Paloma has been trading for a number of years. Her tax adjusted trading profit for the year ended 31 May 2015 was £48,000 and for the year ended 31 May 2016 was £43,200.
What is the amount of class 4 national insurance contributions (NIC) payable by Paloma for the tax year 2015–16?
A £3,121
B £3,595
C £3,105
D £3,201
Joe is the managing director and 100% shareholder of OK-Joe Ltd. He has always withdrawn the entire profits of the company as director’s remuneration, but given a recent increase in profitability he wants to know whether this basis of extracting the profits is beneficial.
For the year ended 5 April 2016, OK-Joe Ltd’s taxable total profits, before taking account of director’s remuneration, are £65,000. After allowing for employer’s class 1 national insurance contributions (NIC) of £5,141, Joe’s gross director’s remuneration is £59,859.
The figure for employer’s NIC of £5,141 is after deducting the £2,000 employment allowance.
Required:
Calculate the overall saving of tax and NIC for the year ended 5 April 2016 if Joe had instead paid himself gross director’s remuneration of £8,000 and net dividends of £45,600.
Notes:
1. You are expected to calculate the income tax payable by Joe, the class 1 NIC payable by both Joe and OK-Joe Ltd, and the corporation tax liability of OK-Joe Ltd for the year ended 5 April 2016.
2. You should assume that the rate of corporation tax remains unchanged.
You should assume that today’s date is 1 March 2014.
George, a software developer, was born on 11 June 1986. He has accepted a one-year contract to update software for Xpee plc.
(1) The contract will run from 6 April 2014 to 5 April 2015, with a fee of £40,000 payable for the entire year of the contract. A condition of the contract is that George will have to do the work personally and not be permitted to sub-contract the work to anyone else.
(2) George will work from home, but will have to attend weekly meetings at Xpee plc’s offices to receive instructions regarding the work to be performed during the following week.
(3) George will not incur any significant expenses in respect of the contract apart from the purchase of a new laptop computer for £3,600 on 6 April 2014. This laptop will be used 100% for business purposes.
(4) During the term of the contract, George will not be permitted to work for any other clients. He will therefore not have any other income during the tax year 2014–15.
(5) George’s tax liability for the tax year 2013–14 was collected through PAYE, so he will not be required to make any payments on account in respect of the tax year 2014–15.
George has several friends who are also software developers. He understands that his employment status is not clear cut but that his income tax liability for the tax year 2014–15 will be the same regardless of whether he is treated as employed or as self-employed. However, George appreciates that there are advantages to being classed as self-employed.
Required:
(b) Calculate George’s income tax liability and national insurance contributions for the tax year 2014–15 if he is treated as self-employed in respect of his contract with Xpee plc. (4 marks)
Lorna has the choice of being either employed or self-employed. If employed, Lorna’s gross annual salary for the tax year 2014–15 will be £36,000. If self-employed, Lorna’s trading profit for the year ended 5 April 2015 will be £36,000.
How much more national insurance contributions will Lorna suffer for the tax year 2014–15 if she chooses to be employed rather than self-employed?
A. £841
B. £937
C. £698
D. £1,080
You should assume that today’s date is 15 March 2014.
Fergus was born on 19 July 1971. He is currently self-employed, and if he continues to trade on a self-employed basis, his total income tax liability and national insurance contributions (NIC) for the tax year 2014–15 will be £33,985.
However, Fergus is considering incorporating his business on 6 April 2014. The forecast taxable total profits of the new limited company for the year ended 5 April 2015 are £100,000 (before taking account of any director’s remuneration). Fergus will pay himself gross director’s remuneration of £18,000 and net dividends of £40,000. The balance of the profits will remain undrawn within the new company.
Required:
Determine whether or not there will be an overall saving of tax and national insurance contributions (NIC) for the year ended 5 April 2015 if Fergus incorporates his business on 6 April 2014.
Notes:
1. You are expected to calculate the income tax payable by Fergus, the class 1 NIC payable by Fergus and the new limited company, and the corporation tax liability of the new limited company for the year ended 5 April 2015.
2. You should assume that the rates of corporation tax remain unchanged.
(10 marks)
| Note | £ | £ | |
|---|---|---|---|
| Revenue | 1 | 71,900 | |
| Expenses | |||
| Motor expenses | 2 | 4,400 | |
| Other expenses | 3 | 8,200 | |
| Capital allowances | 4 | 6,900 | (19,500) |
| Trading profit | 52,400 |
Note 1 – Revenue
The revenue figure of £71,900 includes receivables of £1,600 which were owed as at 5 April 2014.
Required:
(a) Based on the trading profit of £52,400 for the year ended 5 April 2014:
(ii) Calculate the class 2 and class 4 national insurance contributions payable by Chi Needle for the tax year 2013–14. (3 marks)
| £ | |
|---|---|
| Income tax | 22,010 |
| Class 2 NIC | 130 |
| Class 4 NIC | 3,923 |
26,063 |
Sophia understands that she could save tax and NIC if she instead traded as a limited company, and she is therefore considering incorporating her business on 6 April 2011. The forecast taxable total profits of the new limited company for the year ended 5 April 2012 are unchanged at £80,000 (before taking account of any director’s remuneration).
Required:
Assuming that Sophia Wong incorporates her business on 6 April 2011, advise her whether or not there will be an overall saving of tax and national insurance contributions (NIC) for the tax year 2011–12 if she withdraws all of the profits from the new company as:
(i) director’s remuneration (after allowing for employer’s class 1 NIC, gross director’s remuneration will be £71,156); or (6 marks)
(ii) dividends (after allowing for corporation tax, net dividends will be £64,000). (5 marks)
Notes:
1. For both alternatives, you are expected to calculate the corporation tax liability (if any) of the new limited company for the year ended 5 April 2012, the income tax payable by Sophia Wong, and the class 1 NIC (if any) payable by Sophia and the new company.
2. You should assume that the rates of corporation tax remain unchanged