BSB 7401 TAX Group Case study
Report Regarding Mr.Abrahim
Tax Affairs In The Period
Ended 28th Of February , 2015.
Written by:
Ali Sarhan
201101119
Khaled Ebrahim
201101318
Ali Yusuf
201201237
Husain Alasmaskh
2012011783
Table of Contents
1.0 Introduction .....................................................................................................................2
2.0 Business cessation. ...........................................................................................................3
2.1 VAT Implication in case of business cessation. ...............................................................3
2.2 Income Tax ...................................................................................................................6
2.2.1 Taxable income............................................................................................................... 6
1.2.2 Tax liability and tax payable. ........................................................................................ 10
2.3 National Insurance Contribution (NIC) ......................................................................... 11
3.0 Capital gain transactions................................................................................................. 13
3.1 Capital Gain Tax (CGT) liability. ................................................................................... 13
3.1.1 Calculation of Capital Gain Tax ..................................................................................... 13
3.1.2 Advices regarding the CGT........................................................................................ 17
3.1.2 Fall in All Over Inc. Shares ............................................................................................ 21
3.2 Bubbles Inc. Shares ..................................................................................................... 25
3.2.1 Bubbles Inc. Dividends Tax treatment in the UK .......................................................... 25
3.2.2 Advise on the capital gains tax implications of a future disposal of the shares........... 28
3.2.3 Treatment of Eric Sloane’s expenses under CGT purposes. ......................................... 31
4.0 Conclusion ..................................................................................................................... 32
5.0 References ..................................................................................................................... 33
6.0 Appendices .................................................................................................................... 37
Appendix 1: Claim for Entrepreneurs Relief form ..................................................................... 37
Appendix 2: Capital Gain Summary Form ................................................................................. 38
Appendix 3: Post Transaction Valuation Checks. ...................................................................... 39
Page 1 of 39
1.0 Introduction
To: Mr. Abrahim
From: The manager
Date: 7th of May 2015.
Subject: Cessation of Abrahim’s business and his capital gain transaction for the tax year of
2014/2015.
This report is to provide a thorough analysis over the effects of cessation of Abrahim’s business
and other capital gain transaction. The report will start by stating the effect of VAT on the
cessation of the business then it will move to calculate the taxable income for the period ended
of 28th February 2015. Afterwards, advice regarding Abrahim capital gain liability for tax year of
2014/15 accompanied with supporting calculations. Finally, full explanation regarding the tax
treatments of dividends paid from Bubble, Inc. in the UK.
Page 2 of 39
2.0 Business cessation.
2.1 VAT Implication in case of business cessation.
VAT, or value added tax is a form of indirect taxes charged to taxable goods. Goods are to be
supplied when their ownership is transferred, meaning that it can be traded. While supplies of
services occur by delivering service in exchange of monetary amount or other services. Thus, the
buyer will pay the tax but the seller has the obligation to deliver it to the government. VAT is
calculated by adding a percentage of the sales price, either with standard rated at 20%, which
can be reduced to 5% for goods such as oil products. The taxable supply can be or Zero-Rated
which charge zero percent of VAT, which applies to things such as books. That said some goods
are also exempt from VAT as stated by the HMRC such as financial transaction.
Your business, Mr. Abrahim, sells books, gifts and cards. All of these are considered to be
printed materials and therefore has Zero rate VAT meaning that for them, you have not taken
any VAT rate. (BPP Learning Media, 2014A)
VAT Implication in case of cessation.
The main VAT implication is the need to deregister and file a final VAT returns. The Business is
liable and registered to the VAT according to the information attached. As a result, you must
deregister from VAT or else he will be liable and face financial penalties. The VAT implication is
therefore your obligation to deregister. Added to that, you must also file a final VAT returns and
penalties for not meeting the HMRC requirements regarding VAT. (Government UK, 2014A)
Deregistration from VAT.
The trader can deregister if the taxable supplies are not expected to exceed £79,000 within the
next 12 months. At the same time, the reason behind this expectation must not be the
termination of the taxable supply or their temporary suspension of 30 days. That said, the HMRC
also allow for voluntary deregister if the trader stops his trading and does not have any
intention to continue.
One point to note is that if the business is being sold as a going concern, as in selling the whole
business to another person who intends to continue with the same business activity, then there
is no change in VAT and thus no need to deregister. However, as stated by the email, since you
are ceasing trading after 28th of February, 2015 and thus his profits after that date will be zero
and you must deregister from VAT. As a result, you must Apply for deregistration within 30 days
from the reason of causing cession, thus you must apply for deregistration no longer than 30th
March 2015. Your VAT registration will be cancelled effectively from 28th of February 2016
(Government UK, 2014B).
Page 3 of 39
Final VAT Return.
Another implication is that you have to file for a final VAT returns. This includes the total sales
and purchases, VAT owned, VAT reclaimed and VAT Refunded in the period. The sales will
include the sales of assets and stocks. It should be noted that if the VAT that rises obligation to
pay, only if that amount exceeds £1000. Otherwise, you will have no obligation or liability to file
the final VAT returns to the HMRC. The sales that will be included on the final vat returns are.
Note that the VAT rate is the rate published by HMRC. (Government UK, 2014E).
1) Stocks: there three type of stocks books, cards and small gifts. As for the books they are
zero rated and no need to charge to VAT for customers. As for the cards and small gifts,
then you will charge 20% on them. If that amount exceeds £1000, then it will be
included in the final VAT return report.
2) Painting: As you intend to sell the painting inherited from your aunt, there will no VAT
Charged on them as they are exempt from VAT.
3) Building: buildings sales are exempt from VAT since it is older than 3 years old.
(Buildings and constructions, 2014)
4) Equipment, shelves and fittings: the sales of these assets are £820 and £1500
respectively. Likewise these items are also chargeable with 20% when sold and thus
must be paid to the HMRC. However, since the amount is £164 and £300 respectively.
Thus, there is no need to file final VAT return on them.
Payment of VAT reclaimed.
The trader can apply to reclaim the VAT paid when purchasing. However, when ceasing trading,
he/she must pay that amount back. Thus, you must pay back the amount reclaimed to the
HMRC on the non-current and inventory on hands the business currently own. It should be
noted that the repayments on assets applies only for those who are used for business purposes
only and thus any personal asset he has will not be affected. Based on that, you must pay VAT
he has reclaimed on these assets: (UK Government, 2014C)
A) Shelves and shops’ fittings: these items are considered non-current assets, as they
aren’t expecting to be consumed within a year. Therefore, they will be affecting
the reclaim repayments. They have cost, of £1,500; therefore the amount
reclaimed was 20% of that amount (about £300), which you must repay back to
the HMRC.
B) Equipment: Originally costing £820, the equipment also is charged with a standard
20%. This means you have claimed £164 (20% of £820), which must be paid back.
Page 4 of 39
C) Stock: the books are zero rated thus you could not reclaim any VAT paid. However,
the cards and small gifts are rated with 20% and thus any VAT you reclaimed on
that you must repay back.
D) Building: Buildings are exempt from the VAT because they are older than three
years period. Therefore, the building is exempt from tax purposes and you cannot
reclaim anything.
Added to that any refunds made in the period by the HMRC must also be included in the final
VAT return. Other assets such as stocks (shares) and painting will not be affected by the
cessation of the business and are not used for business purposes. Therefore, they will not
increase the amount of VAT reclaim that must be repaid for the HMRC (Government UK, 2014A).
Penalties:
However, penalties are still part of VAT consequences when ceasing the business if you do not
follow the above deregistration steps. The following are list of these penalties:
1) Errors in VAT return calculation: if you make an error in calculating the amount of VAT
returns or amount of reclaim he must repay then he will be chargeable for a penalty. If
the error is due to carelessness, then he will be charged 30% of the amount of VAT lost,
this amount can be decreased to zero if he submit a discourser take responsibility of the
error. If you make an error deliberately but does not take measurement to conceal it
then this percentage will increase to 70%, however, this can also be reduced to 20% by
submitting a disclosure. That said, if you try to conceal the error by submitting false VAT
returns report to the HMRC than he will Pay 100% of the amount of VAT revenue lost
which can be also decreased by taking responsibility with a disclosure to 30%.
2) Late VAT Returns filing: should you fails to file his VAT return within the specified time,
he would be liable for £100. If you fail to submit the returns after 30 months of the date
of filing, then this amount will increase by £10 per day for a maximum of 90 days (3
months.) Furthermore, not submitting even after the 6 months will result of a penalty
of the £300 or 5% of the VAT liability whichever is higher. Moreover, if you still do not
submit the returns report after 12 months then the penalty is based on your actions. If
you are deliberate in be being late but do not try to hide it then he will pay £300 or 70%
of the VAT liability that should be shown in the VAT returns report. If you are deliberate
and try to conceal it then will be pay £300 or 100% of the VAT liability that should be
shown in the VAT returns report. In case of any other behavior such as being careless
then it is the highest of £300 or 5% of the VAT liability that should be shown in the VAT
returns report.
Page 5 of 39
3) Late in VAT payment: if you are late more than 30 days of the date you should pay the
VAT or the reclaims to the HMRC then you will pay 5% of the VAT payments if he is late
more than one month but no more than 5 months. If is late more than 5 but less than 11
months he will pay additional 5% to the previous penalty. If he is late in paying more
than 11 months then he will pay another 5%.
4) Failing to maintaining records: After deregistration, you must keep his records for 6
years. If he fails to do so, he will pay £3000 for each accounting period affected by the
missing records. (BPP Learning Media, 2014B).
To summarize, the VAT consequences in case of business cessation is the liability of the trader to
deregister from VAT program and filing a final VAT return to the HMRC. The consequences can
translate into penalties as well if you not follow all the steps relating to deregistration within the
specified deadlines.
2.2 Income Tax
To calculate Income tax, you must follow these steps:
1) Calculate the total taxable income.
2) Calculate the tax liability and tax payable.
2.2.1 Taxable income.
The taxable income is calculated using the following Performa. Working for specific items are
disclosed below.
Non-Saving (£)
Saving (£)
Total (£)
Trading income (Note 1)
49,075
-
49,075
Property business income
Bank interest (Note 2)
4,300
-
16,875
4,300
16,875
Total/Net income
53,375
16,875
70,250
Personal allowance (Note 4)
(10,000)
-
(10,000)
Taxable income
43,375
16,875
60250
The above Performa is essential approach to determine the total taxable income and as it can be
seen that your income will be calculated on the basis of the following categories; Non-Saving,
and Saving income which were selected according to the type of incomes. Each item considered
was explained in the separate notes below, with the exception of property business income as it
requires no calculation and was put under the non-saving column using the figure provided with
the email as per with taxable calculation rules. (BPP Learning Media, 2014C) (BPP Learning
Media, 2014D). Overall, the total net income £70,250 will be found after the aggregation of
Page 6 of 39
Non-saving, Saving and Dividends amounts. Finally, personal allowance; £10000 must be
deducted from the net income as your income falls within the limit this will result in the total
income tax of £60,250.
Note 1: Trading income and capital allowance
Capital allowance
The first step is to calculated total trading income at the period end February 2015. To do that,
however, it is essential to calculate the capital allowance (BPP Learning Media, 2014E).
WDV Brought Forward
Addition: Equipment
General Pool (£)
Van (£) 85%
4050
820
4130
4870
4130
Disposal of Van
Allowances (£)
(4700)
Disposal of fittings
Disposal of Equipment
(1500)
TWDV
Balancing allowance
Balancing Charge
2550
(2550)
TWDV carried forward
0
(820)
(570)
570
2550
(484.5)
0
2065.5
Note that Annual Investment Allowance (AIA) and the WDA rates cannot be used in the final
year when ceasing trade as balances should be closed due to cessation.
First and foremost, the above table was created using “general pool” and “Van” in separate
columns; which is needed, as the van is not used 100% for business purposes. The calculation to
find the amount to be taxed is done using this formula:
𝑎𝑚𝑜𝑢𝑛𝑡 𝑏𝑟𝑜𝑢𝑔ℎ𝑡 𝑓𝑜𝑟𝑤𝑎𝑟𝑑 + 𝑎𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑠 − 𝑙𝑒𝑠𝑠 𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑙𝑠
The amount brought forward was provided with the email. The addition for the period included
equipment worth £820. As for the disposal, the information provided state that the shelving
and non-current assets (which are part of the general pool) will be sold for £1500 while the
equipment would also be sold, assumingly with £820. Over, all the balance of the general pool
is £4870 with a disposal of £2320, meaning that there is a loss of £2550. According to tax rules,
since the whole pool was disposed of with a loss, then a balancing allowance equal to the loss
Page 7 of 39
will rise that is negative in the pool column to bring the balance to zero but is treated as a
positive capital allowance.
As for the van, the balance brought forward is £4130, with no additions; the van will be disposed
of with £4800, meaning that there is a gain of £570. In case of gain on disposal, balancing charge
will rise with the same gain value. This charge is written as positive amount in the van column to
bring the balance to zero and is treated as negative capital allowance. However, only 85% of the
balancing charge will be transferred to the capital allowance column as only 85% is used for
business use and 25% is for privet use; which should not be accounted for when calculating the
allowance. It should be noted that in the case of the van, it will not be sold, as you will keep it,
however, it is treated as a disposal since the business will dispose it. The disposal value will
equal to the van fair value when you will use it completely for his personal affairs.
Overall, the total amount of capital allowance for the period is £2065.5 with no carrying forward
balancing for the general pool or the van.
The second step is to determine the trading income to be transferred to the Performa for the
calculation of the total income tax by calculating the adjusted trading profit (BPP Learning
Media, 2014F).
Profit and loss adjustment Performa
Net profit
Add: Sales of inventory revenue
Add: expenses to Mr. Sloane.
Less: Gain on sales of assets.
Less: Cost of goods sold
Less: capital allowance
£11,500
£8300
0
(0)
(£7905)
(£2065.5)
Adjusted
trading
profit
(28/2/2015)
Add: Adjusted trading profit
(31/10/2014)
Trading income (31/10/2014 –
28/2/2015)
£9830
£39,245
£49,075
The forecasted trading profit for the period ended in February 28, 2015 since this will be the
cessation date and this will be £11,500. However, adding the taxable revenue and expenses and
removing deductible revenues and expenses must adjust this amount. The first thing to add is
to add the sales revenue of £8300, as it has not been recorded. The advice expense £300 to Mr.
Eric Sloane as this is a personal expense and should not be deducted from the net profit,
however, there is no adjustment needed as the 11,500 figure is already adjusted for profit. The
last this to add as per with tax rules is any losses made on sales of assets as this is a not
Page 8 of 39
deductible expense. Any Losses due to the disposal of assets should not be deducted as it is a
not an allowable expense ( this is disused further in the capital transaction section). However,
since the expected net profit figure did not account for the final sales of assets, then there is no
adjustment needed.
As for the deduction, firstly any gain realized from sales of assets must be deducted as they are
not taxable as part of the income tax. For example, a gain of ££7,100 on the sales of painting
and £80,000 ( to be discussed in the Capital transaction section further below) is
expected. However, no adjustments are needed here as well because the net profit did not
include the gain from the sales. Furthermore, the cost of goods sold must be deducted from the
net profit as they are considered to be deductible expense. The sale figure is £8300 cost plus 5
% thus the COGS is £7905 (£8300 x 100/105). Finally, the capital allowance £2065.5 will be
deducted from the sum of the trading income and the added expenses and revenues the reach
to the total adjusted profit of the adjusted trading profit £9829.
However, this is not the final trading profit for the period ended 28 February, 2015 as the
trading profit for the year ended October, 2014, is £39245 resulting in to the adjusted trading
profit for the period ended 28th February 2015 to be £49,070.
Note 2: Bank Interest
Within the tax year 2014/15, you have received a bank net interest of £13,500 credited to his
account, this should be considered in the Performa while calculating total income tax, and thus,
the gross up value of the interest will be considered in the Performa:
The interest gross-up formula = 𝑁𝑒𝑡 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 ×
𝑮𝒓𝒐𝒔𝒔𝒆𝒅 − 𝒖𝒑 𝒃𝒂𝒏𝒌 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 = 13,500 ×
100
80
100
80
= £16,875
Note 4: Personal Allowance
Personal allowances are tax relief given to individuals depending on their age; the older the
person the higher is the allowance. (BPP Learning Media, 2014C) Within the tax year 2014/15,
your age will turn to 56 that will result in personal allowance of £10,000 to be deducted from
the Net income. This is because your birth date is after 6th April 1948 (born in 1960). People who
are born after this year have personal allowance of £10,000 as long as their total net income is
less than £100,000. This amount of personal allowance is deducted from the non-saving income
first and any remaining will be deducted from the saving income. As a result of this, the nonsaving income became £43,375 and the total taxable income is £70,250.
Page 9 of 39
Note Regarding Dividends:
According to the information provided, All Over, Inc. is on receivership meaning that they are
liquidating their company. The 3 pence you receive is actually not dividends but a
reimbursement of the shares 17,500 shares. As a result, this will be dealt with a part of capital
gain tax and not within income tax. Thus, the dividends income received for the period ended 28
February 2015 is zero.
1.2.2 Tax liability and tax payable.
After the calculation of the non-saving, saving and dividends taxable incomes in the Performa,
the total tax liability will be computed to reach the amount of tax liability and eventually the
amount of tax still due (tax payable) to the HMRC. (BPP Learning Media, 2014D)
Tax liability (£)
Non-Saving (£43,375)
£31865 At Basic Rate of 20%
Remaining limit of basic Rate
£11510 At Higher Rate of 40%
Remaining limit of Higher rate
Saving (£16875)
£16,875 at Higher Rate of 40%
Remaining limit of Higher Rate
Total Tax Liability
£6373
0
£4604
£106,805
£6750
£89,930
£17727
First, the non-saving value (£43,375), it will satisfy the basic rate limit (£31865), thus, (£31865)
will be multiplied into the basic rate (20%) leading to a tax liability of then, the tax liability of
£6373 and the remaining balance of the basic rate limit is £0. Moreover, the remaining £11510
of non-saving income will be taxed at the higher rate (40%) adding £4604 to the tax liability.
With this the liability for non-saving income has been calculated and as the basic rate limit has
been satisfied and the remaining balance of the higher rate is (£106,805) as a result of
deduction of (£11510) from the higher rate limit £118,315. Second section deals with income
classified as saving, since the higher rate limit is still not completely satisfied, the saving income
will be taxed at a rate of 40% leading to tax liability of £6750 (£16,875 x 40%). All that will lead
to a total tax liability of £17727 and the remaining balance of higher tax is £89,930
Note: The rates used in the above calculations are official rate of the HMRC for the tax year
2014/15.
Page 10 of 39
Tax Payable (£)
Total Tax liability
£17,727
Less advancement
Interest (16875 at 20%)
(£3375)
Total Tax Payable
£14,352
After computing the total tax liability, the next step is to deduct the advancement taxes paid for
the interest (earned saving) to reach the amount of tax still due. The total tax liability is derived
from the tax liability table above, and the advancement paid is 20% of the saving income. Thus,
the total tax payable will be £14,352 as your tax payable for the period ended 28 February 2015.
2.3 National Insurance Contribution (NIC)
Any person that satisfy the below conditions must contribute to the HMRC to qualify benefits
such as pensions:


The contributor’s age must be 16 years old or more
An employee earning £155 per week or self-employed with trading income £5965 or
over per year. (Government UK, 2014G)
There are 4 classes in the payment of NIC:



Class 1 (A and B) – Contribution by Employees
Class 2 and 4 – Contributions by Self-employed
Class 3 – voluntary contributions
In accordance to your case, you satisfy all the conditions, as you are 55 years old and a selfemployed earning more than £5965 per year (£49,075 as trading income). Thus, you are obliged
to contribute to the HMRC upon the above information. In addition, Classes 2 and 4 are
considered initially as you are self-employed. (BPP Learning Media, 2014G).
Class 2 NIC:
Page 11 of 39
To calculate the class 2 national insurance liability, the rate of £2.75 per week will be used. It is
recommended that the trader can pay either monthly or bi-annually. On the assumption that
NIC was last paid on 5th April 2014, the NIC Class 2 liability will be:
£2.75 𝑥 52 𝑤𝑒𝑒𝑘𝑠 = £143
11
For the period from 6th, April 2014 to 28th February 2015 is £143 𝑋 12 = £131.
Class 4 NIC calculations:
National Insurance Contribution (£)
Trading profit
Less: Tax free low limit
NIC Main rate (33909x 9%)
NIC Additional rate (49075-41865) x 2%
Total NIC
41865
(7956)
33909
3052
144
3196
First, the trading profit is derived from the Performa and since it is more the limit (£41865), all
the limits lower, upper and additional will be deducted from the trading profit. Then, the lower
limit will be deducted from the upper profit limit (£41865 – £7956), then, the fixed rate 9% will
be applied on result (£33909) to give the NIC for the main rate £3051.8 rounded to £3052. In
addition, the exceeding amount upon the upper profit limit is £7210 (£49075- £41865) will be
multiplied into the additional rate 2%; thus, the NIC for the additional rate will be £144. As a
result, the NIC liability for class 4 will be £3196
Total national insurance contribution liability
The total from class two and class 4 NIC liability is £131+£3196= £3327.
Bottom line
Overall, your taxable income for the period ended 28th February 2015 is £60,250, tax liability is
£17727 and £14,352 is the tax payable. As for you national insurance contribution liability, it is
valued at £3827.
Page 12 of 39
3.0 Capital gain transactions
3.1 Capital Gain Tax (CGT) liability.
3.1.1
Calculation of Capital Gain Tax
This part will be covering your capital gain tax (CGT) for the year 2014/15. The process and main
points needed in calculating it along with detailed calculations and the process taken to
identifying and calculating the CGT is as follows concluded with brief points of advice:
Process:
Step 1: Indicate if person is a chargeable person.
Step 2: Identify transactions that qualify as a chargeable disposal.
Step 3: Identify assets that qualify as chargeable assets.
Step 4: Find and calculate if there is a gain "profit" or a loss on those transactions.
Step 5: Calculate Total Capital gain tax liability according to gains identified -using Performa.
STEP 1
The first step is to find out if you are chargeable for capital gain tax or not.
According to the information given, you are a chargeable person for capital gain tax as you fall in
the category of being an individual who is a UK resident regardless of whether you are domiciled
or not. You are also eligible for any capital gain tax exemption, as you do not fall in the category
of remittance basis. Note that you being a non-domiciled UK resident is not important when
calculating your CGT for this year as you are not disposing any overseas assets. (Lymer & Oats,
2014) (BPP Learning Media, 2014I).
STEP 2
Most assets disposals qualify for being a chargeable disposal including sales and gifting of assets,
loss or destruction and more. But certain exemptions are there which include:


Asset transfer on death
Asset transfer for purpose of being or coverage of a security of loan or mortgage
Page 13 of 39


Assets gifted to national heritage bodies and charities
Assets sold in normal course of business -i.e. trading disposal transaction-.
This explains why selling stock on hand cannot be tax as a capital gain because it is in the normal
course of business and already taxed as an income. However, other assets can qualify for capital
gain tax if they are chargeable assets and this will be figured in the next step. (Lymer & Oats,
2014) (BPP Learning Media, 2014I). (Government UK, 2015A).
STEP 3: Clarifying the chargeable asset concept
Firstly, an overall understanding for the capital gain tax(CGT) is needed. A capital gain tax is
levied on any disposal -selling- of property, business assets, shares and similar chargeable
assets; also gifting a chargeable asset or loss/destruction occurring to it . However, there are
some exemptions and they include:




Motor vehicles suitable for private use
bonds
-edged securities (treasury stock)
As per this information it is clear that the Van transaction is exempted from Capital Gain Tax due
to the Van being a Motor vehicle which is not a chargeable asset. While the rest assets disposals
are all chargeable assets. (Lymer & Oats, 2014) (Government UK, 2015A) (BPP Learning Media,
2014I)
STEP: 4
Transaction
Eligible
to
Capital Gain Tax
Disposal of shop
YES
premises
Disposal of shop
YES
fittings
Selling Stock on
NO
hand
Withdrawal
Van
Disposal
Painting
of
of
NO
YES
Reason
This is your property and is sold to Abdullah in a regular
selling of business property transaction.
This is a chargeable disposal and shop fittings are considered
to be chargeable assets and part of property.
Stock on hand includes finished goods, materials and other
goods. Any sale of these inventories is noted as trade sales
and calculated in the trading income. Therefore, this is not a
capital disposal qualifying to capital gain tax but to income
tax.
As mentioned above motor vehicles including Vans -which is
suitable for private use- is exempted from CGT.
Painting is a chargeable business asset and an inherited
property disposed that means it qualifies for CGT.
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Therefore, as shown in the table below the transactions you made are noted and it’s specified
with reason(s) if they as a chargeable asset transaction elect to capital gain tax in the first or no
STEP 5: Calculations.
Based on the above table, the gain/ loss and the capital gain tax are calculated, if possible. On
the assets is calculated
Calculating gains
Gain Calculations on Building
Gain on Shop premises is calculated by finding the difference between both cost of premises
and revenue from disposal:
Cost of premises = £265,000
Revenue from disposal = £345,000
Therefore gain equals as shown in below working (Working 1)
£345,000 − £265,000 = £80,000
Calculating Total Gain on disposal
Proceeds
Less: Incidental Costs
Net Proceeds
Less: Allowable Costs
Total Gain
£
345,000
345,000
(265,000)
80,000
(BPP Learning Media, 2014I)
Gain Calculations on Shop fitting
There is no gain on shop fittings due to two reasons; the first is that shop fittings are sold at no
more than cost so there is no gain on it. The second reason is that the shop fittings qualifies to
be a Non-Wasting Chattel, therefore it will have no gain as the disposal proceeds are less than
£6,000. Nevertheless, with the information available it is impossible to calculate if there is any
capital loss that can be offset against capital gains. Therefore, we will go on assuming that there
is no loss made. However, you are advised to provide us with any incidental cost of disposal and
any allowable cost to calculate if there is any loss to be used for offset purpose.
Gain Calculations on Paintings
Gain is already calculated and figure is stated as £7,100. (Government UK, 2015A)
Page 15 of 39
Considering Reliefs
Finally, in this step we will consider advising you on the relief(s) available for you.
Entrepreneurs' Relief
You are entitled for Entrepreneurs' Relief if you satisfy the following requirements:
For shares, they should be of qualifying company satisfying the following:



5% of voting rights
Director or employee
Main activity is trading
For assets;




Sole trader or partnership
Owned business for at least one year
Dispose asset within three years of closing the business
Asset being a business asset (Used in business by individual or by employee in
performing duties)
The entrepreneurs' relief leads to capital gain taxed at rate of 10% instead of normal
rates on assets or shares that qualify for this relief. The only asset qualifying for this
relief is the shop premise as you and the asset both satisfy the categories and it is a
business asset. While the painting does not satisfy as it is not a business asset.
Therefore, you are also advised to claim this relief to decrease tax paid. (Lymer & Oats,
2014) (BPP Learning Media, 2014J) (Young, McKnight & Stewart, 2014) (Power, 2012)
You can claim the relief through your self-assessment tax return or by filling Section A of
the entrepreneurs' relief help sheet (appendix 1). This claim should be made by the
deadline of on or before 31 January of the following year to the tax year that disposal or
business selling occurred, which is 31 January 2017 in your case.
Annual exemption
Capital Gains Tax annual exemption is a Tax-free allowance of £11,000 as per rates of tax year
2014/2015. Therefore, you are advised to use it on the gains that do not qualify for
entrepreneurs' relief as they have a higher tax rate on them. (BPP Learning Media, 2014I)
(Government UK, 2015A)
Page 16 of 39
Capital loss
As stated in your previous year records brought forward, you have an unused capital loss of
£31,400. This capital loss can be used to decrease capital gains and thus reduce the CGT. But it
should be used in the best way and so decrease the Gains that do not qualify for entrepreneurs'
relief first as they have the higher rate. However, if all gains can be offset by the annual
exemption of £11,000 then it should be used and capital loss kept. (BPP Learning Media, 2014I)
(Harrowven, 2014).
STEP 5: CGT liability.
The amount of CGT payable for capital transaction is calculated using this Performa (Lee,
2012) (BPP Learning Media, 2014I) (BPP Learning Media, 2014J)
Gain
Gain
not
qualifying
for
entrepreneurs' relief
Painting Total Gain
£7100
Less: Capital losses carried (£31,400)
forward from 2013/14
Chargeable gain for painting
0
CGT
0
Gain qualifying for entrepreneurs'
relief
Premises Total Gain (Working 1
£80,000
Remaining capital loss
(£31,400 - £7,100)
Less: annual Exempt amount
Premises chargeable gain
Capital
Gain
Tax
2014/15(£44,700 @ 10%)
c/f (£24,300)
(£11,000)
£44700
for
£4470
Therefore the total capital gain tax charge for the period ended is £4470.
3.1.2 Advices regarding the CGT
After the calculation of your CGT for this tax year 2014/15 we would like to advise you about
certain points which we might have already mentioned but to sum it up and mention all
applicable advices:
A) You should watch out for deadlines of claiming reliefs that are available for you and
mentioned to you, in order to benefit from those reliefs. The deadline being so as
Page 17 of 39
mentioned above, you are advised to claim entrepreneurs' relief now and as it can be
used now to reduce the CGT liability. Assuming this relief was not claimed the CGT will
be calculated using the rates of 28% rather than 10%! Note that the rate of 28% will be
used because you already utilized your basic band rate which is £31,865 when
calculating the income tax liability. Concluding, this relief should be claimed as soon as
possible for this year or the CGT liability will increase as shown below in the extract from
CGT liability calculation above:
Gain
Premises chargeable gain
£44,700
Capital Gain Tax for
2014/15(£44,700 @ 28%)
CGT
£12,516
As shown there will be an increase of £8,046 (£12,516 - £4470) if entrepreneurs' relief
was not claimed therefore it should be claimed to avoid higher tax liability.
B) Use the capital loss carried forward from previous year to decrease the Capital
Chargeable Gains and the Capital gain tax. The capital loss of £31,400 carried forward
took a huge role in reducing the CGT liability and therefore you should be using it for
this year especially that you are ceasing trade and shutting down your business which
will be a good time due to possibility of having higher disposals now than later. To give
you an idea about the importance of using the carried forward capital loss; the following
CGT liability calculation Performa is implemented without using the capital loss:
Gain
Gain
not
qualifying
for
entrepreneurs' relief
Painting Total Gain
£7100
Less: annual exemption (best use) (£11,000)
Chargeable gain for painting
0
CGT
0
Gain qualifying for entrepreneurs'
relief
Premises Total Gain (Working 1)
£80,000
Remaining annual exemption (£3,900)
(£11,000 - £7,100)
Premises chargeable gain
£76,100
Capital
Gain
Tax
for
2014/15(£76,100 @ 10%)
Page 18 of 39
£7,610
Hence, without the capital loss c/f being used the CGT liability increase by £3,140
(£7610 - £4470) which could have been saved. Therefore, you are advised to use the
capital loss to reduce the CGT liability.
C) Make sure the annual exemption is used to decrease the capital gain. For instance, if
the annual exemption was not used and only the capital loss was used the CGT liability
will increase and the extract below shows that:
Gain
Gain
not
qualifying
for
entrepreneurs' relief
Painting Total Gain
£7100
Less: Capital losses carried (£31,400)
forward from 2013/14
Chargeable gain for painting
0
CGT
0
Gain qualifying for entrepreneurs'
relief
Premises Total Gain (Working 1
£80,000
Remaining capital loss
(£31,400 - £7,100)
Premises chargeable gain
Capital
Gain
Tax
2014/15(£55,700 @ 10%)
c/f (£24,300)
£55700
for
£5570
Therefore, this will lead to an increase of CGT liability by £1100 (£5570-£4470). Hence,
the annual exemption should be used to pay less tax.
D) Elaborating on the previous point the annual exemption amount should be used in its
best use, which is first on non-qualifying relief gains and then on the qualifying relief.
The reason behind this is to reduce the gains which are taxed on a higher rate and which
are the non-qualifying gains for relief. But, in your case you have a capital loss that is
carried forward and can be used, thus, can be used to offset the non-qualifying for relief
gains. However, you should keep in mind for future that the capital loss c/f can be saved
if the annual exemption can cover the whole total chargeable gains because the capital
loss can be used for coming years unlike the annual exemption which cannot be carried
forward. For future purposes we would like to make the best use of annual exemption
clear by showing how it would affect if not used in the best way. We will be using as an
example your CGT for this year keeping aside the capital loss and the numbers from
previous advice number two can be used for comparison as it shows the CGT liability
calculated without capital loss in consideration and using the best use of annual
exemption. In the following Performa the best use will not be taken in consideration:
Page 19 of 39
Gain
CGT
Gain qualifying for entrepreneurs'
relief
Premises Total Gain (Working 1)
£80,000
Less: annual exemption (not in (£11,000)
best use)
Chargeable gain for premises
£69,000
Capital gain tax on premises
(£69,000 @ 10%)
Gain
not
qualifying
for
entrepreneurs' relief
Painting Total/ Chargeable Gain
£7100
6,900
Capital gain tax on painting
(£7,100 @ 28%)
Capital Gain Tax for 2014/15
£1,988
£8,888
Note that the 28% higher rate is applied due to basic band rate of £31,865 being used by
the income tax liability as mentioned in previous advices and also as clear from the
income tax liability calculation previously in this memo.
As you see the CGT liability increase when not using the annual exemption in its best use
(excluding capital loss in both) by £1,278 (£8888-£7610). Accordingly, in future annual
exemption should always be used in its best use to reduce CGT liability.
E) If you have any fees and incidental costs of disposal of assets you can use them to
reduce your capital gain. As mentioned above if assets disposed have fees or any other
incidental costs then the net proceeds can be reduced. This is shown in the Performa
(Working 1), when calculating the gain on disposal of shop premises and it is clear how
the total gain can be reduced using those incidental costs and thus reducing capital gain
tax. An example on effect of incidental cost can be illustrated as follows using the
Performa mentioned earlier and using the disposal of shop premises:
Assuming that you had a £10,000 incidental cost on the disposal of the shop premises,
this will change the Performa in to the following reducing the total gain:
Calculating Total Gain
disposal
Proceeds
Less: Incidental Costs
Net Proceeds
Page 20 of 39
on £
345,000
(10,000)
335,000
Less: Allowable Costs
Total Gain
(265,000)
70,000
With this incidental cost, when calculating the CGT it will be less now. Therefore, you
can submit for capital gain adjustment any incidental costs to reduce your CGT liability.
F) Further cost information of shop fittings can be used to calculate any capital loss if there
is one because as you mentioned to us there is no shelve or shop fitting that is disposed
for more than cost. Therefore, there is no gain but a loss might be therefore if proceeds
are less than costs as mentioned previously. This will lead to a capital loss that can be
offset against gains as explained above.
3.1.2
Fall in All Over Inc. Shares
Chargeable assets and disposal
The first thing to note is that that quoted trading company shares are chargeable assets as they
fulfill the criteria we mentioned above of being a chargeable asset. Furthermore, these shares
will form a chargeable disposal, as they are not mentioned in any of the exempted disposals.
Thus, these shares are subjected to reliefs and capital gain tax if they qualify for any criteria of
both. (Kaplan, 2014A)
Negligible value claim
Negligible value claim is a claim made when assets fall in value to be worthless or next to
worthless. The worthlessness of it will be decided by the local tax inspector according to the
documents & information submitted to him with the values. This claim can occur on shares
when a business liquidates and is available upon certain conditions which are:



Shares are ordinary shares
Subscribed for them (or are second-hand but subscribed for by spouse or civil partner)
Company is a trading company or an eligible one throughout the years of active
existence or for the previous six years
Therefore, we look at if All Over plc & the shares satisfy these conditions. As stated from the
information sent by you, we can assume that these shares are ordinary shares and that you have
subscribed to them once you inherited them following the sad pass away of your aunt.
Moreover, as you mentioned and as our records say about All Over plc; it is a quoted trading
company and have been like that throughout its years of active existence and the previous 6
years. Combining that information we can say that these shares can be claimed as being of
negligible value. (Lymer & Oats, 2014) (Tallon, 2012) (Government UK, 2015A).
Page 21 of 39
In relation to a trading company, not all trading company shares qualify for relief. In your case
All Over plc will not qualify if it mainly deals in shares, securities, land, trades or commodity
futures or if it does not pursue commercial basis in a way that it would not be expected to make
any profit. We have assumed according to the information you gave us that All Over plc qualifies
and is a trading company. In addition, this share disposal will be qualifying as it satisfies
conditions of dissolution that All Over plc goes through and also negligible value claim
conditions. (UK Government, 2013A) (Kaplan, 2014B)
The loss made by the shares should now be set off against capital gain. Only in the case where
shares are in an unquoted trading company loss can be offset against income creating an
income relief according to criteria and respecting the limits of relief mentioned by the Venture
Capital Scheme Manual. But in your case here any capital loss will be offset with capital gains in
order to reduce capital gain tax. (Tallon, 2012)
As we mentioned to you above the claim you make might be accepted or rejected. Therefore,
you should keep all possibilities in mind and the chance that it is just treated as a capital loss if
valuation is accepted by tax office. But you have a strong argument which is the amount of
shares which fell to £525 (£0.03 x 17,500) and which is low as it fell by more than 95%.
Accordingly, these shares can be claimed of negligible value and the local tax inspector is only
one able to give relief or no as per information submitted. Therefore, detailed documents and
information needs to be submitted to influence decision and this will be mentioned in the
following paragraphs. ("Disposals where assets lost or destroyed", 2015)
How and when to claim relief
Now after knowing the possibility of acceptance for negligible value claim we would like to guide
you in the following paragraphs on how to apply for the claim and when you can apply and what
important documents you need to submit along with claim information. (Government UK,
2013A).
Firstly, the period to apply for the loss claim is within one year of 31 January following the year
loss was made. In your case you have to claim loss relief on or before 31 January 2017. Relief
could be claimed for the current tax year 2014/2015 or for previous one 2013/2014.
Secondly, claiming losses. The claim can be made through the Capital gain summary sheet
(appendix 2) submitted to the local tax inspector this can happen in two ways either applying for
relief for this year or previous year, as mentioned below:

For Current Year 2014/2015: You should fill in box 12 on the first page of the summary.
Capital loss on shares should also be mentioned in box 6 and details about it stated in
the "Any other information" box numbered 37 on the second page of the summary.

For Previous Year 2013/2014: You should fill in box 14 on the first page of the summary.
Capital loss on shares should also be mentioned in box 6 and details about it stated in
the "Any other information" box numbered 37 on the second page of the summary
Page 22 of 39
Relief normally takes from 6-8 weeks to be approved and then you will be refunded then or if it
is offset against current year then you will get a reduced capital gain tax. ("Negligible Value
Claims", 2015)
Thirdly, fill list shares and securities part. You need to fill in boxes 18 to 23, which are applicable
mentioning the number of disposals, proceeds, allowable cost and that you are making claim
and valuation. Look at appendix (2).
Fourthly, as All Over plc is in receivership and most probably liquidation then the following
documents and information should be provided to the tax office:




A statement of affairs for All Over plc and any subsidiaries.
A letter showing if any return will be made for you from All Over plc.
Details of how this decision was reached, for example, a balance sheet showing
significantly more debts than assets. Here it will be a good thing to submit reasons for
receivership and list of debts All Over plc fall in.
Any evidence that no recovery or rescue of the company is likely, for example, a
statement that the company has ceased trading. (Government UK, 2014F)
Fifthly, in your case All Over plc is a quoted trading company and it is listed on the London Stock
Exchange and therefore you should check for the negligible value list if All Over plc is listed there
or not. You are advised to send this list with your claims and make a note to the tax office about
the company being on the list. The list is referenced below. (Government UK, 2014F)
(Government UK, 2014G)
Valuation of Shares
The shares valuation will need to be calculated as there is a dispose due to liquidation and
cessation of trade. Therefore, below valuation will be made and capital loss will be calculated to
be used in adjusting the Capital gain tax for the year and also so you can have the numbers and
calculations ready when you claim negligible value.
As mentioned, these shares have fallen in value and it is understood that All Over plc is in
liquidation and therefore the amount of 3 pence per share that will be received is the quoted
price for shares after receivership. Now, as the company will liquidate and cease trading the
shares will be disposed and therefore the chargeable gain or allowable loss should be calculated.
To calculate this gain or loss the quoted shares should be evaluated and proceeds should be
calculated first.
The "quarter up" value formula is used and it is;
the lower quoted price + 1/4
– lower quoted price).
Page 23 of 39
The lower quoted price is stated as 3 pence per share while the higher quoted price is calculated
using the number of shares and their total value as shown below:
Number of shares: 17,500
Value of shares: £11,400
therefore,
£11,400 ÷ 17,500 = £0.65 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Applying the quarter up formula;
Lower quoted price = £0.03
Higher quoted price = £0.65
therefore,
£0.03 + (0.25 × (£0.65 − £0.03)) = £0.19
Total value (proceeds from shares) = 17,500 x £0.19 = £3,325
Accordingly, the capital loss or gain can be calculated and it will be the difference between
Proceeds and Costs.
Cost of shares is £11,400 while the proceeds are calculated above as approximately £3,325.
Therefore capital (loss)/gain is equal to:
£3,325 - £11,400 = £(8,075)
This capital loss should be adjusted and set off against the capital gains of the year in order to
reduce capital gain tax. (BPP Learning Media, 2014K) (Harrowven, 2014) (Kaplan, 2014B)
Disposal of quoted shares is a chargeable disposal of a chargeable asset as mentioned by the UK
tax law. Therefore, its capital loss should be set off against capital gains as mentioned
previously.
Note that you are advised to fill the Post-transaction valuation checks for capital gains
referenced below in order to check that amount of valuation of shares and thus now that
proceeds are calculated correctly. (Appendix 3) (Government UK ,2015C)
Page 24 of 39
Adjusted CGT Performa
After calculating the loss on the disposal of shares, the CGT can be adjusted to reflect the
disposal of All Over Inc. shares for the period ended 28 February, 2015
Gain
Gain
not
qualifying
for
entrepreneurs' relief
Painting Total Gain
£7100
Less: Capital losses carried (£8075)
forward from 2013/14
Chargeable gain for painting
0
CGT
0
Gain qualifying for entrepreneurs'
relief
Premises Total Gain (Working 1)
£80,000
Less: Remaining capital loss c/f
(£8,075 - £7,100)
Less Capital loss c/f from previous
year
Less: annual Exempt amount
Premises chargeable gain
Capital
Gain
Tax
for
2014/15(£44,700 @ 10%)
(£975)
(31,400)
(£11,000)
£36,625
£3663
(Finney, 2012) (BPP Learning Media, 2014I) (BPP Learning Media, 2014J)
3.2 Bubbles Inc. Shares
3.2.1 Bubbles Inc. Dividends Tax treatment in the UK
The method in which you would be taxed in the UK on the dividends paid to you by Bubble Inc.
depends on the tax treatment you choose/claim, whether it is the arising basis tax treatment or
the remittance basis tax treatment. Those treatments and how the dividends would be taxed
under them are illustrated below:
1) Arising Basis:
If you are (UK resident, non-domiciled in the UK) and you choose the arising basis tax
treatment, you will normally be liable for paying tax on your worldwide income and
Page 25 of 39
gains, wherever those arise or accrued (Government UK, 2013B). In your case,
regarding the dividends paid to you by Bubble Inc., the dividends is considered as an
overseas dividend because Bubble Inc. is an overseas company because it is located in
Oceania which is outside the UK.
Therefore, according to the arising basis you will be taxed in the UK on the overseas
dividends paid by Bubble Inc. even if they are not unremitted to the UK. Moreover, the
overseas dividend paid by Bubble Inc. to you will be treated similar to UK dividends in
which the overseas dividends are entitled to a deemed 10% tax credit and are further
grossed up at 100/90. (BPP Learning Media, 2012)
Nevertheless, the tax rates are the same rates as Dividends in the UK and remains
unchanged as follows (BPP Learning Media, 2012) (BPP Learning Media, 2014C)
A) Basic rate: 10%
B) Higher rate: 32.5%
C) Additional rate: 37.5%.
The dividends will be first taxed at the basic rate; however, if the basic rate limit of
£31,865 is satisfied then the higher rate will be used. If the higher rate limit of £118135
is satisfied then the additional rate will be used.
2) Remittance Basis:
Since Bubble Inc. is a company located in Oceania, it is therefore an overseas company and
the dividend paid by Bubble Inc. is considered as overseas dividends. Taking that into
account that you are a UK resident who happens to be non-domiciled in UK, this makes you
eligible and qualified for choosing the remittance basis tax treatment. This basis is explained
below:
Utilization of remittance basis tax treatment:
The Usage of remittance basis depends on the value of overseas dividends received:
 When the unremitted amount of overseas dividends received is £2,000 and more:
you will have to make a claim for Self-Assessment tax return to be treated under the
remittance basis.
 When the unremitted amount of overseas dividends paid by Bubble Inc. are less than
£2,000: then you are automatically treated under Remittance basis tax treatment
without having to complete a self-assessment tax return. You will also not lose your
qualification for personal tax allowances and annual exempt amount for capital gain
Page 26 of 39
tax. Moreover, you may not have to pay Remittance Basis Charge. (Government UK,
2013B) (BPP Learning Media, 2012) (Government UK, 2015D)
Thus, if you (as a UK resident, non-domiciled in the UK) choose and have claimed or will claim or
the remittance basis tax treatment automatically applies to you, you will be liable for taxation
on:


All of your UK income and gains when they arise or accrue each tax year within UK.
Foreign income and gains if and when you bring (remit) them to the UK, including any
property, which derives from those income and gains.
In case of the amount of overseas dividends paid to you is less than £2,000 and it is not remitted
(brought) to the UK, then you are not entitled to pay UK tax on that particular foreign income or
gains. (Government UK, 2013D) (BPP Learning Media, 2012) (Government UK, 2015D)
Consequences of choosing remittance basis tax treatment:
You should put in mind that if you choose remittance basis tax treatment you would not
normally qualify for:


Personal allowances and reliefs for Income Tax
The annual exempt amount for Capital Gains Tax.
And will liable for a charge of:

Remittance basis charge of £50,000 due to you choosing remittance basis tax treatment
and your residency for twelve of the fourteen tax years preceding the tax year of
2014/2015.
Note: you have been a resident since 1995 and that is why your remittance basis charge is
£50,000. (BPP Learning Media, 2012) (UK Government, 2015E)
Assessment of the overseas dividends under remittance basis:
If the overseas dividends paid is taxed under remittance basis:

The overseas dividend paid by Bubble Inc. to you are treated similar to UK dividends in
which the overseas dividends are entitled to a deemed 10% tax credit and are further
grossed up at

100
90
However, the tax rates for the overseas dividends, unlike the arising basis will be
different from normal UK dividends. The rates will be changed to the same as the nonsavings income rates (BPP Learning Media, 2012) (BPP Learning Media, 2014C):
Page 27 of 39
A) Basic rate: 20%
B) Higher rate: 40%
C) Additional rate: 45%.
3.2.2 Advise on the capital gains tax implications of a future disposal of the shares
Capital gains tax is a tax usually charged on the gains of a chargeable person which arises from a
chargeable disposal of a chargeable asset (whether situated in the UK or overseas). (Hoskin,
2015E) (BPP Learning Media, 2014I).
In case you are going to dispose your overseas shares (overseas shares due to the fact that
Bubbles Inc. is an oversea company because it is located in Oceania) in Bubbles Inc., then you
will be deemed liable for paying capital gains tax due to the facts that you are:




An individual (chargeable person).
Selling shares (chargeable disposal).
Shares to be sold (chargeable asset).
Profit/gain arising from the disposal of those shares to be sold.
Capital gains tax computation/calculation
The computation of your capital gains tax will be as follows:
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Determine the sales proceeds
Consider the availability of any capital gains tax reliefs
Calculate the Net proceeds through deducting the incidental costs of
disposal from the sales proceeds
Calculate the total gain through deducting allowable losses from net
proceeds
Calculate taxable gain through deducting the annual exempt amount
from the total gain
Calculate the capital gains tax payable for the tax year.
Capital gains tax payable is calculating using the rate of 18% for basic band (£31,865) and 28%
for higher rate for amounts that exceeds the basic band. (BPP Learning Media, 2014I)
Proceeds
Less: Incidental cost
Net proceeds
Less: Allowable cost
Total gain
Less:
Annual
exemption
amount
Chargeable gain
£
XX
(XX)
XX
(XX)
XX
(XX)
XX
Page 28 of 39
The annual exempt amount entitled to individuals per year is £11,000. (BPP Learning Media,
2014K) Hence you are a non-domiciled UK resident makes the option of choosing to be treated
under the remittance basis tax treatment is available for you.
Utilization of remittance basis tax treatment:
Similarity to what is stated regarding remittance basis treatment for dividends:
1) In the case when the unremitted amount of overseas gains received is £2,000 and
more, you will have to make a claim for Self-Assessment tax return to be treated
under the remittance basis. Doing so, will you make ineligible to claim the annual
emptied amount.
2) In the case when the unremitted amount of overseas gains paid by Bubble Inc. is
less than £2,000, then you are automatically treated under Remittance basis tax
treatment without having to complete a self-assessment tax return. You will also
not lose your qualification for personal tax allowances and annual exempt amount
for capital gain tax. Moreover, you may not have to pay Remittance Basis Charge.
(Government UK, 2013D) ; (BPP Learning Media, 2012) ( UK Government, 2015E)
So, if you choose and have claimed or will claim or the remittance basis tax treatment
automatically applies to you, you will be liable for taxation on:

All of your UK income and gains when they arise or accrue each tax year within
UK.

Foreign income and gains if and when you bring (remit) them to the UK, including
any property which derives from those income and gains.
In case of the amount of overseas gains you receive is less than £2,000 and it is not
remitted (brought) to the UK, then you are not entitled to pay UK tax on that particular
gains. (Government UK, 2013B) ; (BPP Learning Media, 2012) ( UK Government, 2015B).
Consequences of choosing remittance basis tax treatment:
If you claim the remittance basis tax treatment, then you are no longer entitled to an annual
exempt amount (£11,000) against chargeable gains. (BPP Learning Media, 2012)
Page 29 of 39
Shares and securities exempted from capital gains tax:
In case the shares and securities that are going to be disposed of are either gilt-edged securities
or qualifying corporate bonds, then they are exempted from capital gains tax purposes. (BPP
Learning Media, 2014K)
Nevertheless, a number of ways that you should consider and that will benefit you in reducing
your capital gains tax exists and are illustrated below:
a. Transfer of shares to spouse
If your spouse has not made any significant capital gains in the current tax year, it would be
tax efficient that you ensure that your spouse uses her annual exemption for the tax year in
which the your disposal of shares takes place.
Moreover, if you give the shares to your spouse, there is no tax to pay as it is consider a gift.
In this case, your spouse will be treated as if she bought the shares for the price and at the
same time in which you bought them.
The transfer to the spouse needs to be a genuine gift, which in other words means that once
the shares are given to your spouse, you will no longer have right to have the shares or the
proceeds of the sale back. (Hoskin, 2015)
b. Gifts to charity
Similar to transfer of shares to spouse, gifting shares to charity will not require you to pay
capital gains tax. (government UK, n.d)
c. Reinvestment in small companies
This has to do with the impact that is made on the effective tax rates on the disposal of
shares when you have plans to reinvest your sale proceeds in other small private companies.
(Hoskin, 2015)
The annual exemption amount is also considered as another way that reduce the amount of
capital gains tax that you will pay, however, if you claimed or will claim or even
automatically qualify for the remittance basis tax treatment due to your UK residency but
non-domiciliary in the UK, then you are no longer entitled to an annual exempt amount
against chargeable gains. (Hoskin, 2015)
The annual exempt amount against chargeable gains is 11,000 pounds and If the chargeable
gain computation of the disposal of shares ended up showing a total gain that happens to be
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lower than the annual exempt amount, then you will not be taxed on the gains you make as
a result of disposal of the shares of Bubble Inc.
Accordingly, it is preferable and advisable you consider the ways of reducing your capital
gains tax discussed above and also do put in mind that when disposing of shares, it is
preferable you are under arising basis tax treatment rather than remittance basis because
you would pay less UK tax by having your overseas gains taxed on the arising basis if the
chargeable gains happens to be lower than the annual exempt amount.
3.2.3
Treatment of Eric Sloane’s expenses under CGT purposes.
As per what the Taxation of Chargeable Gains Act 1992 (TCGA 1992) section 38
(Government UK. n.d), which deals with the acquisition and disposal costs that can be
deducted from the proceeds of sale of any asset in computing the amount of the
chargeable gain arising and the incidental costs of acquisition and disposal, it is stated
that:
1) The costs must be incurred wholly and exclusively for the purposes of acquiring the
asset (making the investment in this case).
2) The expenditure must be “fees, commission or remuneration paid for the
professional services of any surveyor, valuer, auctioneer, accountant, agent, or legal
adviser”, or be transfer costs (including stamp duty) or costs of advertising to find a
seller. (Government UK. n.d)
Based on the assumption that you will invest in Bubbles Inc. shares and will dispose it, the
conclusion reached in this case regarding the payment made by you to Eric is that the advice fee
is partially allowable for capital gains purposes because the amount paid is a fee for an advice
by a business associate. The reason for it being partially allowable is because the amount paid
by you to Eric is for details about a number of investments and Bubble Inc. is only one of those
investments, one investment that is acquired by you. Thus, the amount that will be allowable
for capital gains tax purposes will be the cost allocated for Bubble Inc. investment only and
not the whole £300 amount because the cost allocated for Bubble Inc. represent the "costs must
be incurred wholly and exclusively for the purpose of acquiring the asset (making the
investment in this case)" aspect stated in TCGA 1992 section 38. (Male, 2014)
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4.0 Conclusion
This report examined the implication of VAT on the sales and cessation of business and the total
income tax was calculated. Then, analysis and advices regarding the capital transaction and
bubbles share dividends were provided. It is my sincerest hope that the information provided
are useful for you to understand and make decisions regarding your tax affairs.
The Tax Manager.
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5.0 References
Building and construction. (2014). Retrieve from:
https://www.gov.uk/government/publications/vat-notice-708-buildings-andconstruction/vat-notice-708-buildings-and-construction
BPP Learning Media. (2014A). Paper F6: Taxation UK (FA2014): An introduction to VAT (Ch. 26).
United Kingdom: London.
BPP Learning Media. (2014B). Paper F6: Taxation UK (FA2014): Self-assessment and payment of
tax by individuals (Ch. 18). United Kingdom: London
BPP Learning Media. (2014C). Paper F6: Taxation UK (FA2014): Computing Taxable income
(Ch.2). United Kingdom: London
BPP Learning Media. (2014D). Paper F6: Taxation UK (FA2014): Computing the income tax
liability (Ch.4). United Kingdom: London
BPP Learning Media. (2014E). Paper F6: Taxation UK (FA2014): Capital allowances (Ch.9). United
Kingdom: London.
BPP Learning Media. (2014F). Paper F6: Taxation UK (FA2014): Assessable Trading income
(Ch.10). United Kingdom: London.
BPP Learning Media. (2014G). Paper F6: Taxation UK (FA2014): National insurance contribution
(Ch.13). United Kingdom: London.
BPP Learning Media. (2014H). Paper F6: Taxation UK (FA2014): shares and securities (Ch.12).
United Kingdom: London.
BPP Learning Media.(2014I). Paper F6:Taxation UK (FA2014). Computing Chargeable Gains (Ch.
14). United Kingdom: London.
BPP Learning Media.(2014J). Paper F6:Taxation UK (FA2014). Business Reliefs (Ch. 16). United
Kingdom: London.
BPP Learning Media.(2014K). Paper F6:Taxation UK (FA2014). Shares and Securities (Ch. 17).
United Kingdom: London.
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Disposals where assets lost or destroyed. (2015). Retrieved from:
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act=8&ved=0CDoQFjAF&url=http://www.revenue.ie/en/about/foi/s16/income-taxcapital-gains-tax-corporation-tax/part-19/19-0109.pdf&ei=dUtKVbikGMbFogSm4YHoCw&usg=
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https://www.gov.uk/capital-gains-tax/allowances
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https://www.gov.uk/personal-tax/capital-gains-tax
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Government UK. (2015F). Self-Assessment tax returns. Retrieved from https://www.gov.uk/selfassessment-tax-returns
Government UK. (2013A). UK Negligible value claims and Income Tax losses on disposals of
shares you have subscribed for in qualifying trading companies. Retrieved from:
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92/hs286.pdf
Government UK. (2013B). Guidance Note: Residence, Domicile and the Remittance Basis.
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77/rdr1.pdf.
Government UK. (2014A). VAT registration. Retrieved from: https://www.gov.uk/vatregistration/cancel-registration
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Government UK. (2014C). VAT registration. Retrieved from: https://www.gov.uk/vatregistration/cancel-registration
Government UK. (2014D). VAT rates on different goods and services. Retrieved from:
https://www.gov.uk/rates-of-vat-on-different-goods-and-services
Government UK. (2014E). National insurance. Retrieved from: https://www.gov.uk/nationalinsurance/overview
Government UK. (2014F) HMRC Shares and Assets Valuations (SAV). Retrieved from:
https://www.gov.uk/government/publications/hmrc-shares-and-assets-valuationssav/hmrc-shares-and-assets-valuations-sav
Government UK. (2014G). Negligible Value agreements. Retrieved from:
https://www.gov.uk/negligible-value-agreements-to-30-june-2014
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Hoskin J. (2015). Capital gains tax for individuals on the disposal of shares. Retrieved from:
http://www.out-law.com/en/topics/tax/tax-for-entrepreneurs/capital-gains-tax-forindividuals-on-the-disposal-of-shares/
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Tallon, P. (2012). Back to basics: Relief for Capital loss. Retrieved from
http://www.gabelletax.com/media/Relief-for-capital-losses.pdf
Young, R., McKnight, N., & Stewart, J. (2014). Retrieved from
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elief.pdf
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6.0
Appendices
Appendix 1: Claim for Entrepreneurs Relief form
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Appendix 2: Capital Gain Summary Form
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Appendix 3: Post Transaction Valuation Checks.
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