Question

Harjot worked for Soul Ltd as a music producer until 31 July 2019. He earned a salary of £46,200 per annum (PAYE £4,000) and received the following benefits:

From 6 April 2019 until 31 July 2019, Soul Ltd provided Harjot with a petrol motor car.  The motor car cost Soul Ltd £24,000 and had carbon dioxide emissions of 143g/km.  Soul Ltd also provided Harjot with fuel for private journeys.  Harjot returned the car on leaving the company on 31 July 2019.

On 30 April 2019, Soul Ltd paid private medical insurance of £360 for Harjot.

Harjot contributed 6% of his gross salary into Soul Ltd’s occupational pension scheme.  The company also contributed 4%.

On 1 June 2019, Harjot paid a professional subscription of £220 to the Guild of Producers, a HM Revenue and Customs’ approved professional body.

Harjot resigned from Soul Ltd on 31 July 2019 to focus on running his own recording studio.  He set up in business many years ago and his income statement for the year ended 31 March 2020 is as follows:

	£	£
Revenue		76,885
Depreciation	1,780
Motor expenses (see Note i)	5,000
Professional fees (see Note ii)	1,890
Repairs and renewals (see Note iii)	2,124
Entertaining and sundry items (see Note iv)	22,860
		33,654
Net profit		43,231

Notes to the accounts:

i)       During the year to 31 March 2020, Harjot drove a total of 4,200 miles, of which 3,360 were for business journeys.  These journeys were made in the motor car acquired by Harjot in October 2019 (see Note v).

ii)      The figure for professional fees includes £400 for accountancy fees incurred to draft his accounts and £510 for personal tax advice.

iii)      The figure for repairs and renewals relates to repairs to sound equipment during the period.

iv)     Entertaining includes £370 for entertaining clients. Sundry items include £120 for parking fines for Harjot, £400 for a specific write off of trade receivables and a further £2,000 general provision.

v)      Harjot’s main pool had a tax written down value of £15,000 at the start of the year. He acquired the following plant and machinery during the year for use in his business:

		£
October 2019	Recording equipment	15,130
October 2019	Car for Harjot
	(CO2 emissions 185g/km)	25,400
January 2020	Office furniture	1,300

Harjot received other income from investments as follows:

	£
Dividends received 10 April 2019	2,671
Dividends received 8 April 2020	2,000
Dividends in Harjot’s share ISA account May 2019	370
Bank deposit interest received 15 March 2020	1,720

From 1 August 2019, Harjot paid £280 (net) per month into a personal pension plan under a relief at source arrangement.

Harjot has already made payments on account in respect of tax for 2019/20 in the sum of £1,500 each.

In order to finance his new business, Harjot disposed of the following assets in August 2019:

• An antique table inherited from his mother.  His mother purchased the table for an original cost of £1,500 and the value of the table when she died was £3,200.  The table was sold for proceeds of £5,700.

• Half of a 100 acre plot of land purchased in 1989 for £180,000. The 50 acre plot was sold for £500,000 to a house developer. The unsold plot was worth only £250,000 as it was not suitable for development.

In order to expand the business next year Harjot has decided that he needs to work with his brother Shiven. Either Harjot may employ his brother part time, paying him a salary and tax efficient benefits whilst Shiven continues to be employed by Zonker Ltd.

Alternatively Shiven will resign from his job with Zonker Ltd and go into partnership with Harjot.  

You are required to:

1. Calculate Harjot’s taxable income from employment from Soul Ltd for the tax year 2019/20.

(7 marks)

1. Calculate the National Insurance Contributions (NICs) payable by Harjot for 2019/20 in respect of his employment package.   

(2 marks)

1. Calculate Harjot’s adjusted trade profit, after capital allowances, for the year ended 31 March 2020 and calculate any NICs due in respect of the business.

(11 marks)

1. Calculate Harjot’s total Income Tax payable for 2019/20 stating the due date.

(11 marks)

1. Explain the difference in deductibility of expenses for self-employed and employed taxpayers. (maximum word count 60 words)

(3 marks)

1. Compute the capital gains tax payable by Harjot for 2019/20. Suggest four assets that Harjot could invest in that will not create a capital gains tax liability when sold.  

(6 marks)

1. Advise Harjot on four tax efficient benefits in kind that he could offer his brother and explain why these benefits may be more tax efficient than receiving salary. (maximum word count 100 words)

(5 marks)

Explain the tax consequences if Harjot’s brother joins the business as a partner. (maximum word count 100 words)