PAYE deducted in 2022/2023 is £ 12,000). He has no other sources if taxable
income.
Calculate the income tax payable by Mr. Smeth for 2022/2023.

Mr. Smeth has been working for many years and received a salary of £ 62,500 per annum in
2022/2023 (PAYE deducted in 2022/2023 is £ 12,000). He has no other sources if taxable
income.
Calculate the income tax payable by Mr. Smeth for 2022/2023.
ACT 2
Billy had a trading profit of £ 27500 and received bank deposit interest of £ 10,000 in
2022/2023.
Calculate Billy’s income tax liability in 2022/2023.
Act 3
How if we assume that bank interest is £ 25,000?
If we assume dividends were £ 1,000
LECTURE 4:
Activity
On 1 April 2023, Jeremy commenced in self-employment running a retail shop. Jeremy’s
statement of profit or loss for the year ended 31 March 2024 is as follows:
Notes
Note 1: Private accommodation
Jeremy and his wife live in a flat that is situated above the clothing shop.
Of the expenditure included in the statement of profit or loss for light, heat,
rent and rates, 40% relates to the flat.
Note 2: Motor expenses
During the year ended 31 March 2024, Jeremy drove a total of 12.000 miles,
of which 9,000 were for private journeys.
Note 3: Professional fees
Professional fees are as follows:
Accountancy= 700
Legal fees in connection with the purchase of the clothing shop = 1,200
Debt collection= 400
2,300

Included in the figure for accountancy is £250 in respect of a capital gains tax computation
Note 4: Repairs and renewals
The figure of £5,660 for repairs and renewals includes £2,200 for decorating the clothing shop
during July 2023, and £1,050 for decorating the private flat during August 2023. The building
was in a usable state when it was purchased.
Note 5: Sundry expenses
The figure of £2,990 for sundry expenses, includes £640 for gifts to customers of food hampers
costing £40 each, £320 for gifts to customers of pens carrying an advertisement for the
clothing shop costing £1.60 each, £100 for a donation to a national charity, and £40 for a
donation to a local charity’s fete. The fete programs carried a free advertisement for the
clothing shop.
Note 6: Wages and salaries
The figure of £84,825 for wages and salaries includes the annual salary of £15,500 paid to
Jeremy’s wife. She works in the clothing shop as a sales assistant. The other sales assistants
doing the same job are paid an annual salary of £11,000.
Note 7: Goods for own use
During the year ended 31 March 2024, Jeremy took clothes out of the shop for his personal
use without paying or accounting for them. The cost of these clothes was £460, and they had
a selling price of £650.
Note 8: Plant and machinery

The capital allowances available for the year ended 31 March 2024 are £13,060.
Calculate Jeremy’s tax-adjusted trading profit for the year ended 31 March 2024.

Activity 2:
Linda's income statement for the year ended 31 March 2024 is as follows:
Notes:
(a) Linda draws a salary of £200 per week from the business. This is included in the wages
and salaries figure.
(b) Repairs and renewals are as follows: £
Decoration of business premises 400
Installation of new improved heating system 3,800
Minor repair 80
———
4,280
———
(c) It has been agreed with HMRC that one-quarter of telephone costs and one-fifth of motor
expenses relate to private use.
(d) Sundry expenses include business entertaining of £520.
(e) Trade debts written off in the year amount to £440 and £200 has been set aside as a general
allowance (or provision) for bad and doubtful debts.
Compute Linda's trading profit (before deduction of any capital allowances) for the year
ended 31 March 2024.

Lecture 5
LIFO

FIFO