QUESTION 3
Tielemans Limited has a twelve-month chargeable accounting period (‘CAP’) running from 1 April 2020 to 31 March 2021.
The adjusted trading profit for this CAP has already been calculated at £1,800,000 before deduction of capital allowances for plant and machinery. The capital allowance computation for the last CAP closed with written down values as follows:
Main Pool £140,000
Special Rate Pool* £70,000
Short life single asset pool** £24,000
* Balance brought forward for Range Rover (199g/km)
** Machine bought to use for short term contract of 18 months
During the CAP the following assets were acquired or disposed of:
30 April 2020: 5 Mercedes articulated trucks were bought for £960,000
31 July 2020: a new Mitsubishi i-MiEV (zero emissions) was bought for £30,000
31 July 2020: a BMW 330i (emission 134g/km) car was bought for £40,000
31 August 2020: a manufacturing system was bought for £180,000
31 October 2020: the machine in the short life pool was sold for £15,000
31 December, 2020: a machine in the main pool was sold for £16,000
31 January, 2021: a Mercedes van was bought for £30,000
All disposal proceeds were less than the original cost.
Required: write a letter to the directors of Tielemans Limited (you are their tax advisor) outlining the UK tax policy motivation for capital allowances and their importance in tax planning and then providing an explanation of the detailed tax computation (marks will be allocated as follows):
Outline of the UK tax policy motivation for capital allowances and the calculation of the allowances for the CAP y/e 31 March 2021 (in order to do this please use a plant and machinery capital allowances computation table that you should include as the Appendix 1 to the letter).
(20 marks)
Calculation of the assessable trading income for the CAP and the Corporation Tax payable on the assumption that the company had no further profits chargeable to Corporation Tax for the y/e 31 March 2021 – this should be referred to in the letter and the detailed computation may be shown as Appendix 2 to the letter.
(5 marks)
(Total 25 marks)
QUESTION 6
Susan Soucek had a fishing business in Dorset. She bought a ship for £1,500,000 in February 2008 and sold it for £2,000,000 in October 2019. In November 2019 she bought a factory in Poole on the harbour for £1,800,000 to perform basic processing of fish from her fleet. Both the ship and the factory were clearly used in Susan Soucek’s trade of fishing and fish distribution. She sold the Poole factory in July 2020 for £3,000,000. Susan Soucek’s trading income for tax purposes in the year to 5 April 2020 and the year to 5 April 2021 is calculated as £600,000 and £650,000 respectively.
Required (as the tax advisor) write a letter to Susan Soucek who has asked you to clarify and explain to her how the tax is calculated, what reliefs are available to her and the best way to use those reliefs. In particular, your answer should include the following items (please indicate these using headings in your letter and cross referencing to detailed computations in an Appendix):
An outline of the basis for Capital Gains Tax (CGT) and the calculation of the chargeable gain and CGT payable in respect of the sale of the ship assuming that rollover relief is claimed in respect of the subsequent acquisition of the Poole factory. Please refer to an Appendix showing and explaining your workings clearly.
(7 marks)
The calculation of the chargeable gain and Capital Gains Tax payable in respect of the sale of the Poole factory in July 2020. Please refer to an Appendix showing and explaining your workings clearly.
(6 marks)
Distinguish between ‘Rollover Relief’ and ‘Holdover Relief’ and briefly explain whether it is appropriate from the point of view of tax policy to have the two different tax treatments.
(5 marks)
In what circumstances would Susan Soucek be eligible for Business Asset Disposal Relief? Briefly comment on the purpose and likely effectiveness of Business Asset Disposal Relief (previously known as Entrepreneur’s Relief) from the point of view of the UK tax policy makers.
(7 marks)
(Total 25 marks)
RELIEFS AND ALLOWANCES – 2020/21 and 2019/20 (and also 2018/19)
These are shown on the next two pages.
RELIEFS AND ALLOWANCES – 2020/21 and 2019/20 (2018/19)
Income Tax – Personal reliefs and allowances
Personal Allowance £12,500 (£11,850)
Income Tax – Taxable bands are as follows:-
Basic Rate 20% £0 – £37,500 (£0 – £34,500)
Higher Rate 40% £37,501 – £150,000 (£34,501 – £150,000)
Additional Rate 45% over £150,000 (over £150,000)
Corporation Tax – rates and allowances
Main rate of corporation tax 19% (19%)
Capital Gains Tax – rates and allowances
Standard rate (assets excluding residential property) 10% (18%)
Standard rate (residential property) 18% (18%)
Higher rate (assets excluding residential property) 20% (28%)
Higher rate (residential property) 28% (28%)
Business Asset Disposal relief rate 10% (10%)
Business Asset Disposal relief lifetime limit (Note 1): £1,000,000 (10 mn) (10 mn)
Annual Exempt Amount (Note 1) £12,300 (12,000) (11,700)
Note 1: this shows limit/amount for 2020/21 and previous two tax years
Continued on next page (National Insurance Contributions and VAT) …………
National Insurance Contributions 2020/21 (2019/20) (2018/19) (extracts)
Employer Employee
Class 1
Weekly earnings / Annual
£0 – £169(166)(162)/£8,788 (£8,632)(£8,424) Nil SEE BELOW
£0 – £183(166)(162)/£9,500(£8,632)(£8,424) SEE ABOVE Nil
£169.01- £962(962)(892)/£50,000(£46,350) 13.8%(13.8%) SEE BELOW
£183.01- £962(962)(892)/£50,000(£46,350) SEE ABOVE 12% (12%)
Over £962(962)(892)over £50,000 (£46,350) 13.8% (13.8%) 2% (2%)
Class 2
Small earnings exception £6,475 (6,365) (6,205)
Normal rate £3.05 (3.00) (2.95) per week
Class 3
See note below.
Class 4
Profits £9,500(8,632) – £50,000 (£8,424 – £46,350) 9% (9%)
Profits over £50,000 (50,000) (£46,350) 2% (2%)
Note: Class 3 contributions are voluntary contributions paid by people who wish to protect their entitlement to the State Pension and who do not pay enough National Insurance contributions in another class.
VAT (NO CHANGE IN 2020/21 FROM 2019/20 or after 1 April 2020)
After 1 April 2019 After 1 April 2018
Standard rate 20% 20%
Annual Registration Limit £85,000 £85,000
De-registration Limit £83,000 £83,000
Cash Acc Scheme – max t/o to join £1,350,000 £1,350,000
Annual Acc Scheme –max t/o to join £1,350,000 £1,350,000
Optional Flat Rate Scheme –
Max taxable turnover (t/o) (ex VAT) £150,000 £150,000