Report on Mr Tan's Taxation Implications and Tax Obligations Within the Uk

REPORT ON MR TAN'S TAXATION IMPLICATIONS AND TAX OBLIGATIONS WITHIN THE UK

Prepared By: U0856625

Submitted To: Mr Tan Boon Seng

Date: 26 November 2010

SYNOPSISE

INTRODUCTION

In a civilized society, especially if you work in the UK, people pay taxes. However the taxes are different as there are taxes for those employed and those self employed. For employees they do not have to worry much but self employers it's different as they have to know the special requirements. However a self employed person and an employee are both taxed but differently. Employees use Pay as you earn (PAYE), the self employed person only pays tax twice a year one on the 31st of July and the other on the 31st of January. Budges of trade also define an employee (refer to appendix). A tax year starts from the 6th of April up till the 5th of April the following year. However not everyone pays the same taxes as there is taxable income (basic income rate) which is 37400, however anyone who receives more than that will be charged at a rate of 40%.There are also some allowances and reliefs that may reduce your income tax bill and may mean that you do not have to pay any taxes at all.

CHARGABLE PERSON

Some people visit UK a number of times a year to do business in the UK and yet do not qualify to be tax payers. Also if you live in the UK permanently for three years or more then you become a resident starting from the date you arrived. Another rule is that if you stay in the UK for more than 91 days in a tax year over a 4 year period then you will be taxed. However in this case you stayed in UK for 100 days each year for 5 years which is more than the average number of days you were supposed to stay therefore you qualifies as a resident and therefore you will be taxed. However it was obvious from the beginning that you were planning on staying in the UK (permanent resident) because of the fact that you bought a house on your first visit. Also because of your frequent visits to the UK qualifies you as a resident.

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CAPITAL GAINS TAX ON PROPERTY

If you are a UK resident the income you receive from the disposal of your property is taxed. (Melville, 2000) However it's the gain and not the money you receive that's taxed but you will be excepted £10100. Therefore you a liable for the CGT of 18%. However you are liable to pay CGT for the first house but not the second house because it is considered as your Principle Private Residence therefore you are exempted for CGT.

OPTION1

In this case you will be employed by the Sprague Limited receiving a salary. However every employee is liable to income tax. If you are an employee you pay as you earn (PAYE), so every month when you get your salary the tax will have been deducted by the government already. Since you will be receiving