Income Tax Case Study

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Income Tax Lauren McKinnon Question 1 In Katy’s situation HMRC would apply a test known as the Employment Status Indicator (ESI). The ESI indicates whether someone is employed or self-employed by asking question on the main criteria. The main criteria for this are control, financial risk, equipment, work performance and correction, holidays and sickness, and exclusivity. Control is to find out how much control the payer of the worker has over who is doing the work. For financial risk they are self-employed if they can make losses and profits. Self-employed people normally supply their own equipment. If mistakes are made self-employed people would not receive payment from the client to correct it. Holidays and sickness pay are only paid to people employed by someone not self-employed people, and self-employed people usually have more than one client. Either Katy or an employee for the firm of accountants from which she is subcontracted can fill out the ESI to assess whether HMRC would consider Katy employed or self-employed. Based on the information in accordance with the main criteria set for establishing an employment status, HMRC would consider Katy to be employed as the factors which indicate employment outnumber the indicators of self-employment. Question 2 The UK Tax system is split into two classifications of taxes; direct and indirect. Income tax would be categorised as a direct tax. Taxable persons are residents of the UK during the tax year. These persons would be required to pay tax on all income made in the UK and from overseas. There are exceptions as to who pays income tax, these include; companies and clubs and societies who are liable to pay corporation tax do not pay income tax, registered pension schemes are not charged income tax, income used solely for charitable purposes by registered charities is not taxed, representatives from other

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