Computation of TaxTax has been and still remains the key source of government revenue. This is generated from small scale firms, private and public limited and unlimited organizations. This implies that there is mutual existence of the business owners and the government as they all contributes in the state's development. However, despites the enormous government efforts to create favorable business operation environment through taxation system, it is has not been uncommon for clients to fall into perplexing circumstance based on taxation issues, a matter which is associated with the lack of the necessary information and understanding of the taxation requirements and computational applications (Carmichael and Lynford, 2007). This situation can be well depicted in Mr. Jones case, whereby he seldom understands the evaluation and calculation of the due tax from his net profits.Clarification of Mr. Jones CaseThe principle of schedulesThe deviations of the amount of tax payable by Mr. Jones may have been caused by a number of other factors incorporated in the computation of the payable tax. In the consideration of the mode of taxation procedures, Jones's firm taxable income was the integral amount from different sources. Some of the amount may have been come from capital gains, rents, trading profits, interests or any other source pertaining business operations. The computation of tax based in the UK system applies the schedule model. The principle of schedules is that the company's revenue is separated into different categories according to their sources which further leads to dissimilar treatments in the process of tax calculation. This means that some of the earnings may be taxed whereas others aren't levied. Furthermore, those earnings which are levied are done so using unequal rates. That is to mean particular kinds of incomes are assigned a specific schedule which has its own policies defining the specific treatments on the income in tax determination. The total sum of all the schedules' taxable revenue gives the taxable income. The principle of schedules is thus adopted for the purpose of augmented control on taxation for the safety and care of the taxpayers at different business levels (Kaplow, 2008).Normally, the computation of corporate tax is procedural process initiated first by the computation of taxable profits from income records. Using the scheduler system, it's necessary that the separate amounts for each tax category are computed. This calculation is useful in the determination of the trading profit that is incorporated in the firm's taxable income. Then, some expenses included in income accounts are added to the taxable income as long as they are considered to be non-deductible for tax, while non-trading incomes are subtracted if they are levied in other tax categories.Companies possess different capital assets which depreciate with time. Depreciation therefore refers to deductions on capital assets but in the taxation such deductions are forbidden. Most of the capital expenditures are assigned a standard deduction or capital allowance. This indicates a tax depreciation of a firm which depends on the type of the assets the firm owns including plants, machines and premises. In the calculation of the tax depreciation, assets of particular type are pooled together and treated as unit asset. The rates on tax depreciation vary on the basis of the asset's economic life it has been used, with the initial years having the highest rates. The disposal of the assets that receives tax depreciations leads to the rise of balancing allowance. (Cordes and Ebel, 1999)
It is possible that Jones' company had sold business asset in the course of the trading in the year. The gains that are realized on such sales produce chargeable gains which are included in the calculation of the corporate tax. The chargeable gains that could have altered the calculated tax could also have been from replacement gains of some of the firm's machines within the operations of the year. A tax relief from capital gains may be granted on through deferral strategy for which taxpayers are permitted to submit their tax on a later date. This reduces the actual calculated tax amount that includes the income from capital gains (Rolfe, 2007).In order to have a better understanding on the issue of corporate taxation, I find it important to have description of terms that are frequently and commonly used in the preparation of payable tax.Allowance- this refers to a deduction which is usually prepared in the calculation of taxes. It's applied in the computation of income tax as well as corporate tax. The allowance amount is fixed in most cases but not always. This means the deductable amount from individual or company's taxable amount may vary from time to time depending on the terms of the taxpayer and applicable government policies put in place. The allowance variations are mainly caused by the changes in the personal assets or business expenses or both.Capital allowance- this is a kind of allowance which is established under the consideration of the capital asset depreciation value as approximated within their functional life time. It is usually granted to motivated manufacturers and producers to use plants and machines of modern technology which are environmental friendly. Thus, capital allowances are a reduction of the payable tax to the taxpayer as an appreciation of his/her efforts to use machinery that reduces environment pollution. It not involves machineries but certain buildings are also be classified as environmental friendly, meaning that particular models of premises would also qualify for capital allowance.Allowance balancing and charge- when company sales an asset(s) that were previous had been subjects to capital allowance in the process of taxation, certain adjustments are made. Furthermore, the assets may be destroyed and be compensated by the insurance organization. In case one of the two cases arises, the received amount affects the taxable amount. If there is a deficit of the received amount as compared with the depreciation value, a capital allowance is granted, but if the amount received exceeds the depreciation value, the excess amount is taxed (Carmichael and Lynford, 2007)..
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Schedules- schedule in the financial reporting is used by different people to give different meanings. Sometimes it's used to refer to the additional tax forms that are used together with the main form code form 1040. The various schedules are give arbitrary alphabetical code with schedule code A being used for reporting itemized deductions, B- interest incomes and dividends, C- losses or profits of the business, D- losses and capital gains, E- loss and supplemental income and lastly SE- which is for self employment and social security. Schedule is also used to refer to the published scale for taxpayers with a certain range of taxable income.Accounting for VATVAT is an abbreviated form of the phrase value added tax. It refers to a type of tax which is imposed on the consumer goods, that is, it's an added tax on the consumer's expenditure. The taxation of the value added to a product or service in a business is the main cause of the payment of the VAT tax, which is arrived at through the computation of the difference of output and input taxes of the product. For VAT collection, organizations or businesses act as tax collectors based on the fact that it's charged on business sales which may it be sales of goods or services. The supplies of goods and services therefore counts toward VAT tax, however there is an exception of goods that are counted as capital assets which form special kind of sales in the time of their disposal. VAT tax is calculated using both zero and standard-rated goods or services.To put the VAT taxation and calculation in the right direction, there must be proper keeping of the financial records. Proper financial record keeping helps in the accounting for output tax. This is the VAT charged by a business when it sells its products. The output tax is not sufficient for the calculation of VAT; hence, the input VAT tax- (the tax paid by businesses on the purchase of standard-rated products) is very crucial in the computation of VAT payable. The VAT payable is computed by obtaining the differences of output taxes and input taxes of the various standard-rated supplies. For instance, supposing that standard-rated products are charged a VAT at the rate of 18%, and company A sells a certain product at 20 including a 2 pound VAT. Company A can determine the VAT payable to HMRC by subtracting 0.18 from 2 to remit 1.82 pound as VAT. The most important fact is that VAT is determined from the received payments. This implies that VAT is calculated from payments received either by Cheque, standing orders or debit cards as well as debit/credit cards. It entails the calculation of the tax on all payments or receipts of part payments on invoices. The cash book is the most important record in the keeping and computation of VAT. This is because it clearly shows at a glance the company's financial transactions of the payment receipts and those the company made besides having a column for VAT recording. The purchase accounts and the records of the sales invoices are significant for the purpose of cross-reference as a means of confirmation of the payments. (Kaplow, 2008).Record keeping requirements and HMRC powersThe HMRC body requires that proper VAT to be kept in all limited companies. The records should clearly indicate the sum of VAT due, the deductible VAT and the VAT payable. The proper computation of taxes and record keeping help the organizations to pay due taxes and receive its refunds or compensation in the right time in accordance to the set policies and regulations. Excess of the deductible VAT over the VAT due requires a refund to the taxpayer. In addition, taxpayer can have interest payment in case of VAT payment mistake was made or an income claim is deferred for more than six months. However, these circumstances are possible when documented records and the prepared tax returns attain the set HMRC standards. Documents and tax returns that do not show HMRC compliance bear errors which are categorized as either deliberate errors or errors from reasonable care (Cordes and Ebel, 1999).In case the HMRC detects any inconsistencies in the tax returns, the body can take several actions on the taxpayer on the magnitude of the mistake or fraud. If the HMRC unveils concealed deliberated errors, it imposes 100% penalty on the taxpayer of the due tax. Other actions that HMRC can legally take include real time tax inspection, request for statutory accounts, and inspection of business premises. However, the taxpayer can also bar HMRC from visiting the company's premise, but under conditions that there is no approval by First-tier Tribunal, otherwise a daily penalty is imposed.There are a number of things which may affect the net pay of the two employees entitled same annual salary and also participating in the PAYE scheme. First and foremost, the acting accountant should understand that employee's net pay will be affected by the imposed tax credits which are determined or rated on individual basis. Due to the cumulative tax model, and the practice of carrying forward of unused tax credits or standard rates cut-off points, this may further bring discrepancy on the net pay on employee's net pay. The abandonment of the used of the same cumulative system in the operation of the PAYE as result of the issuance of tax credit certificate may also be a contributing factor on such net pay differences. On this basis, the staff employees should know each employee may have different tax credits which reduces their gross taxes determined on the taxable income. A married employee will therefore be entitled for married tax credit whereas a unmarried employees doesn't qualify for such tax credit.The acting accountant should also explain to the staff employees that there other deductions which affects their net pay. These other deductions also vary depending on personal determined decisions. For instances charges on insurance covers widely varies from one type to another and also from one insurance company to another. Another factor which might contribute to the difference on the net pay of two staffs is the deduction rates on retirement payments. One of the employees may decide to pay higher amounts as pension as compared to the other (Salanie, 2003).A part from the above mentioned factors, the net pay differences may arise from special type of earning which boosts the total net pay earning. In most case, organizations may give awards and bonuses based on their performance. This brings changes on annual salaries entitled to an individual (Kaplow, 2008). They are some other cases whereby by additional tax are levied on the employee's income. Such special cases may include the use of company's facilities on which a tax is imposed on the employee's earnings. An employee benefiting from a company car may incur additional car tax.
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