TAX RATES AND ALLOWANCES

The following FA2020 tax rates and allowances are to be used for the 2021/22 Final exam.

A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income

Remittance basis charge

UK resident for: Charge

7 out of the last 9 years £30,000

12 out of the last 14 years £60,000

Car Benefit Percentage

The percentage rates applying to petrol cars with CO2 emissions (under WLTP) are:

0g/km 0%

1 - 50 grams per kilometre    (electric mileage over 130) 0%

1 - 50 grams per kilometre    (electric mileage 70-129) 3%

1 - 50 grams per kilometre    (electric mileage 40-69) 6%

1 - 50 grams per kilometre    (electric mileage 30-39) 10%

1 - 50 grams per kilometre    (electric mileage up to 30) 12%

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 that are certified to the RDE2 standard.

Pre 6 April 2020 cars that have an NEDC CO2 emissions figure have a

corresponding % above is 2% higher (subject to 37% cap).

Car Fuel

The base figure for calculating the car fuel benefit is £24,500

Plant and machinery

Main pool

Special rate pool

Annual investment allowance

Rate of allowance

Expenditure limit

18%

6%

100%

£1,000,000 (£200,000 from 1 January 2021)

Cap on income tax reliefs

Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income.

Rate of tax

Capital Gains Tax

Individuals

Annual Exemption Rate of tax

– lower rate

– higher rate

19%

£12,300

10%

20%

Taxable gains on the disposal of residential property are taxed at 18% and 28%

Business asset Disposal relief Investors’ relief

Value Added Tax

Standard rate

Reduced rate

Registration limit

Deregistration limit

– lifetime limit

– rate of tax

– lifetime limit

– rate of tax

£1,000,000

10%

£10,000,000

10%

20%

5%

£85,000

£83,000

Rates of Interest

Official rate of interest:

Rate of interest on underpaid tax:

Rate of interest on overpaid tax:

2.5%

3.25%

0.5%

QUESTION 1

Ronald and Graham formed a partnership on 6 April 2020. Ronald contributed capital of £250,000 to the partnership. They agreed that Ronald should receive 3% interest on capital per annum. The remaining profits and losses are to be shared 40:60 to Ronald  and Graham. They are both actively engaged in the partnership business.

Ronald had employment income of £150,000 in previous years but will only have    income from the partnership from 2020/21 onwards. Graham has savings income of £20,000 per annum.

In the year to 5 April 2021, the partnership made a trading loss of £180,000.

Requirement

Explain the loss relief(s) available to Ronald and Graham. Total: 10 marks

QUESTION 2

Your client, Olivia, has supplied the following information about her capital assets to you:

On 1 May 2020, a rental apartment she owned needed to be demolished due to structural problems. Olivia received compensation from her insurance of £260,000 in June 2020 and she spent £240,000 on a replacement property nearby.  She had bought the old apartment in 2017 for £190,000.

On 2 August 2020, she sold 1000 shares of One Ltd for £9,000 in total (a 10% holding). She is not an officer or employee of this company. She had previously purchased 2000 shares in this company for £2 each in 2010 and then received shares under a 1:2 bonus issue on 1 April 2020. She made a further purchase of 100 shares ofOne Ltd on 15 August 2020 at £7 per share.

On 3 October 2020, Olivia subscribed for £10,000 of EIS shares in F Ltd.

Olivia would like to ensure her tax is as low as possible so she has asked you to explain the options available to her.

Requirements

(a) Calculate Olivia’s taxable gains in 2020/21 without any claims for relief, and

explain which reliefs are available and how these should be claimed

(b) State the base cost for Olivia’s remaining One Ltd shares and new property after

any relief claims.

(c) If Olivia were to become an employee of One Ltd, explain under what circumstances there may be further capital gains tax relief available.

Total: 20 marks

QUESTION 3

Benbrook Ltd is a trading company resident outside the UK providing digital shopping services. It started to trade on 1 October 2017 and has no related companies. It has a UK based permanent establishment (PE) through which there are some UK trading activities.

The company’s worldwide trading revenue has been £400 million each year, of which £80 million was derived from the UK trading activity.

The company’s UK results for the first three years are as follows (figures in millions):

Year ended 30 September

In the year ended 30 September 2021 Benbrook Ltd expanded the non-UK business by purchasing a new company. The group’s total revenue has increased to £550 million and it qualifies as a large group. There is no suggestion that any non-UK trading lacks economic substance. The UK revenue and profits that year are the same as in the previous

year.

Requirements

a)    Calculate the corporation tax liabilities for the three years after claiming maximum loss relief at the earliest possible times in the UK, explaining any restrictions that may apply to the timing or amount of these reliefs.

b)   State the dates that tax was due to be paid for each year for the tax liabilities in part a).

c)   Discuss whether either the Diverted Profit Tax or Digital Sales Tax would apply and if so, the amount of additional tax that would be due.

Total: 25 marks

Requirements

You are required to prepare briefing notes for your tax partner setting out the main consequences of each choice for both Shelley and the company. Advise Shelley which will be the most tax-efficient structure in the early years of the business.

Your answer should include details of the different ways she may extract money from the business if she forms a company and should briefly state the major obligations for a new business concerning VAT. Personal pension matters can be ignored.

Assume that 2020/21 rates and allowances apply in the future.

(Total 35 marks)