Reference no: EM132877673
UGB225 Business Taxation - University of Sunderland
PART A
Question1-Henry Goldmind
Henry commenced trading as a takeaway business on 1 July 2009 including a delivery service and prepared his first set of Accounts to 30April 2010 with a profit of £52,540. His adjusted profits for the subsequent years were as follows:
Year Ended 30/04/2011 £65,436
Year Ended 30/04/2012 £63,216
Period from 01/05/2012 to 31/01/2013 £52,749
Year Ended 31/01/2014 £69,192
Period 01/02/2014 to 31/03/2015 £82,516
Year Ended 31/03/2016 £75,012
YearEnded31/03/2017 ' £75,096
Year ended 31/03/2018 £(97,716)
Year ended 31/03/2019 £(31,860)
Year ended 31/03/2020 £77,496
Henry Goldmind's Accounts-
1) Henry prepared accounts for the Year Ended 31/03/2021, the income statement is as follows:
Note £ £
Revenue 2 178,146
Expenses:
Advertising and Gifts 3 3,450
Purchases 4 56,000
Professional Expenses 5 3,500
Property Expenses 6 9,000
Travel Expenses 7 6,800
Wages and Employee Pension 8 9,000
Depreciation 9 12,000 99,750
Net Profit 78,396
2) Revenue includes £3,196 received during November 2020 in respect of an impairment loss that Henry had written off when calculating his trading profit for the year ended 31March 2016.
3) Henry did a presentation about his services and issued out promotional material. He provided a buffet and a drinks reception. The cost to hire the venue was £1000 and £450 to provide the buffet and drinks reception on arrival. The cost for social media advertising this presentation was £1250 and Henry donated £750 to the "Feed The World Campaign" in Africa for having a successful presentation. The remaining £1000 was to put up a new sign above the shop door bought on 1 March 2021.
4) £2000 included the purchases had not been paid for and were in Trade Creditors in the Balance Sheet of the Accounts. They were paid for on 7 April 2021.The purchases contained a new Deep Fat Fryer equipment of £5,540 bought on 1 October 2020 and a New Patent Cost of £4000 obtained on 1 June 2020.
5) The figure of £3,500 for professional fees is in respect of
- Accountancy services -
- Inheritance tax planning advice £ 800
- Business advise £ 200
- Preparation of the Accounts £1300
- Legal fees -
- Health and Safety penalty appeal, which Henry won £1200
6) Henry lives in an apartment that is situated above the shop, and one-thirdof the total heat and light bill of £1200 related to the apartment, and the remaining property expenses relate to the takeaway shop.
7) The travel expenses includes £3600 related to a Rental Lease car for the business chef employee which has a CO2 emissions of £123g/km, a Speeding fine for £200 incurred byHenryand he used £3000 of the fuel for his car only.
8) The employee was paid £8000 and included in this figure was Drawings for Henry as wages of £1,000.
9) During the year the company had Capital Allowances written down value brought forward of Main Pool £20800 and Special Rate Pool containing a dieselmotor car only, of CO2 emissions of 125g/km with a value of £26,000.
On 31 March 2021 Henry brought a Van for £10,000, and a "Computer and iPad"package for £1,400 with an expected life is 3 Years. Henrywants to make the relevant elections.He sold a Pizza oven on 1 November 2020 for £3000 which he bought for £2800 on 6 March 2018 where all capital allowances were claimed
Henry used the car privately 35% of the time.
RENTAL PROPERTY
10) Henry had a property he rented and received 13 months payments of £1000. One of the payments received related to the 31 March 2020 but was received late.The payment of rent due on 31 March 2021 should have been for £1500 but was underpaid.
He also had the following expenses related to the property-
A Management and Ground Fee £3,000
B House insurance £300
C New Garage added to the property £6,000
D Mortgage Interest £4,000
E Repairs £500
11) Henry also rented out a room in his house to a student for £8000 during the tax year and made the appropriate election.
OTHER INCOME AND PAYMENTS
12) Henry will be paid a salary with a gross remuneration of £40,000 by his employer during the tax year 2020/21. His employer deducts PAYE at a flat rate of 20% from all Henry's earnings.
13) His employer pays for medical insurance for Henry of £2000 per year.
14) During the tax year 2020/21Henry will receive dividends of £10,000, Lloyds bank interest received of £400 nett and interest of £2,115 from government stocks (GILTS). These are the actual cash amounts that will be received.
15) On 5 February 2021Henry made a gross gift aid donation of £6,000.
16) Henry contributed £12,000 gross into a private pension.
17) Henry is in a civil partnership with Brian and would like to make the relevant elections as Brian only earned £5000 in the tax year 2020/21.
Required :-
a) Calculate the Taxable profits for the tax years 2009/10 to 2019/20, including overlap profits.
b) Assuming Henry had employment income of £40,000 for the tax years 15/16 to 19/20, illustrate how the losses, figures in brackets, are allocated explaining the rules used where appropriate.
c) Calculate Henry's tax adjusted trading profit for the year ended 31 March 2021.
Note: Your computation should commence with the net profit figure of £78,396, and you should also list all of the items referred to in notes (2) to (9) indicating by the use of zero (0) any items that do not require adjustment
d) Calculate the Henry's Rental Profit for the year ended 5 April 2021, notes 10 and 11.
e) Calculate the income tax payable by Henry's for the tax year 2020/21 and Henry's National Insurance payment for the year ended 5 April 2021, and how much National Insurance his employer would pay in the same tax year assuming all their employer allowance is used.
f) Discuss if Henry's business affected by IR35 and discuss the criteria to evidence your reasoning.
g) If Henry Goldmind Incorporated his sole trader to a Limited Company on 1 April 2020 to Henry Goldmind Limited, calculate and discuss the adjustments using Note 2 to 10 and how they would be different for Corporation Tax compared to Self Employed Income Tax and how much the company Corporation Tax would be payable.
Note: Your computation should commence with the net profit figure of £78,396, and you should also list all of the items referred to in notes (2) to (10) indicating by the use of zero (0) any items that do not require adjustment
PART B
Question 2-Miranda
Miranda started trading on 10 April 2020 as a convenient store owner. Her sales revenue has been as follows:
Standard Rate Zero rated Exempt
£ £ £
2020 April 14,200 3,500 6,700
May 19,500 3,300 6,000
June 21,650 6,400 7,600
July 10,700 1,650 1,050
August 11,200 2,350 1,630
September 12,700 3,200 2,450
October 15,300 1,800 1,370
November 13,300 3,405 3,450
December 10,500 3,175 4,300
Miranda incurred the following transactions in the Quarter ended 31 March 2021-
Unless otherwise stated, all the belowexpense figures are inclusive of VAT where applicable.
- Newspapers and magazines £ 6,200
- Coca Cola and Pepsi Drinks £ 1,400
- Water £ 120
- Rent £ 2,000
- Heat and light £ 3,600
- Insurance £ 900
- Postage Stamps £ 150
- Window Repairs £ 230
Notes :
Miranda used the normal standard VAT scheme.
Required :-
a) Explain from what date Miranda's business was required to be registered for VAT, showing all workings.
b) Discuss the VAT Treatment of each of the expenses in the quarter ended 31 March 2021
c) Miranda has chosen to use the Normal Standard Scheme for VAT purposes, discuss what advantages and disadvantages of the following other VAT schemes in comparison to the Normal Standard Scheme-
- Cash Accounting Scheme
- Annual Accounting Scheme
- Flat Rate VAT Scheme
d) Name four pieces of information should be contained on the Tax Invoice for VAT Purposes and why do you think it is included.
Question 3 - The Black Pearl Limited
Jack was the Director and was employed by his Limited Company The Black Pearl Limited. His salary was £75,000 a year and the company paid for his motor car. He is concerned of the environment and therefore obtain a Jaguar F Pace hybrid, which has CO2 emission of 56g/km. The car has a list price of £60,000, but his friend is a Jaguar dealer and therefore received mates rates and received the car for £55,000. He wanted some accessories and they cost £2000. The company paid for the fuel used by Jack. Jack contributed £6,000 to the cost of the car and £500 to the cost of the fuel.
Jack received £100 in two payments from the company and the company provided him with a loan for £6,000 in the tax year. Jack was loaned by the company, some fine art pictures for his house of £10,000 for half of the tax year.
The company put £6000 into Jack's pension scheme and Jack did a gift aid of £3,000 to NHS charities. Jack had a small sole trader business where he built ships in bottles and made sales of £900 and the costs of the models and paint were £400.
The Black Pearl Limited profits fluctuate between big profits in one year and a few years of losses and then another big profit.
Required :-
a) Calculate Jack's taxable employment income and tax liability for the year ended 5 April 2021.
b) Jolly Roger Limited was looking to form a company group structure with The Black Pearl Limited, but they were not sure if to invest and purchase 55% or 80% of the Black Pearl Limited share capital.
Discuss the benefits and options of the two share purchases for tax purposes by the Jolly Roger Limited
Question 3 - Susanna
Suzanna had employment income during the tax year of £24,000 and tax was deducted at source of £3,000 for the tax year ended 5 April 2021.
During the tax year 2020/21, Matthew incurred the following transactions:-
In July 2020Susannasells an antique makeup bureau for £7,150. She incurs incidental costs of disposal amounting to £835. The Makeup Bureau originally cost £3,000 in May 2009.
Susanna purchased a flat in March 2005 for £102,000 and lived there as her main residence for 2 years before she bought a new home with her partner. She had estimated the value of the property in March 2007 to be £120,000. She then rented this property to her friend at reduced rent of £6000 per year from April 2007 and in 2012 she repainted the flat for £2400 and in 2018 she replaced a couple of the double glazing windows as they started to leak for £3,000. On 9 April 2020 Susanna sold the property for £150,000 paying legal fees of £2,000 which she thought was excessive as only paid legal fees of £450 on purchase.
Susanna bought a chargeable asset in June 2009 for £340,000, paying acquisition costs of £20000. In May 2020she sold one quarter interest in the asset for £150,000, incurring disposal costs of £8,000. The remaining three quarter interest in the asset was valued at £600,000 in May 2020. The remaining chargeable asset was sold in June 2021 for £675,000 incurring 5% legal fees.
Susanna had Capital Gains losses brought forward from the previous year of £14,000.
Required :-
a) Calculate Susanna's Capital Gains taxation liability payable for the tax year ended 5 April 2021.
b) Advice Susanna the difference between a Damaged and DestroyedBusiness Asset and Replacing the Business Assets
c) Susanna has continually bought shares since 1979 and does not understand the tax implications of selling these shares. In recent years some of the shares have had bonus and rights issues but she is not clear on what they are. Could you advise her of the rules regarding the sale of shares and the implications bonus and rights shares may have had on her portfolio.
Question 5 - Deborah
Today is 6 June 2020.
Deborah, aged 98, was born and bred in Tyne and Wear and had unfortunately been informed by the doctors she has just a few months left to live. Her husband, Arnold, passed away on 7August 2006 leaving 40% of his inheritance tax nil rate tax band not used.
The Nil Rate tax band in 2006/07 was £300,000 for Inheritance Tax
On September 2015, Deborah had given her daughter-in-lawMonika a gift under a PET of £60,000. Her son Edward also received a PET of £90,000, but his money was split into two payments, the first payment of £50,000 being on 12 May 2008 and the second payment of £40,000 on 14January 2017.
Deborah owned the following assets:
- A property valued for £700,000, which had an outstanding repayment mortgage of £150,000.
- Margaret owned a holiday home in France valued at £170,000 which was fully paid for.
- She had a paint which she donated to the local museum worth £50,000
- She has investments in and a new individual savings account (NISAs) valued at £12,000.
- She gave her friend Joan £250 each year for the last 3 years but Deborah agreed to pay any taxes on this money as her friend was struggling financially.
Deborah had planned all her funeral, and the cost was £9,000.
For the tax year 2020/21,Deborah was a higher rate tax payer.
Required :-
a) Advise Deborah as to how much nil rate band will be available when calculating the inheritance tax payable in respect to his estate, were she to die on 15 March 2021.
b) Calculate the inheritance tax liability that would be payable in respect to Margaret's estate, were she to die on 15 March 2021.
c) Monika is not Domicile in the UK but has now just received UK residency. Advice Monika what that means and what implications it has on all the types of relevant incomes sources and taxation liabilities.
d) Monika's dad Hubert has a Company in Singapore, however he has asked Monika to run the company for him whilst she is in the UK. The Corporation Tax rate in Singapore is 15%. Advice Monika on the tax implications of her running the company in the UK.