1. Self-employed profit adjustment/employment or self-employment

Ellen is a sole trader and is in business as a Chartered Surveyor. Her income statement for the year ended 31 March 2021 was as follows:

Notes

Fees receivable 80,000

Bank Savings interest received 10

80,010

Less: Expenses

Wages and Salaries 18,210 1

Office rent and expenses 22,700 2

Communication costs 1,800 3

General expenses 1,100 4

Professional fees 1,500 5

Motor and travelling 9,000 6

Insurances 1,300 7

Depreciation 500 56,110

Net profit for the year 23,900

Notes

1. Wages included the following: Gross wages for assistant (Zoe) 12,000, Ellens self-assessment tax payment for previous tax year 4,210, payment to Ellens partner 2,000 (he did not work in the business).

2. Office rent included a premium paid on a new-short lease taken out on 1 April 2020. The premium was 5,000 and the duration of the short lease was 6 years. Ellen sometimes works from home and has not claimed for this. A fair claim would be 400 per annum.
3. Communication costs included 480 for mobile telephone costs. The mobile phone was used exclusively for the business. The office line accounted for 820 and the remaining 500 was for all of Ellens home phone which is only used 10% for business calls.

4. General expenses included: Entertaining - employee at Christmas 120 entertaining her customers 150 and entertaining her suppliers 100.

5. Professional fees of 1,500 consisted of 850 paid to Ellens accountants for routine annual accounts work and 650 paid to her solicitors for (unsuccessfully) attempting to get her off a car speeding charge (see 6 below)
6. Motor and travelling of 9,000 was wholly in respect of Ellens car expenses. Part of the sum relates to a speeding fine of 200, 3,800 is car fuel, repairs, road tax and insurance and the remaining 5,000 is car payments (for her leased car which has CO2 emissions of 148 g/km). Ellens total miles in the year were 10,000 of which 4,000 related to business. All car expenses had been included in the Income Statement.
7. Insurance consists of comprehensive business cover 900 and life cover for Ellen 400.

8. Capital allowances of 1,200 have been calculated as due for the year.

Required

1. Calculate Ellens taxable profits (start with the net profit figure of 23,900 and include adjustment entries for notes 1 to 8 showing a zero (0) if no adjustment is required). (15 Marks)
2. Ellens assistant Zoe is due a substantial pay rise and to minimise costs and employee rights Ellen is considering transferring her from employment to self-employment. What are the status tests distinguishing employment from self-employment?

Do not write more than 350 words on this part.