You are a trainee accountant in the taxation department of Mills, Boon & Partners, a large regional accountancy practice based in York. The Tax Manager (who is your line manager and supervisor) is Ms Jayne Air. She is away on annual leave for two weeks. In her absence she has asked you to look at some client work and prepare detailed responses ready to discuss with her on her return to work. She has given you the following client files to work on whilst she is away. Summarised file contents are given below, together with details of the work you are required to complete:
File 1 â€“ Rosie Posy and her parents Reg and Gladys
- Rosie is employed as an office manager by The Beverley Bun Company Ltd (TBBC). Her salary is Â£36,000 per annum. The following information is also relevant:
- TBBC provided Rosie with a Vauxhall Corsa Petrol 5-door hatchback car which she used for private purposes as well as business. The list price is Â£17,800 and the CO2 emissions are 115g/km. Rosie had the use of this car for the whole of the tax year.
- Rosie drove 13,000 business miles during 2019-20. She paid for all of the fuel herself and the company reimbursed her for her business mileage at the rate of 37p for every mile.
- Rosie was a member of the companyâ€™s private health insurance scheme throughout the year. The premium which TBBC paid for her for 2019-20 was Â£980.
- In January 2019 TBBC made Rosie a loan of Â£30,000 to fund the deposit when she purchased her own home. TBBC charges her 1.5% interest per annum and the official rate of interest is 2.5%.
- Calculate the total value of Rosieâ€™s Benefits in Kind for 2019-20. Show your calculations in detail. 7 marks
- Calculate the amount which Rosie can deduct for tax purposes under the AMAP scheme. State the amount which Rosie has been over- or under-reimbursed by TBBC. 3 marks
Total marks for part (a) 10
- Reg was born in 1932 and he is married to Gladys who was born in 1937. Reg and Gladys have been married for 64 years. Reg had the following income for 2019-20:
State pension Â£10,150
Private pension Â£9,000
Bank and building society interest Â£5,450
Gladysâ€™s income consisted of the state pension only (Â£7,800 for 2019-20).
Prepare Regâ€™s income tax computation for 2019-20 and calculate his tax liability.
Marks for part (b) 10
Total marks for File 1 20
File 2 â€“ Bellingham Limited
Bellingham Ltd has the following results for the four years ended 30th June:
30/06/2016 30/06/2017 30/06/2018 30/06/2019
Â£ Â£ Â£ Â£
(losses) 7,800 (41,000) (40,600) 10,200
Property income 8,400 10,600 13,600 14,800
Chargeable gains 7,200 â€“ â€“ 22,000
Capital losses â€“ â€“ â€“ (12,000)
Gift Aid donations 2,000 2,000 2,000 2,000
- Assuming that all possible claims are made to relieve the trading losses against total profits, at the earliest possible time, calculate the companyâ€™s taxable total profits (TTP) for each of the four years. Using loss memoranda, clearly show how each of the losses for the years ended 30th June 2017 and 2018 has been relieved, identifying any amounts which remain unrelieved. State whether there are any unrelieved charitable donations.
- Explain the reforms to s45 of the Corporation Tax Act 2010 introduced by the Finance Act 2017 and comment on the advantages or disadvantages of the amendments to the rules for relief of corporate losses.
Total marks for File 2 20
File 3 â€“ Fred Forsyth
Fred is a married man aged 61. He is semi-retired but still works part-time as a chartered surveyor. For the 2019-20 tax year his income from all sources (after deduction of personal allowances) was Â£33,500. He had unrelieved capital losses brought forward from earlier years of Â£12,000. During the tax year 2019-20 he made the following capital transactions:
- On 5th June 2019 Fred sold a buy-to-let house for Â£140,000, incurring agentsâ€™ and legal fees of Â£750. He acquired the house in 1992 for Â£65,000, and survey and legal fees cost Â£550. The house was unmodernised and before it could be let to a tenant Fred spent Â£8,000 on a new kitchen and bathroom (this expenditure qualifies as â€œenhancement expenditureâ€). This house was not his Principal Private Residence at any time.
- On 31st August 2019 Fred gave a valuable first edition book (market value Â£30,000) to the British Museum. He inherited this book from his aunt in 2012, when its probate value was Â£25,000. There were no incidental costs of either disposal or acquisition.
- On 3rd December 2019 Fred sold a second buy-to-let house to his son Jacob for Â£40,000. The market value of the house at that date was Â£85,000. Legal costs for the sale were Â£800. Fred inherited this house in 1992 from his grandmother (probate value Â£45,000, no incidental costs of acquisition). The house was not his Principal Private Residence at any time.
- On 18th January 2020 Fred sold an antique table for Â£5,300 (no incidental costs of disposal). He had purchased the table for Â£6,200 in 2016 from an antique shop (no incidental costs of acquisition).
- On 3rd March 2020 Fred sold 2,000 shares in ABC plc for Â£19.00 each. Ignore incidental costs, which were minimal. He acquired his shareholding over a period of time as follows:
1st August 2019 acquired 2,500 shares for Â£2 per share
15th February 2020 acquired 200 shares for Â£16 per share
3rd March 2020 acquired 1,200 shares for Â£18 per share
- Compute the chargeable capital gain or loss on each of the above transactions.
- Calculate Fredâ€™s Capital Gains Tax liability for 2019-20 and state the due date for payment. Allocate the annual exemption and losses in the most advantageous way. 10 marks
Total for File 3 20 marks
File 4 â€“ Chris Dickens
Chris has been a tax client of Mills, Boon & Partners for many years. He is a retired Professor of Computer Science. He frequently asks Jayne challenging theoretical questions about the UK taxation system, and he likes to receive detailed written answers. Recently he spotted the following quotation on the internet:
â€œThe importance of fairness in taxation rests particularly in the natural desire of governors and governed for justice. â€¦.. What is clear is that practical problems arise if the taxation system is perceived to be unjust. At the extremes, such cataclysmic events as the French and American Revolutions were partly due to perceived inequity in taxation. Less dramatic but nevertheless important, is the tendency for evasion and other forms of taxpayer resistance to increase under systems which are perceived to be seriously unfair.â€
James S. and Nobes C (2018) The Economics of Taxation: Principles, Policy and Practice (2018) 18th edition, Fiscal Publications, Ch5 p78.
Jayne requires you to do the following so that she can reply to Professor Dickens:
Critically evaluate the above statement. Comment on the factors which have resulted in what some people perceive to be the unfairness of the current system, and the criteria which are fundamental to an equitable system of taxation. Support your arguments by reference to UK tax law, academic literature and theory, and any other sources which you consider to be relevant.
Question 5 â€“ Liam Bronte
- Liam, aged 71, is considering his Inheritance Tax position. He estimates that if he were to die in the near future his assets would consist of the following:
House (the family home) 220,000
Interest in a business * 340,000
Cash in bank and building society accounts 160,000
National Savings & Investments â€“ Premium Bonds 31,000
Equity based investments 135,000
Personal effects 25,000
*This is Liamâ€™s own business and his interest in it satisfies all the conditions for Business Property Relief.
Liamâ€™s wife Janet died on 31 December 2015. Janetâ€™s estate was valued at Â£240,000 and in her will she left it all to her sister Angela. Janet had not made any chargeable lifetime transfers.
On 20 December 2013 Liam gave cash of Â£200,000 (net of all relevant exemptions) to his and Janetâ€™s two children. Liam has not made any other gifts which exceed the annual exemptions.
In his will Liam leaves Â£35,000 to a local museum (which is a registered charity) and everything else equally to the two children. An estimate of funeral expenses, professional fees and general creditors when Liam dies is Â£11,000.
- Calculate the Inheritance Tax payable if Liam dies on (i) 30 November 2020 and (ii) 30 December 2020. Note that the amount of the Residential Nil Rate Band for 2020-21 will be Â£175,000.
- Suggest ways in which Liam might reduce any IHT liability, both now and in the future. 5 marks
Marks for File 5 20 marks
END OF CASE STUDY AND QUESTIONS
YOU SHOULD HAVE ANSWERED FIVE QUESTIONS IN ALL
Tax rates and allowances 2019-20
Tax rates and bands
Basic rate 20%
Higher rate 40%
Additional rate 45%
Basic rate limit Â£37,500
Higher rate limit Â£150,000
Taxable income Band Rate Tax payable on band
Â£ Â£ % Â£
0â€“37,500 37,500 20 7,500
37,501â€“150,000 112,500 40 45,000
Starting rate for savings 0%
Starting rate limit for savings Â£5,000
Personal savings allowance (basic rate taxpayer) Â£1,000
Personal savings allowance (higher rate taxpayer) Â£500
Dividend allowance Â£2,000
Dividend ordinary rate 7.5%
Dividend upper rate 32.5%
Dividend additional rate 38.1%
|Blind personâ€™s allowance||2,450|
|Married coupleâ€™s allowance
Born before 6 April 1935
|Income limit for basic personal allowance||100,000|
Income limit for age-related allowances 29,600
Corporation tax FINANCIAL YEARS
2019 2018 2017 2016
Main rate 19% 19% 19% 20%
Patent box (effective rate) 10% 10% 10% 10%
R & D SMEs payable credit 14.5% 14.5% 14.5% 14.5%
R & D expenditure credit 12% 12% 11% 11%
(12% w.e.f. 01.01.2018)
Note: The main rate for FY 2020 will be 17%
Tax rates 2019-20 (cont.)
Company car and fuel benefits
|Car Benefit||Fuel Scale Rate|
|List price x CO2 emissions
50g/km or less 16%
1% increase for every 5g/km over 95g/km (max 37%)
|Â£24,100 x CO2 emission %|
Diesel cars â€“ add 4% (max 37%)
Diesel hybrid cars are exempt from this supplement
Approved mileage allowance payments (AMAP)
The statutory system of tax and NICs free mileage rates for 2019/20 are as follows:
Car and Vans
First 10,000 miles 45p per mile
Over 10,000 miles 25p per mile
Motorcycles 24p per mile
Bicycles 20p per mile
Value added tax
Standard rate 20% (1/6 x Gross)
Reduced rate 5%
Zero rate 0%
Registration limit Â£85,000 taxable turnover in cumulative 12 month period
Deregistration limit Â£83,000
Writing Down Allowance (WDA)
- Main pool 18%
- Special rate pool 6%
- Annual Investment Allowance (AIA) Â£200,000 per year from 1 January 2016
- AIA rate 100%
- First Year Allowance (FYA) 100%
Tax rates 2019-20 (cont.)
Value up to Â£325,000 nil
Value above Â£325,000 40%
Lifetime gifts rate 20%
Charitable gifts 36%
Annual gifts exemption Â£3,000
Main residence nil rate band Â£150,000
Period between transfer and death %age tax reduction
3 years or less 0
Over 3 but not more than 4 years 20
Over 4 but not more than 5 years 40
Over 5 but not more than 6 years 60
Over 6 but not more than 7 years 80
Class 1 Employed Earners from 6 April 2019
Â£ per week earnings
Earnings up to Â£166 a week nil
Earnings between Â£166 and Â£962 12.0%
Earnings over Â£962 per week 2.0%
Earnings up to Â£166 a week nil
Earnings above Â£166 a week 13.8%
Class 2 contributions 3.00 per week
Small profits threshold 6,365
Class 4 contributions 9% of profits between 8,632 â€“ 50,000
2% above 50,000
Capital gains tax
Entrepreneursâ€™ relief lifetime limit: