UK Taxation System: Calculating Income Tax and Understanding Environmental Taxes

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)

Brian Charles is employed by Sharp Ltd as a sales manager.

1) During the tax year 2019/20, Brian was paid a gross annual salary of £74,000 by Sharp Ltd. Income tax of £18,000 was deducted from this figure under PAYE. 
 
2) In addition to his salary, Brian received two bonus payments from Sharp Ltd during the tax year 2019/20. The first bonus of £14,000 was paid on 25 April 2019 and was in respect of the year ended 31 December 2018. Brian became entitled to the first bonus on 10 April 2019. The second bonus of £13,700 was paid on 31 March 2020 and was in respect of the year ended 31 December 2019. Brian became entitled to this second bonus on 25 March 2020. 
 
3 )Throughout the tax year 2019/20, Sharp Ltd provided Brian with a diesel-driven motor car, which has a list price of £12,000. 
 
The motor car cost Sharp Ltd £10,500, and it has an official CO2 emission rate of 217g/km. Brian contributed £7,000 towards the car’s cost and he pays £300 per annum to his employer for private use of the car. 
 
4) Sharp Ltd has provided Brian with living accommodation since 1 January 2012. The Company had purchased the property in 2004 for £160,000 and it was valued at £200,000 on 1 January 2012. Improvements costing £10,500 were made to the property during June 2019. The annual value of the property is £12,300. 
 
5) Sharp Ltd provided Brian an interest-free season ticket loan of £2,000. The official rate f interest is 2.5%.

1) Brian owns two properties, which are let out. Both properties are freehold houses, with the first property let out furnished and the second property being let out unfurnished.
 
2) The first property was let from 6 April 2019 to 31 Aug 2019 at a monthly rent of £500, payable in advance. On 31 Aug 2019 the tenant left owing two months’ rent which Brian was unable to recover. The property was not re-let before 5 April 2020. During March 2020, Brian spent £600 repairing the roof of this property.
 
3) The second property was purchased on 1 July 2019 and was then let from 1 August 2019 to 5 April 2020 at a monthly rent of £2,820, payable in advance. During July 2019, Brian spent £875 on advertising for tenants. For the period 1 July 2019 to 5 April 2020, he paid a loan interest of £9,000 in respect of a loan that was taken out to purchase this property.  
 
4) Brian insured both rental properties at a total cost of £660 for the year ended 30 June 2019, and £1,080 for the year ended 30 June 2020. The insurance is payable annually in advance. 
 
Note: Brian uses Accrual method to calculate his property income.

1)During the tax year 2019/20, Brian received a building society interest of £6,000 and dividends of £2,000. These were the actual cash amounts received. 
 
2)During the tax year 2019/20, Brian made Gift Aid donations totalling £4,500 (net) to national charities.

(a)Calculate the income tax payable by Brian Charles for the tax year 2019/20.

(b)Explain the criteria which are used to distinguish between employment and self-employment.

Environmental Taxes are an integral part of modern Governments’ strategies for dealing with the problem of climate change. In recent years, we have seen much a closer connection between Governments’ environmental policy and tax policy.

Explain the rationale for using the environmental taxes. Evaluate the types of environmental taxes and tax incentives used in the UK.
 
Finally, recommend some further measures to be introduced by the UK government through the taxation policy to address the issue. (For the last part, you should consider what other countries are doing to tackle this issue).