RABIN & ASSOCIATES

Unit C-12-5, Level 12, Block C Megan Phileo Avenue

12 Jalan Yap Kwan Seng,
50450 Kuala Lumpur, Malaysia.

Jalan Scott 33 Peel Road

Bristol City
50955
United Kingdom, England. 19 NOVEMBER 2009

Ms Julie,

Advising on how to minimize tax liability for 2008/2009

I am working in Tax department at Rabin & Associates but this firm is an Audit firm but
they also will do tax for the client. So I am the one who in charge Ms Julie Income tax so
as you know I have went through your Income tax on Employment and Self
Employment, I have also calculate the income tax liability and attach behind the letter.
Ms Julie wants us to advice on how to minimize your tax liability for coming tax year but
before that you also wish to claim all the tax relief in 2008/09. I will start with you one by
one so now I will start how you can claim all the tax relief for 2008/09.

As I see from the calculation that I calculated and the documents that you send to us, the
beginning of tax adjusted for the year ended 5/4/09 was a loss. So you wishes to claim all
the tax relief possible in 2008/2009.You can claim the tax relief but there is a rule you
need to follow that is the section number from the Income Tax Act (ITA) 2007. May be
you will be confused that what I am saying by section number or ITA 2007 but I will
explain what section you can use to claim tax relief. There are two sections that you can
apply that are section 64 and section 72. Section 64 is when you incurred loss you can get
relief by total income on the current year what is mean by you have incurred loss on the
beginning and if you want to get relief you must minus of with total income on the
current year or two year in previous year or the next two year but here you have just
started your business so may be you can minus on the current year or minus off on the
following year. Section 72 is best you can get relief because it’s defined as opening year
loss relief against total income which means to help new business to survive the initial
year of trading; a special loss relief is available in the first four tax year of a trade. You
also can carry back the loss for 3 years but in your situation you just started your
business. You can use Section 72 to claim all the tax relief in 2008/2009 from the total
income and I have shown in the calculation part. I am not saying that you cannot use
Section 64 but for your situation it’s better to use Section 72 because now only you
started a business, may be in the future you can use both to claim relief.

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As Ms Julie is resident of UK and paying income tax, so you wanted to know how the
Personal tax system operates in UK and I will explain to you how its work. The UK tax
system is handled or monitor by HM Revenue and Customs (HMRC). There are 5 types
of tax in UK that is Income tax, National Insurance contribution, Capital gain tax, Value
added tax and Corporation tax. I will explain to you one by one, Income tax is what you
pay from the earnings and this covers from self employment and employment income and
this income is what Ms Julie is going to pay to the Income tax department or the HMRC.
National Insurance contribution is where the individual will pay either employed or self
employed. Capital gain tax is where someone disposed the asset and gain income from
the disposal. Corporation tax is company pay on all their income and gains. Value added
tax is when someone import goods from others country there will tax impose on the good
and they will pay for tax.

The structure of the UK tax system leads by HM Revenue and Customs that controls and
monitor all areas in the UK tax law. Under HM Revenue and Customs there are two
bodies’s working with HMRC that is District offices and Accounting and payments
offices. District offices are the one who do the work and implement day to day work of
HMRC. Accounts and payments offices will focus on the payment of tax liabilities. As
you staying in UK the income tax payable by a UK resident is from 6 April 2008 to 5
April 2009, as referred to the tax year 2008/09. All resident in UK are required to pay
income tax from their taxable income for each tax year.

The first stage of the income tax computation is to have a short statement summarizing
all taxable income. The Income tax computation for 2008/09 as shown in appendix and
Ms Julie can look through how the income tax compute but here I will explain one by one
the detail in the income tax. The trading income is income from self employment,
employment income and property and investment income. Property income is income
from rental income and there is other income also that saving and dividend income that is
investment income, saving income usually bank interest and dividend income that is
received net 10% tax credit. Some income is exempt from the tax that is income from
certain National Saving, lottery, and some social society benefits. Relief means some
amount will be deduct from an individual total income. The relief includes payments that
individual makes and losses that may be incurred like what I told you in earlier about the
loss relief. Every taxpayer is entitled to a basic personal allowance an amount of tax free
income that every taxpayer is entitled to each year, I will give more information about
Personal Allowance in the appendix part and Ms Julie can look through about the
Personal Allowance. Just know I told you about first stage only and there is second stage
also that is the income tax liability and how to compute the income tax liability so I have
table out the rates apply for tax liability so Ms Julie can look through in the appendix
part.

Now I will tell you what allowance you can claim in order to minimize your tax liability.
From the calculation I saw you have claim some allowances like Car benefit, private fuel,
living accommodation and capital allowance but it has reduce small amount of your total
income and you want to reduce some more by claiming some allowance that you didn’t

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recognize. So here I will tell you what allowance you can claim in order to minimize your
tax liability.

As Ms Julie is working as a Sales Manager in Departmental store plc for many years and
as an employee, you should have employment benefit that provided by the employer. The
employment benefit can include pension contribution by the employer, Job related
accommodation, car parking so employee wouldn’t have cost of parking, canteen benefit
like give luncheon voucher and there is many more employer can provide so the burden
of employee cost will be carry away. Ms Julie salary 50,000 pa is categorized as P11D
employee that is benefit assessable on directors and employee earning rate of 8,500 or
more. Ms Julie is highly paid and you have been categorized as P11D employee so here
you can claim some benefit that include Car, Fuel Benefit, Loans, Asset for personal use
and gift of assets. So Ms Julie can claim this kind of benefit form the employer or the
company so you can minimize your tax liability by claiming this kind of benefit.

As I know Ms Julie also running a Computer shop business, so as a sole trader Ms Julie
can claim some allowance from the business. You can claim allowance in Subscription
and donation, Ms Julie also pays an annual professional subscription of 200 and this
amount is small, why I am saying that because if you pay more it will deductible from the
employment income so you can minimize your tax liability. May be Ms Julie will
surprise why I ask you to pay more because then only Ms Julie can minimize the tax
liability but Ms Julie also should know you are paying for good purpose and helping out
some charity by giving your company money and also promoting your company. This
one of the way you can minimize your tax liability. If you donate to any charity that are
registered under HMRC but the donations is disallowed but you still can claim relief
under the Gift Aid provision. So Ms Julie can use this Subscription and donation to
minimize your tax liability. As a sole trader Ms Julie still can claim some allowance to
minimize the tax liability.

Ms Julie also has contributed 500 per month into personal scheme. May be Ms Julie not a
member of Departmental store pension scheme but Ms Julie has contribute into personal
pension scheme but you also get tax relief whether is an occupational or personal pension
scheme. Once you have invested in the pension schemes the rule don’t change. May be
Ms Julie can increase or contribute more money to pension scheme so you will get more
tax relief according to how much you contribute. The maximum annual gross
contribution for which an individual can obtain tax relief depends on how much you
contribute. The maximum level of an individual can contribute is 3,600 pa and 100% of
the individual relevant earnings, chargeable to income tax in the tax year. So it’s better to
Ms Julie contribute higher pension.

So I think Ms Julie will understand my explanation on how to minimize the tax liability
and I also has include some in the appendix part so Ms Julie can look through. If you
have any doubt Ms Julie can call us to seek advice about tax system in UK and we will
guide you and I think you have understand some of the tax system in UK after you read
this letter. I look forward to a favorable reply from you. Thank you.

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