ACC307 ADVANCED TAXATION 1st SEMESTER 2020/21 Final Examination
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1stSEMESTER 2020/21 Final Examination
BA ACCOUNTING – Year 4
ACC307
ADVANCED TAXATION
TAX RATES AND ALLOWANCES
The following FA2019 tax rates and allowances are to be used for the 2020/21 Final exam.
Income Tax
Basic rate
Higher rate
Additional rate
£1 – £37,500
£37,501 – £150,000
£150,001 and over
Normal rates
%
20
40
45
Dividend rates
%
7.5
32.5
38.1
A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income
Personal Allowance
Personal Allowance
Transferable amount
Income limit before taper
￡
12,500
1,250
100,000
|
Residence status |
|
|
|
Days in UK |
Previously resident |
Not previously resident |
|
Less than 16 |
Automatically not resident |
Automatically not resident |
|
16 to 45 |
Resident if 4 UK ties (or more) |
Automatically not resident |
|
46 to 90 |
Resident if 3 UK ties (or more) |
Resident if 4 UK ties |
|
91 to 120 |
Resident if 2 UK ties (or more) |
Resident if 3 UK ties (or more) |
|
121 to 182 |
Resident if 1 UK tie (or more) |
Resident if 2 UK ties (or more) |
|
183 or more |
Automatically resident |
Automatically resident |
Remittance basis charge
UK resident for:
7 out of the last 9 years
12 out of the last 14 years
Charge
￡ 30,000
￡ 60,000
Car Benefit Percentage
The percentage rates applying to petrol cars with CO2 emissions are:
|
1-50 grams per kilometre 51 grams to 75 grams per kilometre 76 grams to 94 grams per kilometre 95 grams to 165 grams per kilometre 165 grams or more |
23% + 1% for |
every |
16% 19% 22% 5g/km in excess of 95g/km 37% |
Diesel fuelled vehicles: Add 4% up to a maximum of 37% for diesel cars that are not
certified to the Real Driving Emissions 2 (RDE2) standard. Add 0% for cars which are certified to the RDE2 standard.
Car Fuel
The base figure for calculating the car fuel benefit is £24, 100
Capital Allowances
Plant and machinery
Main pool
Special rate pool
Annual investment allowance
Rate of allowance
Expenditure limit
18%
6% (8% prior to 6 April 2019)
100%
£1,000,000 (£200,000 up to 31
December 2018)
Cap on income tax reliefs
Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income.
Corporation Tax
Rate of tax
19%
Capital Gains Tax
Individuals Annual Exemption Rate of tax
– lower rate
– higher rate
£12,000
10%
20%
Taxable gains on the disposal of residential property are taxed at 18% and 28%
Entrepreneurs’ relief
Investors’ relief
– lifetime limit
– Rate of tax
– lifetime limit
– Rate of tax
£10,000,000
10%
£10,000,000
10%
|
Value Added Tax |
|
|
Standard rate |
20% |
|
Reduced rate |
5% |
|
Registration limit |
£85,000 |
|
Deregistration limit |
£83,000 |
|
Rates of Interest |
|
|
Official rate of interest: |
2.5% |
|
Rate of interest on underpaid tax: |
3.25% |
|
Rate of interest on overpaid tax: |
0.5% |
|
National Insurance |
|
|
|
Class 1 Employee |
£1 - £8,632 £8,633 – £50,000 £50,000 and above |
0% 12% 2% |
|
Class 1 Employer |
£1 - £8,632 £8,633 and above Employment allowance |
0% 13.8% £3,000 |
|
Class 1A |
|
13.8% |
|
Class 2 |
£3 per week |
|
|
|
Small earnings exemption limit |
£6,365 |
|
Class 4 |
£1 - £8,632 per year £8,633 – £50,000 per year £50,000 and above per year |
0% 9% 2% |
QUESTION 1
Nathan has sold some of his shares in two companies Stand Up Ltd (SUL) and Turn Around Ltd (TAL) on 31 March 2020. Both companies are trading companies and both companies’ shares are ordinary shares with each share having equal voting rights and rights distributable profits and assets. Nathan became an employee of Turn Around Ltd on 1 January 2018. He is a higher rate taxpayer.
Nathan subscribed for 200 SUL shares (a 2% holding) on 1 March 2017 for £50 per share and he sold the entire holding for £130 per share.
Nathan subscribed for 300 TAL shares (a 6% holding) on 1 December 2017 for £10 per share and he sold 200 shares for £360 per share.
Nathan also made an unsecured loan to a UK trader in 2010 to buy some machinery for £50,000 but on 5 March 2020 determined this sum would not be recovered.
Nathan knows about income tax reliefs under the EIS and SEIS schemes and has heard that there might also be capital gains tax benefits. He has asked you to explain the capital gains tax benefits of these schemes.
Requirements
a) Calculate the capital gains tax on the disposals of the shares in March 2020, clearly showing any beneficial reliefs and exemptions claimed and explain why any such reliefs are available.
b) Calculate the base cost of remaining TAL shares.
c) Advise Nathan of the capital gains tax benefits of EIS and SEIS investment and any potential relief in his situation as well as the relevant time limits.
Total: 20 marks
QUESTION 2
Hull Ltd is a trading company, resident in the UK. It started to trade on 1 June 2017 and has no related companies. The company’s results for the first three years are as follows.
Year ended 31 May
2018 2019 2020
£ £ £
Trading profit/(loss) (as adjusted for taxation) 270,000 5,200,000 (500,000)
Non-trade loan credit/(debit) - 100,000 (270,000)
Chargeable gains/(allowable loss) 60,000 (50,000) 750,000
Property income/(loss) (5,600,000) 50,000 75,000
Qualifying charitable donation 13,500 10,000 15,000
Requirements
a) Calculate the corporation tax liabilities for the three years after claiming maximum loss relief at the earliest possible times. Comment on the effectiveness of the reliefs.
b) State the amount of any losses remaining (if any) to be carried forward at 31 May 2020.
Total: 25 marks
QUESTION 3
George has been in business for many years preparing accounts to 5 April each year. George has had the following results in recent years:
2017/18 60,000
2018/19 (15,000)
2019/20 24,000
2020/21 (expected) (79,000)
George has not yet made a claim for the 2018/19 loss. George receives £5,000 salary each year. In addition to this, he received £180,000 in dividends from Z Plc in 2019/20. He contributes £800 net to a personal pension each year. George has made no payments to charity.
In 2019/20 George had capital gains of £20,000 from disposing his shares in Z Plc.
George is considering ceasing to trade at the end of 2020/21 as he has had very low income.
Requirements
a) Explain the loss relief available to George for the two losses assuming he continues to trade making sure to comment on any time limits that may apply to the relief available and the order claims should be made, where necessary.
b) Assuming he ceases trading on 5 April 2021, explain what additional relief(s) would be available to George.
Total: 15 marks
QUESTION 4
John and Kerry have traded as a partnership, Joker LLP, for many years. Each contributed capital of £40,000 to the partnership. Their partnership agreement states that John and Kerry are entitled to a salary of £20,000 and £30,000 respectively. Remaining profits and losses were to be shared 40:60.
They both work full time in the partnership and have investment income of £80,000 each per annum.
In the year to 5 April 2020, the partnership made a tax-adjusted trading loss of £75,000. They expect the partnership will be profitable in future.
John has told you that the partnership may be paying £300,000 for the construction of a new factory to carry out its trade in 2021. The factory will be in an industrial park and half the cost relates to buying the land. He would like to know what relief may be available in relation to this.
Requirement
a) Calculate the losses available to each partner and explain the loss relief options for John and Kerry.
b) Write notes that explain what relief is available on the new factory.
Total: 20 marks
QUESTION 5
The ordinary share capital ofA Ltd which is a trading company is owned by B Ltd (50%), C Ltd (10%), D Ltd (30%), E Ltd (4%) and N Ltd (6%). N Ltd has no trading activities in the UK and is not resident in the UK. All the other companies are UK resident and prepare accounts to 31 December.
Results in the year to 31 December 2019 were as follows:
A Ltd B Ltd C Ltd D Ltd E Ltd N Ltd
£ £ £ £ £ £
Trading profit/(loss) (280,000) 159,000 25,000 100,000 40,000 5,000
Property income (20,000) - - 10,000 - -
Non-Trade Loan 8,000 - - - - -
relationships
Requirement
Explain the group structure of the above companies for corporation tax purposes and calculate the maximum possible loss that each company may use in 2019 and any remaining unused losses.
Total: 10 marks
QUESTION 6
Your client Delta Plc, a UK company, is setting up a new overseas subsidiary operating its trade outside the UK. It will be controlled in the UK.
The new subsidiary is likely to have about £60 million annual revenue and a £5 million profit per year. It will be located in a jurisdiction with a 5% tax rate and that jurisdiction has not signed any tax treaty agreements excluding it from anti-avoidance rules.
The shareholding and contractual arrangements may vary from year to year but between 20% and 30% of the profits of the subsidiary will be attributable to Delta Plc.
Required
Explain, giving reasons, whether Delta plc would be subject to a Controlled Foreign Company charge in relation to the overseas subsidiary.
Total: 10 marks
2023-01-13