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Until 30 June 2017 Wendy was employed as a management consultant at an annual salary of £40,000. On 1 July 2017 Wendy commenced in self-employment running a music-recording studio. The following information relates to the period of self-employment from 1 July 2017 to 5 April 2018:
(1) The adjusted profit for the period 1 July 2017 to 5 April 2018 is £89,000. This figure is before taking account of capital allowances.
(2) Wendy purchased the following assets:£1 July 2017 – Recording equipment 30,000
15 August 2017 – Motor car (CO2 emissions are 170 g/km) used by Wendy – 60% business use 14,800
20 October 2017 – Motor car (CO2 emissions are 125 g/km) used privately by employee – 20% private use) 10,400
4 March 2018 – Computer 2,600
Compute Wendy’s income tax liability for 2017/18
The part that I don’t understand is the employment income part. She was employed till 30 June 2017 while the tax year is from 1 July 2017 to 5 April 2018. Why bother to include employment income when it is not part of the tax year. Also why is it calculated as 3/12 x 40000, which 3 months are we talking about? Thanks in advance for your help.
You need to go back to the start of Chapter 2 – the tax year runs from April 6 to the following April 5 NOT from July 1 which is simply when the period of self employment commenced and must include all taxable income for the tax year! Hence the 3 months of salary from April 6 to June 30 MUST be included in the income tax computation for 2017/2018.
Tax Tutor wrote:You need to go back to the start of Chapter 2 – the tax year runs from April 6 to the following April 5 NOT from July 1 which is simply when the period of self employment commenced and must include all taxable income for the tax year! Hence the 3 months of salary from April 6 to June 30 MUST be included in the income tax computation for 2017/2018.
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