INCOME TAX
Normal Rates Dividend Rates
Basic Rate £1 – £37,500 20% 7.5%
Higher Rate £37,501 – £150,000 40% 32.5%
Additional Rate £150,001 and over 45% 38.1%
Savings income nil rate band – Basic rate taxpayers £1,000 – Higher rate taxpayers £500
Dividend nil rate band £2,000
A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income.
Personal Allowances
Personal allowance £12,500
Transferable Amount £1,250
Income Limit £100,000
Where adjusted net income is £125,000 or more, the personal allowance is reduced to zero.
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
Child benefit income tax charge
Where income is between £50000 and £60,000 the charge is 1% of the amount of child benefit received for every £100 of income received over £50,000.
Car benefit percentage
The relevant base level of CO2 emissions is 95 grams per kilometre. The percentage rates applying to petrol cars (and diesel cars meeting the RDE2 standard) with CO2 emissions up to this level are:
50 grams per kilometre or less 16%
51 to 75 grams per kilometre 19%
76 to 94 grams per kilometre 22%
95 grams per kilometre 23%
Diesel cars which do not meet the RDE2 standard + 4%
All petrol and diesel rates capped at 37%
Car fuel benefit
The base figure for calculating the car fuel benefit is £24,100
Company Vans (with private use)
Annual Scale Charge £3,430
Private fuel benefit £655
Individual Savings Accounts (ISAs)
The overall investment limit is £20,000
Property Income
Basic rate restriction applies to 75% of finance costs for residential properties
Capital element of Premium (P) on short lease of N years = 2% x (N-1) x P
Pension Scheme Limits
Annual allowance £40,000
Minimum allowance £10,000
Income limit £150,000
The maximum contribution that can qualify for tax relief without any earnings is £3,600
Authorised mileage allowance: cars
Up to 10,000 miles 45p
Over 10,000 miles 25p
Capital allowances: rates of allowances
Plant and machinery
Main pool 18%
Special rate pool 6%
Motor cars
New cars with CO2 emissions up to 50 grams per kilometre 100%
CO2 emissions between 51 and 110 grams per kilometre 18%
CO2 emissions over 110 grams per kilometre 6%
Annual investment allowance
Rate of allowance 100%
Expenditure limit £1,000,000
Cash Basis
Revenue Limit £150,000
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 Financial year 2019 19%
Financial year 2018 19%
Financial year 2017 19%
Profit Threshold £1,500,000
VALUE ADDED TAX (VAT)
Standard rate 20%
Registration limit £85,000
Deregistration limit £83,000
CAPITAL GAINS TAX
Normal Rates Residential Property
Lower rate 10% 18%
Higher rate 20% 28%
Annual exempt amount £12,000
Entrepreneur’s relief – Lifetime limit £10,000,000
– Rate of tax 10%
NATIONAL INSURANCE CONTRIBUTIONS
Class 1 Employee £1 – £8,632 per year Nil
£8,633 – £50,000 per year 12%
£50,001 and above per year 2%
Class 1 Employer £1 – £8,632 per year Nil
£8,633 and above per year 13.8%
Employment Allowance £3,000
Class 1A 13.8%
Class 2 £3.00 per week
Small profits threshold £6,365
Class 4 £1 – £8,632 per year Nil
£8,633 – £50,000 9%
£50,001 and above per year 2%
RATES OF INTEREST (assumed)
Official rate of interest 2.5%
Rate of interest on underpaid tax 3.25%
Rate of interest on overpaid tax 0.5%
STANDARD PENALTIES FOR ERRORS
Taxpayer Maximum Minimum Penalty- Minimum Penalty-
Behaviour Penalty Unprompted disclosure Prompted disclosure
Deliberate 100% 30% 50%
& concealed
Deliberate but 70% 20% 35%
not concealed
Careless 30% 0% 15%
SECTION A
You should answer ALL 15 questions in SECTION A.
Each question in section A is worth 2 marks.
Question 1
Briefly describe the difference between: Tax Evasion, Tax Avoidance & Tax Planning
Question 2
On 1st October 2019 Rachael is provided with a new company car with a list price of £21,500 and emissions of 119 g/Km. Rachael purchases £10,000 of petrol on her company credit card and makes no reimbursement for the cost of the petrol used for her private mileage.
What is the value of Rachael’s total taxable benefit for the car and fuel in 2019/20 ?
Question 3
Thomas is employed and in the tax year 2019/20 he earned a basic salary of £30,000 plus bonuses of £3,000.
He receives the following employment benefits :-
Free health insurance at a cost of £2,000 per annum to his employer. The same health insurance would have cost Thomas £2,500 if he had paid for it himself.
A smart phone with all private use paid for. The phone and business calls cost his employer £500 in the year , whilst the private calls cost his employer an additional £200.
Free car parking at a commercial carpark near to his place of employment which costs his employer £500 per annum.
Attendance at the Staff Summer Ball which cost the employer £200 per person.
What is Thomas’s total employment income for 2019/20 ?
Question 4
Elaine rents out a commercial building she owns to a tenant on a 21 year lease starting on 1st October 2019. The annual rent is £12,000 and the tenant is required to pay for the first year’s rent (relating to the period from 1st October 2019 to 30th September 2020) in advance on 1st October 2019. The tenant is also required to pay a premium of £45,000 on 1st October 2019. How much property income is assessable on Elaine in 2019/20 ?
Question 5
In the tax year 2019/20 Roxanne received total salary of £50,000 and taxable benefits worth £10,000.
What was the total amount of National Insurance suffered by Roxanne’s employer in relation to Roxanne ?
(You should ignore the NIC Employment Allowance)
Question 6
A car dealer removes a vehicle from his sole trader business for his own personal use. The car had cost the business £8,000 (which had been recorded in the accounts of the business) and had an anticipated final selling price of £12,000. Assuming no other transactions had been made as yet, what adjustments (if any) would need to be made to the individual’s accounts to ensure the correct tax treatment?
Question 7
Morris has been self-employed for all of the tax year 2019/20. His assessable trading profit for the year was £65,000. He has no other income.
What is the total amount of amount of National Insurance Contributions that Morris is required to pay in respect of this tax year ?
Question 8
Julie started trading on 1st December 2018 and prepared her first accounts for the 18 month period ending 31st May 2020, which showed a tax adjusted trading profit of £90,000. What is the trading profit assessable on Julie for the tax year 2019/20?
Question 9
David commenced employment as a salesman on 6/4/18 and was immediately supplied with a business suit worth £600 by his employer.
One year later on the 6/4/19 he purchases the suit from his employer for £100 (its market value then being £150).
What corresponding taxable benefit will David be assessed on in 2019/20?
Question 10
During all of 2019/20 Fiona is employed on an annual salary of £70,000 but 10% of this is paid into Fiona’s occupational pension as an employee contribution. In addition her employer makes £9,500 contributions per annum into Fiona’s occupational pension.
Fiona has also set up a personal pension and during 2019/20 has made standing order payments from her bank account totalling £800 into this. Fiona has no other income during the tax year.
What is Fiona’s Income Tax liability for 2019/20?
Question 11
Ivy Chan commenced trading as a self-employed translator on 1st January 2018. She had tax adjusted trading profits as follows:-
Period Ending 30th June 2018 £12,000
Year Ending 30th June 2019 £36,000
What will be Ivy’s total resulting overlap profits?
Question 12
Ronnie receives a salary of £60,000 per annum. His employer operates an occupational pension scheme and deducts £6,000 from Ronnie’s salary (as an employee contribution) and makes an additional employer contribution of £8,000 into this pension scheme.
Ronnie has no other income. What will Ronnie’s tax liability be in 2019/20?
Question 13
In 2019/20 Jennifer earns a salary of £60,000 and has no taxable benefits or other income.
She sets up a personal pension scheme on the 6th April 2019 paying £200 out of her bank account each month (£2,400 in total in 2019/20).
What is the total amount of Income Tax & Class 1 (employee) NIC Jennifer will pay for 2019/20?
Question 14
Beta Ltd is 100% owned by Alpha Ltd.
In its accounting period year-ending 31st December 2019 Beta makes a trading loss of £120,000.
In its accounting period year-ending 30th September 2019 Alpha Ltd has total taxable profits of £96,000.
What is the maximum amount of Beta’s loss that can be group-relieved against Alpha’s total taxable profit ?
Question 15
Anthony acquired shares in Simplex Ltd as follows :-
1st July 2001 1,000 shares for £2,000
11th April 2002 2,500 shares for £7,500
17th July 2019 400 shares for £1,680
10th August 2019 500 shares for £2,000
Anthony sold 4,000 shares for £16,400 on 17th July 2019
Calculate Anthony’s net gain on the sale of these shares.
SECTION B
You should answer all 5 questions in SECTION B.
Each question in section B is worth 2 marks.
The following information relates to Question 16 – 20
Claire was employed for many years as a highly paid website designer by a large company. She had been a higher rate taxpayer for many years (typically earning £70,000 to £80,000 per annum, including bonuses). She resigned her employment at the end of March 2017.
During the tax years 2017/18 and 2018/19 she travelled extensively and had no income apart than the rent from a buy-to-let property she owns (see below).
She commenced trading as a freelance website designer on 1st June 2019 and decided to adopt a 31st March period-end as she was (correctly) advised that this would prevent the occurrence of overlap profits.
In order to finance her new business she sold her portfolio of shares on 15th May 2019 which gave rise to a capital gain £30,000. She had no other capital disposals and no brought-forward capital losses.
In her first 10 months of trading (1/6/19 to 31/3/20) Claire made a tax adjusted trading loss of £20,000 and had no other income apart from the rent on her buy to let property.
She anticipates her website design business making a tax adjusted trading profit of £22,000 in 2020/21 (for the year ending 31st March 2021)
Throughout all of this time Claire also had property business income of £9,000 from the buy-to-let property she owns. This property income will continue into 2020/21
You may assume that all 2019/20 rates and allowances are applicable to earlier and later tax years.
Question 16
What would Claire’s 2020/21 tax saving be, if the initial £20,000 trading loss is carried forward in its entirety to 2020/21?
Question 17
What would Claire’s 2019/20 tax saving be, if she elects to relieve the initial £20,000 trading loss against her total income in 2019/20, and additionally also elects to relieve any remaining trading loss against her 2019/20 capital gain ?
Question 18
What would Claire’s 2018/19 tax saving be, if she elects to relieve the initial £20,000 trading loss against her total income in 2018/19?
Question 19
What would Claire’s 2016/17 tax saving be, if she elects to claim Opening Year Relief for the initial £20,000 trading loss she suffered in 2019/20 when she first started trading?
Question 20
What loss relief options(s) would the most beneficial for Claire for relieving the initial £20,000 trading loss suffered in 2019/20?
SECTION C
You should answer all 5 questions in SECTION C
Question 21
Annabelle rented a high street shop premises and opened a retail store. She commenced trading (on a sole trader basis) on 1st May 2019. She employed two part-time members of staff and her first set of draft accounts were as follows:-
Draft Accounts for Year Ending 30th April 2020
Sales £84,000
Less cost of sales (£20,800)
Gross Profit £63,200
Less expenditure
Staff wages £15,200
Class 1 secondary NIC (see note 1) £800
Business Premises Costs £5,050
Shop telephone £800
Customer entertaining (see note 2) £400
Staff gifts (see note 3) £80
Van expenses £300
Depreciation £2,800
(£25,430)
Net Profit £37,770
Notes
(1) The Class 1 secondary NIC is the employer’s NIC paid by Annabelle in relation to the part-time members of staff.
(2) The £400 customer entertainment figure includes £300 spent on buying her top ten customers the gift of a pen engraved with the name of her shop at a cost of £30 per customer. The remaining £100 was spent on a bottle of wine for each of her top ten customers (£10 per customer).
(3) Staff gifts: In December 2019 Annabelle buys her two part-time staff a Christmas turkey each at a total cost of £80
(4) In December 2019 Annabelle takes various toys from the shop’s inventory as presents for her nieces and nephews and makes no payment to the business for them. The toys have a total normal selling price of £200.
(5) In the first year of trading Annabelle incurs costs of £200 on her mobile phone of which 60% relates to her business. This figure is not included in the draft accounts.
(6) Annabelle often uses the spare room in her home for about 1 hour per day to undertake administration relating to her business. Her accountant correctly advises her that she can make a £10 per week ‘flat rate’ deduction for this level of usage. This figure is not included in the draft accounts.
(7) In her first year’s trading Annabelle made the following capital purchases:-
Delivery van with CO2 emission of 160g/Km £12,000
Shop display units £8,000
(9) In the tax year 2019/20 Annabelle also received the following sums:-
£500 of interest from an ISA
£2,000 of bank interest
£4,000 of dividends from various shares she owns
Requirements:-
Calculate the maximum capital allowances that Annabelle can claim for her accounting period year ending 30th April 2020 (2 marks)
Calculate Annabelle’s tax adjusted trading profit. Your workings should commence with the draft profit figure of £37,770 and give a brief explanations of your tax treatment of all items. Any items which do not require adjustment should be included but marked with a “0” adjustment. (7 marks)
Using the tax adjusted trading profit calculated above, the opening year rules, and details of Annabelle’s other income given in note (9), calculate Annabelle’s income tax liability for the 2019/20 tax year. The Income Tax computation should be presented in a three column format. (6 marks)
(Total 15 marks)
Question 22
Advanced Engineering Ltd are a Sheffield based engineering company specialising in the manufacture of precision stainless steel components for the automotive industry. In the year ending 31st March 2020 the company made a trading profit of £420,000.
This figure is adjusted for tax in all respects apart from capital allowances which now need to be computed and deducted to produce a final tax adjusted trading profit figure.
Capital Allowance Computation for year ending 31st March 2020
On the 1st April 2019 the tax written down values of the various capital allowance pools were as follows:-
Main Pool £75,000
Special Rate Pool £10,000
Short Life Asset Pool £6,724
The special rate pool only contains one single asset which is the Managing Director high emission car which he uses 40% for business.
The short life asset pool also only contains one single asset which is a piece of manufacturing equipment purchased two years ago for £10,000 as a short-term measure. During the year this is sold for the sum of £5,000.
Several other assets from within the main pool are also sold during the year for total disposal proceeds of £8,000 (with none of the assets being sold for more than original cost).
During the year Advanced Engineering Ltd make the following capital acquisitions:-
A new hybrid car with CO2 emissions of 48 g/Km for £16,200
New manufacturing plant for a total cost of £25,000
A new Ford Mondeo 1.6 litre diesel car with CO2 emissions of 99 g/Km for £20,250
Non-Trading Income for year ending 31st March 2020
In addition to trading income Advanced Engineering Ltd also received the following sums during the year:-
Rental income from surplus office space let out to another business £5,200
Bank interest received £400
Advanced Ltd disposed of a surplus property in January 2020 for £500,000. The property had originally cost Redman £350,000 in December 2010. The following indexation factors are supplied :-
December 2010 to December 2017 = 0.218
December 2010 to January 2020 = 0.272
On 1st April 2019 Advanced Ltd have brought forward capital losses of £25,000
Requirements:-
Produce a columnar capital allowances computation (with the various capital allowances being recorded in the far right column) and which then totals up the maximum capital allowance claim that can be made, and which shows the final tax written down values to be carried forward to the next chargeable accounting period for each pool. (8 marks)
Calculate the net chargeable gain arising further to the sale of the building
(3 marks)
Calculate Total Taxable Profits and the corresponding Corporation Tax Liability for the company, and state by when this should be paid. (4 marks)
(Total 15 marks)
Question 23
Ken & Barbara decide to go into partnership with a new business venture. Barbara is putting £100,000 of capital into the partnership and will receive 4% per annum “interest” per annum on this and provide her expertise. Ken is not investing any capital into the partnership but will work full-time for a “salary” of £20,000 per annum. Any residual profits will be shared 40% to Ken and 60% to Barbara.
They commence trading on 1st January 2019 and their tax adjusted trading profits for their first two accounting periods were as follows:-
6 Months ending 30th June 2019 £40,000 profit
Year Ending 30th June 2020 £90,000 profit
Requirements:
(a) Calculate both Ken & Barbara’s profit shares for each of the above accounting periods. (4 marks)
(b) Calculate Ken & Barbara’s assessable profit share for each of the tax years 2018/19, 2019/20, 2020/21 (4 marks)
(c) Identify the dates of any profit overlap and the amount of any overlap profits that may arise for both Ken and Barbara (2 marks)
(Total 10 marks)
Question 24
During the 2019/20 tax year Paul Hendry makes various capital disposals as follows:-
A set of very rare 19th century postage stamps which he sold for £2,500. He originally purchased them from a collector for £1,300 in 2006.
His 20% share in a race-horse for £8,000. He had originally purchased his 20% share for £10,000 in June 2017 but Paul became disillusioned with the investment after his horse failed to win a single race last year.
An antique vase for £8,000 which he had inherited on the death of a relative 3 years ago when it had a probate value of £4,000.
8% Treasury Bonds (UK government gilts) which he sold for £10,500. He had originally purchased them 10 years ago for £10,000 when interest rates were much higher.
An antique table which he sold for £5,000 but which had cost him £7,000 some years ago.
A valuable oil painting which he sold for £45,000. His Wife had purchased the painting four years ago for £15,000, but gave it to Paul on their last wedding anniversary when it had a market value of £25,000.
On 1st July 2019 Paul sold the copyright to a book for £10,000. He had purchased the copyright from the original author on 30th June 2014 for £12,000 when it had a 20 year life.
He had £5,000 of capital losses brought forward from previous tax years.
Paul’s taxable income for 2019/20 was £35,000. He made a total of £800 of Direct Debit payments to various registered charities during the year under the Gift Aid scheme. He did not make any contributions to a personal pension scheme.
Requirements:
(a) Calculate the capital gain or loss resulting from each of the capital disposals listed above (i to vii) with brief explanations of your answer where appropriate (6 marks)
(b) Calculate Paul’s Capital Gains Tax liability for 2019/20 and state by when this should be paid. (4 marks)
(Total 10 marks)
Question 25
The standard method of accounting for VAT is for a VAT registered business to complete a quarterly VAT return to HMRC with either an accompanying VAT payment or claim for a VAT repayment. There are however a number of alternative VAT schemes to which a small business may apply to change to, which may provide certain benefits to the specific business.
Briefly summarise the workings of three such alternative schemes, highlighting what benefits each might provide, and any potential adverse consequences which they might confer. (300 words maximum)
(Total 10 marks)
