On 30 September 2012 Sparky resigned as an employee of Molly Plumbers Ltd. The
company had employed him as a plumber since 2004. On 1 October 2012 Sparky commenced self-employment running his own plumbing business, preparing accounts to 30 June.

You are employed by a reputable firm of Chartered Accountants with ethical standards.

The following information is available for 2012/13:
Employment

(1) During the period 6 April 2012 to 30 September 2012 Sparky’s total gross salary from his employment with Molly Plumbers Ltd was £38,000. Income tax of £10,780 and Class 1 primary National Insurance Contributions of £3,690 were deducted from this figure under PAYE.

(2) Sparky used his private motor car for both business and private purposes during the period from 6 April 2012 to 30 September 2012.

He received no reimbursement from Molly Plumbers Ltd for any of the expenditure incurred.
Sparky’s total mileage during this period was 13,000 miles, made up as follows:

miles
Normal daily travel between home and permanent workplace 4,200
Travel between home and permanent workplace in order to turn off a fire alarm 150
Travel between permanent workplace and Molly Plumbers Ltd customers 650
Travel between home and a temporary workplace for three months 3,000
5,000
––––––
13,000
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(3) On 1 August 2012 Molly Plumbers Ltd paid £14,900 towards Sparky’s removal expenses when he was permanently relocated to a different branch owned by the company. The £14,900 covered the cost of disposing of Sparky’s old property and of acquiring her new property.
Self-employment
(1) Sparky’s income statement for the nine months ended 30 June 2013 is as follows

Note £ £
Sales revenue 124,100
Less: Expenses
Depreciation 4,200
Gifts and donations 2 8,680
Lease of motor car 3 8,360
Professional fees 4 3,240
Property expenses 5 6,240
Travel expenses 6 6,770
Other expenses 7 14,210
––––––– (51,700)
––––––––
Net profit 72,400
––––––––

 
(2) Gifts and donations are as follows:
£
Gifts to customers
(digital clocks costing £110 each and displaying Sparky’s name) 3,300
Gifts to customers
(bottles of champagne costing £40 each, displaying Sparky’s name) 2,480

Donations to political parties 2,900
––––––
8,680
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(3) The lease commenced on 1 October 2012, and is in respect of a motor car with CO2 emissions of 244 grams per kilometre. There is no private use of the motor car.

(4) The figure of £3,240 for professional fees is in respect of accountancy services, of which £600 is for personal inheritance tax planning advice.

(5) Sparky lives in an apartment that is situated above his shop, and two-fifths of the total property expenses of £6,240 relate to this apartment.

(6) The figure of £16,770 for travel expenses includes £520 for parking fines incurred by Sparky.
(7) The figure for other expenses of £14,210 includes £670 for Sparky’s professional subscription to the association of plumbers, and £960 for his golf club membership fee.
(8) Capital allowances for the nine month period ended 30 June 2013 are £10,110.

Other income
During the tax year 2012/13 Sparky received building society interest of £4,000 and dividends of £3,600. These were the actual cash amounts received.

Other information
Sparky contributed £1,600 (net) into a personal pension scheme during the period 1 January 2013 to 5 April 2013.
He did not make any payments on account of income tax in respect of the tax year 2012/13.

Required:
Calculate Sparky’s tax adjusted trading profit for the nine-month period ended 30 June 2013.
Calculate the income tax payable by Sparky for the tax year 2012/13.
Calculate the National Insurance Contributions payable by Sparky in respect of his self-employment for the tax year 2012/13.
Calculate Sparky’s balancing payment for the tax year 2012/13 and his payments on account for the tax year 2013/14, stating the relevant due dates.

Write a letter to Sparky describing the tax and non- tax issues that should be considered when making the decision whether to be employed or self-employed

 
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