This document provides information about calculating corporate tax liability and capital gains tax for individuals and businesses. It discusses calculating the profits, deductions, and tax liability for Image Ltd company. It also discusses capital gains tax calculations for an individual named Alice. The document contains sample calculations of corporate taxable profits, deductions, tax rates, and quarterly tax payment schedules for Image Ltd to illustrate how corporate tax is determined.

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2. Introduction
This assignment has been done in two different tasks. The first task of the project is to
calculate the corporate tax liability for the Image Ltd Company. The capital gains tax payable
for individuals and the business is calculated in order to understand the topic in details. In the
project, the chargeable profits of the company and the tax liabilities is calculated and
analyzed. The reasons of choosing the quarterly payment structure of the corporation tax are
discussed and the time of the payment of the company is evaluated. The various ways of
dealing with the income tax deduction are also discussed. The second task of the project
involves identification of the chargeable assets of Alice, based on which, the capital gains and
loss from the assets is calculated. Ultimately, the capital tax payable of Alice at the end of the
year is calculated in the task.
Task 1
a. Preparationof computation for the year ended 31 March 2012 for Image
ltd’s profit before taxation with its taxable total profits
The tax liability for the profit before taxation for Image ltd is as follows:
Items Credits Debits
Operating profit (in £) 0 812,500
Other operating income (in £) 0 16,400
Income from investments (in £) 10,420 0
Bank interest (in £) 22,500 0
Loan interest (in £) 49,500 0
Dividends (in £) 0 82,420
Total (in £) 82,420 911,320
Interest payable (in £) 0 46,000

3. Profit before taxation (in £) 865,320
Table 1: Calculation of profit before taxation of Images Ltd
(Source: As created by researcher)
The tax liability for the total taxable profit of the company as per the given information is
given as follows:
Items Amount
Operating profit (in £) 812,500
Depreciation (in £) 59,160
Net profit (in £) 753,340
Purchase equipment (in £) 54,600
Purchased computer (in £) 12,300
Sole expensive motor car (in £) -23,200
Purchased Motor car (1) (in £) 16,600
Sold a lorry (in £) 9,800
Purchased Motor Car (2) (in £) 11,850
Purchased motor car (3) (in £) 14,200
Sold equipment (in £) -1,000
Loan interest received (in £) 15000
Interest accrued (in £) 7,500
Dividend received (in £) 49,500
Interest paid (in £) 23,000
Taxable total profit (in £) 791,090
Table 2: Calculation of total taxable profit of Image Ltd

4. (Source: As created by researcher)
From the above table 1, the total profit of the company has been £865,320. The net profit is
the amount that the company earns as revenue after deducting its cost of expenses. The total
profit before taxation is the net income of the Image Ltd before paying off the taxes. The
higher the amount of profit before paying the tax, the more is the profitability of the
company. Therefore, the profit before tax value of the company predicts that the company has
a high level of profit.
The taxable total profit of Image Ltd is the profit that the company earns after paying of the
various taxes of the company. The capital receipts, the income taxes, the deductible
expenditures and capital allowances are deducted from the profit before tax in order to obtain
the taxable total profit of Image Ltd. The taxable total profit of Image ltd company is
obtained £791,090.
Calculation of corporation tax liabilities and due payments dates (LO3.2)
The tax liability of Image ltd. is the amount legally owed to the taxing authority because of
the taxable events taking place in order to run the business. Piketty and Saez (2013, p.1873)
opined that the calculation of the tax liability helps the company to understand the amount of
the tax liable and the due payment dates of the company.
The calculation of the tax liabilities of Image Ltd is as follows:
Items Amount of profit Tax rate Amount of tax
Operating profit (in £) 812,500 20% 162500
Net profit (in £) 753,340 20% 150668
Profit on equipment (in £) 55,600 20% 11120
Purchased computer (in £)
12,300 20% 2460
Purchased Motor car (1) (in £)
16,600 10% 1660
Purchased Motor Car (2) (in £) 11,850 10% 1185

5. Purchased motor car (3) (in £)
14,200 10% 1420
Profit on interest (in £)
7,500 26% 1950
Profit on dividend (in £)
26,500 26% 6890
Total tax (in £)
339853
Table 3: Calculation of the corporation tax liability of Image ltd
(Source: As created by researcher)
The total tax liability of Image Ltd. is calculated to be £339853. The tax rate has been
different for the various items based on its nature. The amount of tax has been calculated for
each of the items separately based on the tax rate. The total tax liabilities of Image ltd is the
total sum of the taxes paid on each item.
The following table shows profits of the company when the total taxable profit is assumed to
be £791090:
Items Amount of profit Tax rate Amount of tax
Operating profit (in £) 325600 20% 65120
Net profit (in £) 292000 20% 58400
Profit on equipment (in £) 69300 20% 13860
Purchased computer (in £) 10000 20% 2000
Purchased Motor car (1)
(in £) 15000 10% 1500

6. Purchased Motor Car (2)
(in £) 17500 10% 1750
Purchased motor car (3)
(in £) 16600 10% 1660
Profit on interest (in £) 15500 26% 4030
Profit on dividend (in £) 29590 26% 7693
Total (in £) 791090 156013
Table 4: Calculation of the assumed total taxable profit of Image Ltd
(Source: As created by researcher)
From the above table, the tax amount of on each items that is to be paid by the company is
calculated. In this case the tax rate is different based on the type of the nature of the item. The
total taxable profit of the company is £156013.
b. Reasons why Image Ltd was required to make quarterly installment
payments in respect of its corporation tax liability for the year ended 31
March 2012
The Corporation tax of the Image ltd is paid through instalments. The Image Ltd has an
accounting period shorter than 12 months that is the company makes quarterly instalment
payments. The company has a profit of the accounting period, which is more than the upper
relevant maximum amount. As per the opinion of Araujo and Arvate (2016, p.33) the
company makes its estimation of the current year tax liability and then makes instalment
payments based on the estimation.
The quarterly instalment payments in respect of the corporation tax liability allow the
company to make top-up payments at any time when the company understands that the
instalments paid are inadequate. The quarterly instalment helps the Image ltd company to get
back all the payments of the instalment if the company has made excessive payments earlier
(Gov.uk, 2016).

7. c. Calculationof the corporation tax liability and explaining how and when
it is paid
The corporation tax liability of Image Ltd is calculated by evaluating the tax rate on the
amount of profit for each item. The table below helps the researcher to understand the amount
of corporation tax that is liable to the company and needs to be paid. The corporation tax
liability helps the company to estimate the net profit earned by the company after paying off
the tax.
Items Amount of profit Tax rate Amount of tax
Operating profit (in £) 330500 20 66100
Net profit (in £) 312500 20 62500
Profit on equipment (in £) 71500 20 14300
Purchased computer (in £) 9000 20 1800
Purchased Motor car (1) (in £) 13000 10 1300
Purchased Motor Car (2) (in £) 18000 10 1800
Purchased motor car (3) (in £) 18500 10 1850
Profit on interest (in £) 17750 26 4615
Profit on dividend (in £) 32050 26 8333
Total (in £) 822800 162598
Table 5: Calculation of the corporation tax liability for Image Ltd
(Source: As created by researcher)
Drautzburg and Uhlig (2015, p.908) mentioned that the payment date of the corporation tax
and the number of payments of the tax depends on the length of the accounting period. In the
case of accounting period of 12 months, the corporation tax is paid on four quarterly

8. instalments. Among these payments, two instalment payments are due before the accounting
period of the company ends.
In the case of the Image ltd Company, the instalments are paid in four quarterly instalments.
The first instalment of the corporation tax is paid on the sixth month and 13 days after the day
one of the accounting period of the company. The company pays the second instalment after
3 months of paying the first instalments. The third instalment is paid after the 3 months of
paying the second instalment. It is therefore, paid after the 14 days of the last day of the
accounting period of the company. The final or the last instalments payment is paid 3 months
and 14 days after the last day of the accounting period (Gov.uk, 2016).
The payment structure of the instalments of Image ltd company is as follows:
Payment Payment amount due Payment due date
First payment
£19000
14 July 2011
Second payment
£21000
14 October 2011
Third payment (due after the
end of the accounting
period)
£26000
14 January 2012
Final payment
£66000
14 April 2012
Table 6: Payment structure of the instalments of Image ltd company
(Source: As created by researcher)
d. How the corporation tax liability of the company differs from when the
company has no associated companies and calculation of the revised
corporation tax liability
Items Amount of profit Tax rate Amount of tax
Operating profit 155600 20 31120

9. (in £)
Net profit (in £) 124600 20 24920
Profit on equipment
(in £) 42500 20 8500
Purchased computer
(in £) 8000 20 1600
Purchased Motor car (1)
(in £) 16000 10 1600
Profit on interest (in £) 12650 26 3289
Total (in £) 359350 71029
Table 7: Calculation of the corporation tax liability in the absence of the associated
businesses for Image Ltd
(Source: As created by researcher)
The corporation tax liability for the Image Ltd company is calculated by evaluating the
amount of tax on each of the items of the company. The total amount of the corporation tax
liability of the company is calculated to be £171249.
If Image Ltd did not have any associated companies, the corporation tax liabilities that the
company would have to pay would differ from the present taxable liabilities paid by the
company at present. If Images Ltd had been a sole trader instead of running a partnership
with the existing associated companies, it would be subject to a number of tax reliefs. The
company for losing the partners of the limited partnership company obtains the
disincorporation relief. Furthermore, once Image Ltd loses its partners from the business, it
would imply that the company does not have to incur the additional costs associated with the
successful planning of the business. For example, the company would not have to incur the
costs of purchasing three different motor cars, if it did not have the associated businesses.

10. On the other hand, letting go off the associated businesses would also imply that the company
had to give up on the profits earned from the sale of the cars. Moreover, if the associated
partners are not existent in the business, the company could not earn the dividends earned on
the shares. Moreover, in the absence of the partnership, the company would not have been
able to earn the total profit of £359350 only. The sole-trading companies can claim a
Marginal Relief when it makes a profit between £300,000 and £1.5 million (Radaelli, 2013,
p.562). The company would be able to claim the Marginal Relief from the total amount of
corporation tax to be paid. However, it would at the risk of losing the marginal relief within
the following year or two.
Thus, it can be said that, if Image Ltd loses its partners, in the company would be able to cut
down its costs. At the same time, the opportunity cost of losing the trading partners in the
limited business is the forgone profit that the company makes in the presence of the
partnership.
Task 2
Identification of chargeable assets (LO4.1)
Capital gains tax is applicable on the sale of all assets on which the individual has earned
profit. It is applicable on all the property owned, except the home in which the individual
lives. The exemption of the individual’s home from the payment of capital gains tax is called
Private Residence Relief. The taxable property of the individual includes their business
premises, inherited property, buy-to-let property, and inherited property. However, the rules
for capital gains tax are different in case of the home disposed off by the individual. The
individual is exempted from paying the capital gains tax if the property is a gift to the
individual’s spouse, civil partner, or just a mode of charity. Moreover, if a dependent relative
inhibits the property of the individual as a business asset, or it, the individual receives a tax
relief (Gov.uk, 2016).
According to the given case study, Alice is liable to pay the capital gains tax on chargeable
assets. The chargeable assets of Alice include her office building, which she had purchased
on 2nd March 2010 for £134000, and then, sold it off for £152000 on 24th June 2011. The
warehouse, which Alice sold off on 15th April 2010 for a gain of £56000, is also a chargeable
profit for Alice. Another chargeable asset of Alice is her house, which she sold off on 1st
March 2012, in exchange of £180000. Alice’s husband originally purchased this house for

11. £50000, on 1st April 2003. When Alice’s husband transferred the property to her on 1st April
2007, its value was £80000. However, as the house was always rented out to tenants, it is
considered as Alice’s chargeable assets.
Calculation of capital gains and losses (LO4.2)
In this case, there is a capital gain for each of the chargeable assets of Alice such as the office
building, warehouse and house. The following table depicts the capital gains of each of the
chargeable assets of Alice:
Item
Purchasing cost
(in £)
Selling price
(in £)
Capital gains
(in £)
Office building 134000 152000 18000
Warehouse 93000 149000 56000
House 50000 180000 130000
Table 8: Calculation of capital gains from transactions made by Alice
(Source: As created by researcher)
From the above table, the chargeable assets of Alice include the office buildings, warehouse
and house. In order to obtain the capital gain for each of the assets, the cost of purchase of the
assets is deducted from the selling price of the chargeable assets. The purchase cost of office
building of Alice has been £134000 and the selling price of the office building is £152000.
Therefore, the capital gain from office building is £18000, which is obtained by subtracting
the cost of purchase from the selling price.
The capital gain obtained from the chargeable assets, Warehouse is £56000. The selling price
in this case has been £149000 and the cost of purchase of warehouse for Alice has been
£93000.
In the case of House as the chargeable assets, the cost of purchase has been £50000 and the
selling price has been £180000. Thus, the gain from the capital earned by Alice is £130000.
Therefore, for each of the chargeable assets, Alice has been gaining a profit of £18000,
£56000 and £130000 respectively.

12. Calculation capital gains tax payable (LO4.3)
The capital gains tax payable is calculated for each of the capital assets of Alice. The tax rate
based on the types of the chargeable asset has been used to evaluate the total amount of tax
that is needed to be paid as tax. The following table shows the rate of tax incurred on each on
the chargeable assets and the total amount of tax to be paid by Alice.
Item
Purchasing
cost (in £)
Selling
price (in £)
Profit
(in £) Tax rate
Number of
years applicable
Tax amount
to be paid
(in £)
Office building 134000 152000 18000 10% 1 1800
Warehouse 93000 149000 56000 10% 1 5600
House 50000 180000 130000 28% 9 327600
Annual
exemption
(in £) 10600 9 95400
Total (in £) 239600
Table 9: Calculation capital gains tax payable by Alice
(Source: As created by researcher)
The tax rate on the office building and warehouse is 10% and the tax rate on the house is
28%. The total annual exemption is £10600. The total amount of tax paid for the office
building is £1800 and the tax amount for the warehouse is £5600 while £327600 is paid as
tax for house. Therefore, the total amount of tax paid by Alice is the summation of the entire
taxable amount. It can be determined from the above table that, the total amount of tax to be
paid by Alice is £239600.

13. Conclusion
From task 1 of the above project, it can be stated that the Image Ltd Company has a good
profit level before the paying of the tax which is £865,320. The taxable total profit for the
company is £791,090. The company pays its instalment on a quarterly basis, which is useful
for the company. Furthermore, assuming that when the company loses it partners form the
limited business, the cost incurred by company goes down, along with a decline in the level
of profit earned from various sources.
The chargeable assets of the Alice are identified in task 2 of the project. Based on the assets
liable to the capital gains tax, the capital gains chargeable from the assets are calculated.
Based on the calculation, it can be stated that the Alice earns a capital gain from her
chargeable assets. The capital gains tax calculated for Alice is £239600 from the above
project. It can be therefore, concluded that Alice has a profit from the chargeable assets.

14. References
Books
Radaelli, C., (2013). The politics of corporate taxation in the European Union: Knowledge
and international policy agendas. Routledge.
Journals
Drautzburg, T. and Uhlig, H., (2015). Fiscal stimulus and distortionary taxation. Review of
Economic Dynamics, 18(4), pp.894-920.
Piketty, T. and Saez, E., (2013). A theory of optimal inheritance taxation.Econometrica,
81(5), pp.1851-1886.
Araujo, L. and Arvate, P., (2016). Institutional quality and capital taxation.International Tax
and Public Finance, 23(1), pp.25-47.
Websites
Gov.uk, (2016), About capital gains tax, Available at: https://www.gov.uk/capital-gains-
tax/work-out-need-to-pay [Accessed on 10 August 2016]
Gov.uk, (2016), About corporation tax rates, Available at: https://www.gov.uk/corporation-
tax-rates/allowances-and-reliefs [Accessed on 10 August 2016]