Part 1
Question 1:
1. Calculation of gain:
£
52,000
(15,000)
37,000
Proceeds (MV)
Cost
Gain
As the company has rental income, the gain to be rolled over into Maria’s base cost must be
apportioned.
75% x gain = £27,750 (eligible for gift relief)
£
37,000
(27,750)
9,250
Gain
Gift relief
Capital gain
2.
£
52,000
(27,750)
24,250
Base cost (MV)
Gift relief
Revised base cost
Maria’s base cost is £24,250
3) The deadline is 4 years following the end of the tax year the gift was made i.e. 5th April 2017.
The claim must be made jointly.
Question 2:
1) A consortium exists where a company (the consortium company) is owned 75% (share capital) or
more by consortium members who each own at least 5% of the share capital of the consortium
company.
2) Year ended 31 December 2012
Trade
Pucci Ltd
(£120,000)
Scarf Ltd
(£85,000)
Long Ltd
(£70,000)
Pucci Ltd can surrender the lower of 65% (£20,000) or 65% £85,000. In this case, the lower is the
latter i.e. £55,250.
Long Ltd can surrender the lower of 10% (£7,000) or 10% £85,000. In this case the lower is £700.
Total loss to be surrendered = £55,950.
Question 3:
1) As Stark Ltd is an investment company, the substantial share holding exemption does not arise.
Instead Stark Ltd may be to claim Entrepreneurs relief.
This is a part disposal:
£
180,000
(30,700)
Proceeds
Cost (25% x 122,800)
Indexation allowance
30,700 x 244.4 + 206.2 / 244.4
Chargeable gain
(4,798)
144,502
2) As Stark Ltd owns > 75% of the shares in Tully Ltd, both companies are in a capital gains group.
Stark Ltd may transfer £19,000 worth of capital gains to Tully Ltd. Otherwise, the capital loss is
carried forward against future capital gains.
Question 4:
Net profit
Less:
Staff costs (R & D)
Additional R & D deduction
Administrative support
Consumables (R & D)
Additional R & D
Goodwill
Capital allowances
Software
Tax adjusted trade profit
£
900,500
(26,000)
(32,500)
(5,000)
(800)
(1,000)
(2,400)
(1,200)
831,600
Notes:
As a small company, Casey Ltd can claim full deductions for any research and development
expenditure as well as an additional 125% of the cost as a deduction. This includes the staff costs
and consumables in relation to Project Alpha. The administrative support does not specifically relate
to the research and development and so is not eligible for this extra deduction. The costs are still
deductible under normal rules (wholly and exclusively).
Casey Ltd will get 100% first year allowances for the capital research and development (the
computer software).
Goodwill is amortised 4% straight line for the statutory deduction (4% x 60,000).
2
Question 5:
1) The company must not be making VAT taxable supplies i.e. not just deal with items exempt from
VAT. The company must make no more than £1,350,000 turnover per year.
2) The company ceases to make taxable supplies
1) The company must be fully up-to-date with previous VAT returns.
Question 6:
2) Mandy may carry forward unrelieved loss to set against any future income from the company e.g.
salary, interest, dividend.
She may also carry back the loss 3 tax years – in Mandy’s case this will not be helpful as her income
has been set off against personal allowances and start up losses.
1)
Profit to 30 Sep 12
Loss to 31 Jan 13
Overlap profits
Trade loss
£
9,000
(17,000)
(6,000)
14,000
Question 7:
a) There is a non-wasting chattel with a value of less than £6,000. If Mercy sells this for less than
£6,000 the disposal will be exempt from capital gains.
If Mercy Ltd sells it for more than £6,000 the gain will be restricted to the lower of proceeds less cost
less indexation and 5/3 (indexed gain – 6,000)
b) This is a washing chattel, exempt from capital gains.
c) If Mercy Ltd claims capital allowances on the equipment, no capital gain tax.
Question 8:
As the partners share is equal in profit – each will be assessed on a third of the gain i.e. £20,000. As
the sale is of part of their partnership business, the gain will qualify for Entrepreneur’s Relief
meaning that the gains will be taxed at 10%.
Charlie may rollover the gain into his new property. As 80% of the £120,000 > the gain the full
amount can be rolled over.
3
Question 9:
1) As Thor Ltd owns > 75% of the shares in Loki Ltd, the two companies are in a capital gains group,
the transfer takes place at no gain/no loss.
2)
a) When Loki leaves the group, still holding the building. There will be a de-grouping charge.
Proceeds (MV – ignore actual proceeds)
Cost (Thor Ltd base asst)
Capital gain
£
440,000
(200,000)
240,000
The gain will be added to the share proceeds of the sale of Locki Ltd. If the substantial share holding
exemption applies, there will be no gain as this charge will also be exempt.
b) The capital gain is added to Thor’s proceeds for the sale of the shares a higher gain will be taxed.
Question 10:
1) The dividends paid out is not deductible from Kirk Ltd’s profits for tax purposes.
A 25% penalty tax is payable by Kirk Ltd on the loan i.e. £1,750 which must be paid to HMRC along
with Kirks corporation tax. This will be refunded to Kirk Ltd when the loan is repaid/written off.
2) Scott will be assessed on the gross amount of the dividend (£5,000) in his income tax return. He
will also receive a 10% national tax credit to deduct. However, this tax credit cannot result in a
refund.
As Scott only has £5,000 taxable income, he will not pay any tax on the dividend as it will be offset
by the 10% tax credit.
The write off of the loan will be treated as a net dividend to Scott. Scott will be assessed on the gross
amount £7,778 in his income tax return, again with the notional tax credit. Again as his income is so
low, the 10% credit will offset any tax due.
Question 11:
1) 9 months following tax return file date i.e. 17 April 2014
2) 12 months due date i.e. 30 June 2012
3) From the first day of the quarter, 12 months after the return was filed, as it was filed late i.e. 1
September 2013.
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Part 2:
Question 1;
Your address
My address
Date
Dear Mr Pace,
ITace Ltd
Many thank you for your enquiry in your firm ITace Ltd.
As you may not be aware, HMRC have specific guidance in relation to what we call a personal trading
company. The rules are to avoid any individual getting a tax advantage by providing services through
a company, rather than through a contract of employment.
As you are the sole member of the company, and the services are provided always by you, it is likely
that the HMRC will apply these rules to you.
Other things which may suggest to HMRC that you are caught by these rules may include whether
you have any other clients, whether you may employ helpers and how integrated you are with the
client.
The consequences of these rules mean that a payment is due by ITace Ltd in respect of your
earnings. I have calculated the payment due of and you can find my calculation £15,750 in appendix
A.
The calculation includes deductions, for example, of expenses that would ordinarily be deductible.
Please refer to appendix A for more details.
Late corporation tax return:
As you paid your corporation tax late, you will be subject to interest on the late payment. The
interest runs from the due date for payment (which is 1 January 2013 – 9 months and 1 day after the
account period end) until the day before the payment is due.
I have calculated interest of £64 payable by you. Please find my calculation enclosed in Appendix B.
The due date of your corporation tax return for the year ended 31 March 2013 is 31 March 2014 and
it should be filed electronically.
Data protection Act:
A tax adviser is required to disclose client information to third parties: where money laundering is an
issue, where required to do so by the police or by court.
Yours faithfully
A Tax adviser
Appendix A
Relevant earnings (5,000 x 12)
£
60,000
5
Less:
Automatic 5% deduction
Expenses ordinarily deductible
Professional indemnity insurance
Employer liability insurance
Amounts paid as employment income (W1)
Actual NI paid
Corporation tax paid
Gross demand employment payment
Less deemed NIC (13.8 / 113.8)
Net deemed employment payment
(3,000)
(550)
(150)
(26,850)
(3,000)
(8,526)
17,924
(2,174)
15,750
W1 With amounts treated as employment income
£
24,000
2,350
500
26,850
Salary
Private medical insurance
Mileage (W2)
Total employment income
W2 Mileage
Total allowed by HMRC – 2,500 x 45p = 1,125
Benefit is that paid to you less amount allowed by HMRC
£1,625 - £1,125 = £500
Appendix B
Interest on late payment on tax
Amount due: £8,526
outstanding for 3 months after due date
Interest = (£8,526 x 3%) x 3 / 12 = £64
Question 2:
Capital allowances – Cheddar Vale Ltd – year ended 31 December 2012
Twd V C/F
Additions:
Vacuum
Air-con
High (o2/w)
AIA @ 100%
£
AIA
£
MAIN POOL
50,175
25,000
18,750
7,350
43,750
(43,750)
57,525
£
SR POOL
18,750
4,000
33,860
56,610
6
£
TOTAL ALLOWANCE
43,750
WDA @ 18.5%
WDA @ 8.5%
TWV c/f
Total allowances
(10,642)
(4,812)
51,798
46,883
10,642
4,817
59,209
AIA
FY 11
FY 12
£
25,000
18,750
43,750 – for expenditure before 1/4/12
3/12 X £100,000 =
9/12 x £25,000
As air con is in the Special rate pool, we allocate the AIA to it first. However as the expenditure took
place after 1/4/12 – we are restricted to £18,750 worth of AIA. The vacuum machine can use all of
the remaining AIA as it was acquired pre 1/4/12.
WDA
FY 11
FY 12
3/12 x 20% = 5
9/12 x 18% = 13.5
18.5
3/12 x 10% = 2.5
9/12 x 8% = 6
8.5
Car:
As the car is low CO2, it would have been given first year capital allowances at 100% no addition
needed.
2)
Net profit
Less:
Capital allowances
Taxable trade profits
Trade point
Property loss
NTLR debit
Chargeable gain
NTLR deficit b/f
(used against non-trade income)
Taxable total profits
1,117,100
(59,209)
1,057,891
£
1,057,891
(59,350)
(210,800)
285,000
(63,750)
1,008,991
3) Corporation tax for the year ended 31 December 2012
Taxable total profits
CT@ main rate 24%
(FY12 rates used as per q)
£
1,008,991
242,158
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As the company is a main rate tax payer, the corporation tax is due in instalments on month 7, 10,
13 and 16.
Payment date
14 July 2012
14 October 2012
14 January 2013
14 April 2013
Instalment
60,539
60,539
60,539
60,539
3) CT for the year ended 31 December 2013
Total taxable profits: £2,750,000
Tax at main rate @ 24%: £660,000
(FY12 bands used as per q)
As taxed at main rate, CT due in instalments:
14 July 2013
14 October 2013
14 January 2014
14 April 2014
£165,000 instalment
£165,000
£165,000
£165,000
CT for year ended 31 December 2014.
TTP: £2,750,000
Tax @ main rate (24%) = £660,000
Instalments of £165,000 due on 14 July 2014, 14 October 2014, 14 January 2015 and 14 April 2015.
4) Debit: CT creditor £15,000
Credit : CT liability £15,000
Description: corporation tax balancing liability
Question 3:
1) Sale of shares in Bloom-in Ltd
Proceeds
Less: cost of sale:
Sales agent fees
Advertising costs
Solicitors fees
Less: cost
Capital gain
£
4,500,000
(120,250)
(3,450)
(1,085)
(255,000)
4,120,215
8
Sale of Bloom-in House
£
754,000
(19,800)
(275,000)
(8,250)
(2,005)
448,945
Proceeds
Enhancement (extension)
Cost
Stamp duty
Solicitors fees
Capital gain
Note: the repair to the roof is a revenue expense and so not deductible as capital enhancement.
As John is selling all of the shares in his personal trading company, he may claim Entrepreneur’s
Relief – taxing the gain at 10%.
The sale of the house does not qualify as an associated disposal, as John charged the company
market value for renting the property out.
2) CT comp for John Brookes 2012/13
Gains
Sale of house
Sale of shares
Less:
Annual exemption
Total
CT @ 28%
(438,345 x 28%)
CT @ 10%
(4,120,215)
Total CT due
Not-qualifying for ER
448,945
(10,600)
438,345
Qualifying for ER
4,120,215
4,120,215
= £122,737
= £412,022
= £534,759
3) A deduction against profits is allowable at 225% of the cost for all revenue expenses specifically in
relation to research for example, staff costs and consumables.
Any capital expenditure is given a first year capital allowance deduction of 100% for example
computer equipment.
If a loss arises due to the revenue research and development, a tax credit may be claimed from
HMRC of 11% of the lower of the loss and the research deduction. This is given as cash in the bank
and must not exceed lower of £250,000 and employee’s tax and NIC.
Question 4:
1) Group 1: Able Holding Ltd, Bounty Ltd, Demon Ltd, Eventide Ltd and Forest Ltd.
Group 2: Bounty Ltd and Conifer Ltd
Conifer is not in the first group as Able Holdings does not own 75% in Conifer.
2) Excess management expenses may be group reliefed.
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3) Year ended 31 December 2012
Trade profit
NTLR gains
Rental
Total
CY claim
Group relief
Taxable profits
A
£
108,000
76,000
184,000
(23,000)
(107,000)
53,400
B
£
63,000
C
£
235,258
-
E
£
67,400
-
F
£
183,000
-
235,258
D
£
62,000
62,000
63,000
(13,000)
67,400
183,000
235,258
(12,000)
50,000
(7,400)
50,000
(133,000)
50,000
50,000
Group relief is given, as much as possible, to minimise tax being paid at the marginal rate (workings
of limits overleaf).
A current year claim is given for part of Bounty’s trade loss to be set against NTLR gains.
A current year claim is given to set management expenses for Able Holdings Ltd.
The depreciation charge of £7,250 should have been added back into Eventide’s trade profits.
Loss memo – year ended 2012
Bounty Ltd
Trade loss
CY claim
GroupDemon Ltd
Eventide Ltd
Forest Ltd
Able Holdings Ltd
Total
(283,000)
13,000
12,000
17,400
133,000
107,600
-
Limits for CT
6 Associated companies
Lower limit = £50,000 (300,000 / 6)
Upper limit = £250,000 (1,500,000 / 0)
3) Year ended 31 December 2013
Conifer Ltd – total tax profits £78,580
5) If Forest Ltd is UK resident – incorporated in the UK or has its central management and control is
in the UK – it will be subject to tax on its worldwide profits.
Relief will be given for any double taxation suffered – lower of foreign tax paid and UK tax on foreign
profits.
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