SCHOOL OF MANAGEMENT AND LANGUAGES
Accountancy and Finance
TAXATION (Tax Law)
Course Code: C39TA
Duration – THREE hours
All questions are Compulsory
|Section A: Personal tax; Income Tax||(30 marks)|
|Section B: Miscellaneous shorter questions||(40 marks)|
|Section C: Trading income and Corporation Tax||(30 marks)|
Total: 100 marks
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|SUMMARY OF TAX DATA 2019/20
|Starting rate||0%||Savings only||£5,000|
Additional rate 45%
Dividend income taxed at 7.5% basic rate; 32.5% higher rate; 38.1 % additional rate
Personal allowance: £12,500
Married couple’s allowance:
Born before 6 April 1935 £8,915
Minimum amount £3,450
Income limit for age-related allowances £29,600
Marriage allowance £1,250
Property Income – Rent-a-room relief £7,500
Capital Gains Tax
Annual Exemption £12,000
Standard rate 10%
Higher rate (from 23 June 2010) 20%
Approved mileage allowance payments first 10,000 miles in
miles per tax excess of
year 10,000 miles
|Motor cars and vans||45p||25p|
|Each additional passenger||5p||5p|
|Emission rating||Taxable % of|
|1 to 50g/km||16%|
|51 – 75 g/km||19%|
|76 – 94 g/km||22%|
|Each additional 5g/km||1%|
|Car fuel benefit|
Figure to which appropriate percentage is applied £24,100
so as to calculate car fuel benefit
Writing down allowance (per annum):
|Main pool of P&M||18% RB|
|Special rate pool of P & M||6% RB|
|Annual Investment Allowance||100%|
|FYA on qualifying energy efficient Plant & Machinery||100%|
|Class 1 National Insurance Contributions||weekly|
|Upper earnings limit (UEL) Employee contribution rates:||£962||
|On earnings up to primary threshold||0%|
|On earnings from primary threshold up to UEL||12%|
|On earnings above the UEL Employer contribution rates:||2%||
|On earnings up to secondary threshold||0%|
|On earnings beyond secondary threshold||13.8%|
|Class 1A National Insurance Contributions|
|Employer contribution rate||13.8%||
|Class 4 National Insurance Contributions|
|Lower profits limit||£8,632|
|Upper profits limit||£50,000|
|Rate on profits between lower and upper limit||9%|
|Rate on profits beyond upper limit||2%|
|Small company rate|
|Marginal relief fraction|
|Value Added Tax|
|Standard rate from 4 January 2011||20%|
|Registration threshold (from 1 April 2017)||£85,000|
|Deregistration threshold (from 1 April 2017)||£83,000|
- Jemma Fletcher is a self-employed baker. Her profit and loss account for the year ended 5 April 2020 is as follows:
|Motor expenses (note 1)||20,420|
|Professional fees (note 2)||6,675|
|Repairs and renewals (note 3)||22,000|
|Travelling and entertainment (note 4)||32,350|
|Wages and salaries (note 5)||23,000|
|Other expenses (note 6)||18,650|
Note 1 – Motor Expenses
Motor expenses consist of the total running costs for all vehicles including bakery delivery vehicles and Jemma’s own car, a Mercedes. She uses the car for business purposes and personal use. On average Jemma drives 25,000 miles per annum. 10,500 of these miles are for business purposes and 14,500 miles are incurred during personal use.
Note 2 – Professional Fees
The figure for professional fees consists of £2,675 for accountancy fees, £3,000 for business related allowable legal fees, and £1,000 for tax advice regarding Jemma’s personal investment portfolio.
Note 3 – Repairs and Renewals
The figure for repairs and renewals includes expenses of £8,000 for new ovens and £6,000 for various small repairs to numerous items.
Note 4 – Travelling and Entertainment
This represents travel and accommodation Jemma incurred whilst travelling for business purposes and personal holidays. The split is 75/25 business.
Note 5 – Wages and Salaries
This figure includes a salary paid to Jemma of £15,000 and a salary paid to Jemma’s daughter of £8,000. Both work in the business/personal.
Note 6 – Other Expenses
This includes £2,500 for Jemma’s annual leisure club memberships, £300 for a donation to a political party and a subscription of £225 for a trade journal.
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Note 7 – Use of Office
Jemma uses one of the seven rooms in her private house as an office for administration and office work. The total running costs of the house for the year ended 5 April 2020 were £10,000.
Note 8 – Private Telephone
Jemma uses her private telephone and broadband for business purposes. The total cost of the phone and broadband for the year was £850. The business use is 25%. The cost of the phone and broadband have not been included in the accounts.
Note 9 – Plant and Machinery
The tax written down values for capital allowance purposes at 6 April 2019 were as follows:
General Pool £10,000
Mercedes (emissions 158g/km) £21,500
Special Rate Pool £5,500
During the year, Jemma sold an item of equipment for £2,000, which originally cost £1,200. She also spent £10,500 on a new second hand truck for deliveries, which HMRC have agreed is 100% for business.
During the tax year 2019/20 Jemma received £5,500 rental income, bank interest of £4,760, interest on an ISA of £800 and dividends from shares of £7,200. These were the actual cash amounts received.
During the year, on 30 August 2019, Jemma also sold some shares realising a capital gain of £15,000. Jemma has capital losses brought forward from 2018/18 of £3,000.
- Calculate Jemma’s capital allowances for the year ended 5 April 2020 assuming she claims the maximum possible.
- Calculate Jemma’s tax adjusted trading profit for the year ended 5 April 2020, explaining any adjustments you make.
- Calculate Jemma’s income tax liability for the tax year 2019/20
- Calculate Jemma’s capital gains tax liability for the tax year 2019/20.
Total: 30 marks
Please note during 2019/20 section A can also be based on employment rather than self-employment.
- James is considering a new opportunity but is unsure whether he will be classified as an employee or self employed for tax purposes. Identify and explain the criteria which may be used to determine whether or not an individual is employed or self-employed. Your answer should identify key tests frequently used and examples of the differences. Your answer should reflect practical issues and commercial reality.
- Employees often receive bonuses and benefits in kind as part of their employment package.
- Briefly explain what a ‘benefit in kind’ is, which employees are assessed to tax on benefits in kind, and why benefits are subject to tax.
- Please briefly explain how and why the car benefits and living accommodation benefits are calculated.
- Martika has acquired a property she intends to start renting out to tenants. Martika understands she will need to pay tax on this rental income, but is unsure how to calculate it. Briefly explain how rental income is assessed to tax, including identification of which period the income will be taxed in, three examples of allowable expenses, and how and when the tax is notified and paid to HMRC.
- Keith is currently trading as a joiner and has been in business for several years. The business turnover is £76,000 and Keith is worried about reaching the VAT registration threshold and what this means for his business. Keith is confused when he must register for VAT and whether he needs to increase his sales price. The majority of his customers are domestic customers (individual persons) who are unable to reclaim any VAT costs.
Advise Keith whether he needs to register for VAT and outline the registration rules. Are there any legitimate legal alternatives to remain non-VAT registered?
- There are four classes of National Insurance, payable by different persons at differing rates. Advise who is liable to pay class 1 national insurance, the amounts payable, how payment may be made and detail any circumstances where a person within the class 1 category may obtain an exception or exemption from payment.
- Briefly outline CGT Entrepreneurs Relief. Your answer should identify the eligibility criteria and any benefit of the scheme.
Total: 40 marks
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Bikes R Fun Ltd manufactures mountain and road bicycles. They have one wholly owned UK resident subsidiary company who specialise in children’s’ bikes. The following information is available for Bikes R Fun Ltd in respect of the year ended 31 March 2020.
The adjusted trading profit for tax purposes is £125,000. This figure is after taking account of capital allowances.
Income from property
Bikes R Fun Ltd lets out three warehouses that are surplus to requirements. The first warehouse has been let since 1 April 2018 at a monthly rent of £2,500. The second warehouse was let from 1 April 2019 to 31 January 2020 at a monthly rent of £1,500. On that date the tenant left, owing 2 months’ rent which Bike R Fun Ltd were not able to recover.
Another tenant was not found until August 2020.
The third warehouse was let for the whole year at a rent of £1,200 per month.
Insurance costs for the warehouses totalled £6,200. Interest paid on loans secured on the warehouses totalled £5,500.
Loan interest received
Bikes R Fun Ltd received £3,500 of bank interest in the period.
During the year ended 31 March 2020, Bikes R Fun Ltd received dividends of £35,000 from shares in A.N.Other Co plc, an unconnected UK company. This figure was the actual cash amount received.
Profit on disposal of shares
On 31 January 2020, Bikes R Fun Ltd sold its shares in A.N.Other Co plc, for £180,000, the shares had an indexed cost of £65,000 at the date of the disposal. The unindexed cost was £45,000.
Other capital disposals
On 30 September 2019, Bikes R Fun Ltd sold a freehold factory for £450,000. The indexed cost of the factory at that date was £225,000. The unindexed cost was £90,000.
Losses brought forward
Bikes R Fun Ltd had capital losses brought forward of £30,000.
- Calculate Bikes R Fun Ltd’s net chargeable gains for the year.
- Calculate Bikes R Fun Ltd’s corporation tax liability for the year.
- When is Bikes R Fun Ltd required to pay its corporation tax liability and submit its
Corporation Tax return for this accounting period?
- Briefly explain the purpose of indexation allowance, how it is calculated and identify whether the indexed or unindexed cost should be used in calculations.
- Describe the main differences in how the trading profits are calculated for a limited company compared with an individual.
Total: 30 marks
Please note Section C may be all one scenario or spilt into two unconnected sections C1 and C2 each with their own sub-tasks
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