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Dear Tutor,
In practise question 19, since Renner owns 20% of the shares can’t we treat him as partner? Can’t we 1st calculate the trading profit of the business and then calculate his taxable income based on his share of ownership rather than calculating his employment income and showing his dividend income?
Also for the same sum, why do we do time apportionment just for salary and not for bonus? Is it because bonus is entitled only annually?
I think you have a lot of work to do – firstly you should know the difference between an unincorporated business and an incorporated business!!
A company is not a partnership
An unincorporated trader is chargeable to income tax on their share of the adjusted trading profit of the business.
A company (incorporated trade) is charged to corporation tax on its adjusted trading profit, while its individual owners are charged to income tax on the dividends they receive and owner managers are also charged to income tax on the salary and bonus they receive from the company.
On your second question – the basis of assessment for employment income is an actual received basis – those number of months of salary were received in the tax year and the bonus was received in the tax year. This is the same basis of assessmentThanks for the detailed explanation.
With regards to the explanation of the second question, I am in agreement that employment income must be assessed on actual received basis. However, the note states that The date received is taken as ” the earlier of the date when the employee became entitled to the payment or the date when it was actually received by the employee”. So for e.g. if the bonus for accounting year end 31st Dec’16 amounting to 12000 Pounds was received on 30th Apr’17 then for the tax yr 16/17 we will assess the bonus amount as it was entitled for the tax year even if it was not actually received until next tax year. And the amount assessed will be the entire 12000 pounds and not time apportioned. Is that right?No – we do not use the period for which it was earned but the date received – and we then look at the definition of received which is the earlier of the 2 dates you state above.
If the date when the employee becomes entitled to the payment is to be used then you will be told that date in the question.
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