BA (Hons) Accounting and Finance
ADVANCED PERSONAL TAXATION
BAF_6_APT
Seminar Questions 2020/21
(Seminars 1 – 3)
TAX RATES 2020/21
The following tax rates and allowances to be used in answering the questions:
Rates of Income Tax
Basic rate £12,501 – £37,500 20% Higher rate from £37,501 to £150,000 40% Additional rate over £150,001 45%
If total taxable income < £17,000 – savings income is tax free Personal Savings Allowance – Basic Rate £1,000 Personal Savings Allowance – Higher Rate £500 Personal Savings Allowance – Additional Rate £0 Starting rate for savings 0% Starting rate limit for savings (if no NSI) £5,000 Dividend Allowance £2,000 Dividends are taxed at 7.5%, 32.5% and 38.1% Personal allowances £12,500
• If adjusted net income exceeds £100,000 the basic personal allowance is reduced by one-half of the excess.
• Where adjusted net income is £125,000 or more, the personal allowance is reduced to zero. £1,250 may be transferable between certain spouses where both are basic rate taxpayers Property Income Rent a room relief £7,500 Car Benefit Zero emissions 0% *1 – 50 g/km (depending upon electric charge) 2% – 14% Electric range 130 miles or more 2% Electric range 70-129 miles 5% Electric range 40-69 miles 8% Electric range 30-39 miles 12% Electric range less than 30 miles 14% *51 g/km to 54 g/km 15% *55 g/km to 59 g/km 16% *60 g/km to 64 g/km 17% *65 g/km to 69 g/km 18% *70 g/km to 74 g/km 19% *75 g/km 20% * These percentages 2% lower in 2020-21 if car registered on or after 6 April 2020 51 g/km to 75 g/km – 76 g/km to 94 g/km – 95 g/km – Each additional 5 g/Km +1% Diesel engine 4% Maximum charge Car Fuel Scale Charge (amount used) 37% £24,500 Van Benefit £3,490 Van Fuel Benefit Rates of Interest £666 Official rate of interest NICs Class 2 2.25% Small profit threshold £6,475 Weekly contribution £3.05 Class 4 Lower profits limit £9,500 Upper profits limit £50,000 Rate between lower and upper limits 9% Rate beyond upper limit 2% Primary Class 1 NIC rates Weekly paid First £183 Next £779 (up to £962) Over £962 Nil 12% 2% Monthly paid First £792 Next £3,375 (up to £4,167) Over £4,167 Nil 12% 2% Secondary Class 1 NIC Rates Weekly paid First £169 Over £169 Nil 13.8% Monthly paid First £792 Over £792 Nil 13.8% Employment allowance (per employer) £4,000 Capital Allowances Writing Down Allowance per year Plant and Machinery main pool 18% Special rate pool (>110g/km) 6%
• Annual investment allowance is £200,000 after 1.1.2016 First Year Allowances on qualifying plant and machinery:
Low emission cars (<50 g/km) 100%
Capital Gains Tax
Annual exemption £12,000
Standard rate of CGT 10% Higher rate of CGT 20%
Standard rate for property 18%
Higher rate for property 28%
Corporation Tax – Financial Act 2019 FY 2020
To31.3.2021
Main rate
Inheritance Tax
19%
Rate on lifetime transfers 20%
Rate on death 40%
Lower rate
36%
Date of Transfer Nil Rate Band
6 April 2005 – 5 April 2006 £0 – £275,000
6 April 2006 – 5 April 2007 £0 – £285,000
6 April 2007 – 5 April 2008 £0 – £300,000
6 April 2008 – 5 April 2009 £0 – £312,000
6 April 2009 – 5 April 2021 £0 – £325,000
Main residence nil rate band 2020/2120 = £175,000
Taper Relief
Period between % Tax transfer and death
Reduction
0 – 3 years 0%
3 – 4 years 20%
4 – 5 years 40%
5 – 6 years 60% 6 – 7 years 80%
Value Added Tax
Standard rate 20% Reduced rate 5%
Registration threshold £85,000
De registration threshold £83,000
SEMINAR QUESTIONS
INCOME TAX REVISION
ITB 1
Tony is a sole trader and has taxable trading profits of £190,000 for the tax year 2020/21.
In the tax year 2020/21, Tony also received the following amounts of other income. The amounts shown were received or credited to Tony’s accounts:
£
Dividends from shares in UK companies 6,000
Interest from an individual savings account (ISA) 760
Building society interest 4,500
Gross rent from unfurnished property investments 8,000
In the tax year, 2020/21 Tony paid mortgage interest of £3,100 in respect of the purchase of the unfurnished property investment.
Tony made a donation of £960 to a national charity under the gift aid scheme.
REQUIRED
Calculate the income tax payable by Tony for 2020/21
ITB 2
Income for the tax year 2020/21 is as follows
£
Taxable trading income 20,000
Taxable income from property 3,000
UK dividends received 150,000
REQUIRED
Compute the income tax payable by Peter, assuming that he is entitled to the basic personal allowance and that he donated £4,000 to Oxfam (a registered charity)
ITB 3
a) Veronica (a full time Mum) receives child benefit of £1,403 in the tax year 2020/21. Her husband Danny has adjusted net income of £63,000 in the tax year 2020/21. How much child benefit income tax charge will Danny have to pay?
b) Benny (a full time Dad) receives child benefit of £1,210, in the tax year 2020/21. His girlfriend Raelene who lives with Benny has adjusted net income of £54,730 in the tax year 2020/21. How much child benefit income tax charge will Raelene have to pay?
ITB 4
Freddie has employment income of £28,000. His wife Janet does not work. What should Janet and Freddie do to minimise their tax liability and what will be the outcome?
ITB 5
Ted, aged 51, took early retirement from his position as a sales manager with Plath Limited on the 5th April 2021 after 20 years employment.
Ted’s income and outgoings for the year ended 5th April 2021 were:
A salary from Plath Limited of £4,000 per month gross. He was on a bonus for hitting sales targets. On 5 March 2020, he received a bonus of £2,000 and on 5 March 2021, he received a bonus of £2,500.
From 6th April 2020 to 5th April 2021, he had the use of a company flat bought by the company for £125,000 in September 2017. The annual value of the flat was £5,000. The company furnished the flat at a cost of £14,000. The accommodation was not job-related.
In 2016, Plath Limited lent Ted a computer costing £4,000 for use in his home, which he used for both business and private purposes. He was required to hand back his computer when he retired on the 5th April 2021.
In 2010, Plath Limited lent Ted £16,600 interest free to buy a yacht. This loan was paid back on retirement.
Ted was provided with a company car throughout the year; the list price when first registered was £20,000. The company paid for all running expenses including petrol. Ted made a contribution of £20 per month towards the cost of the petrol, which covered about half the cost of the private mileage. The car emitted 137 gm/Km of CO2.
His only other outgoing was a £200 subscription to the Institute of Sales Executives.
On 31st December 2020, he received dividend income from a UK company of £6,350 and on 1st March 2020, he received bank interest of £1,500 (net).
Ted let out a furnished property throughout 2020/21 – he received gross rents of £12,000 15% of which was paid to a letting agency.
REQUIRED
Calculate the income tax payable by Ted for 2020/21.
SELF EMPLOYMENT
SE1
On 1 January 2019 Jonathan commenced in business as a supplier of electrical goods. The profit and loss account for the period to 30 April 2020 is as follows:
Notes £ £
Gross profit from trading 124,675
Bank interest received (gross) 1 1,200
125,875
Staff Wages and National Insurance 25,775
Rent 2 18,000
Business Rates 1,840
Insurance of Premises 2 960
Light and Heat 2 3,500
Motoring expenses 3 12,300
Repairs 4 5,000
Advertising 5 7,500
Depreciation 15,000
Bad debts 6 1,035
Jonathan’s Income Tax and National Insurance 5,900
Legal and Professional fees 7 1,750
Other expenses 8 2,065
(100,625)
25,250
Notes:
(1) The interest was credited to Jonathan’s business bank account on 31 December 2019.
(2) Jonathan and his family live on the premises and it has been agreed that 1/5 of the cost of the rent, insurance and light and heat relate to private use.
(3) Motoring expenses: £
Parking fine incurred by a salesman 100
Speeding fine incurred by Jonathan delivering an urgent order to a customer 200
Running costs 12,000 12,300
It has been agreed with HM Revenue and Customs that ¼ of the running costs relate to private motoring by Jonathan
(4) Repairs: £ Roof repairs 1,300
Replacing floor tiles in shop 900
Fitting security bars over windows as a precaution against theft 2,100
The balance of the repairs of £700 were all allowable
(5) Included in the figure for advertising is £200 spent, in December 2019, on advertising by Jonathan’s brother in a lonely hearts column in a national newspaper
(6) Bad debts:
£
Trade debts written off 250
Provision for specific bad debts 185
General provision (2.5% of debtors as at 30 April 2019) 450
Loan to former employee written off 150
1,035
(7) Legal and Professional Fees
£
Trade debt collection 650
Accountant – preparing accounts 400
Legal fees (defending against a claim for alleged breach of contract) 700
1,750
(8) Other Expenses:
£
Educational course for Jonathan (on flower arranging) 925
Entertaining customers 720
Gift Aid payment to charity (gross, paid March 2020) 100
Donation to local charity 20
Initial repairs to second-hand machine (required before it could be used)300
2,065
Other Information:
Jonathan has taken goods from the business for personal use. The goods taken cost £325 and the gross profit percentage on such goods was 35%. No payment has been made for the goods.
Jonathan had no claim for capital allowances in the period.
REQUIRED:
Compute Jonathan’s taxable trading income for the period to 30 April 2020.
SE2
Zaima commenced trading on 1 December 2020. The following information is available for the four month period 1 December 2020 to 31 March 2021.
The operating profit for the four-month period ended 31 March 2021 is £532,600. Advertising expenditure of £ 4,700 (incurred during September 2020), depreciation of £14,700 and amortisation of £9,000 have been deducted in arriving at this figure.
The amortisation relates to a premium, which was paid on 1 December 2020 to acquire a leasehold warehouse on a 12-year lease. The amount of premium assessed on the landlord as income was £46,800. The warehouse was used for business purposes by Lucky Ltd throughout the period ended 31 March 2021.
Required:
Calculate Zaima’s trading income for the four-month period ended 31 March 2021.
SE 3
On 1 April 2020, Raelene commenced her new business as a hairdresser. Her profit and loss account for the 12 months to 31 March 2021 showed the following:
Notes £ £
Gross profit from trading 1 96,000
Rental income received 800
96,800
Staff wages 2 21,700
Rent 3 8,100
Insurance of premises 3 470
Light and heat 3 1,890
Depreciation: Plant 1,600
Depreciation: Motor vehicles 4,210
Motor expenses 4 3,580
Advertising 5 1,200
Repairs 3,100
Bad debts 6 500
Professional fees 7 900
Other expenses 4,500
Raelene’s drawings 5,400
` (57,150)
Net profit per accounts 39,650
Notes
1. Raelene takes hair care products from the shop for her personal use. She estimates that the cost of goods taken totals £400 during the 12 month period. The normal mark up on cost is 40%. Apart from the purchase cost, no entry had been made in her accounts.
2. Wages include a deduction of £6,000 for her daughter Kasanthi who works part-time in the business. This the same amount as paid to other part-time employees
3. Raelene and Kasanthi live above the shop and it has been agreed that 20% of the cost of the rent, insurance and light and heat relate to private use.
4. Motor expenses include a speeding fine of £300 incurred by Raelene whilst visiting a supplier. It has been agreed that 25% of the remaining motor expenses are for private purposes.
5. Advertising includes £500 for chocolate Easter eggs bearing the name ‘Raelene’s Hair’ which were given to 50 of her loyal customers.
6. Bad debts £
Trade debt written off 150
Loan to former employee written off 350
500
7. Professional fees were: £
Legal fees in connection with speeding fine 400
Accountancy fees – accounts preparation 500
900
8. Capital allowances for the 12 month period have been calculated at £19,641.
REQUIRED:
Compute Raelene’s tax adjusted trading profit for the 12 months to 31 March 2021
CAPITAL ALLOWANCES CA1
Sammy prepares accounts to 31 March each year. The written down value of his main pool at 1 April 2020 was £20,600. He had a short life asset (a video security system) with a written down value of £3,400 at that date.
His purchases and sales of plant during the year to 31 March 2021 is as follows:
£
15 May 2020 Bought plant 200,000
11 June 2020 Sold machinery (cost £7,000 in 2016) 7,500 20 July 2020 Bought motor car (emissions 116g/km) 11,400 8 August 2020 Sold short life video security system 2,600 12 December 2020 Bought IT equipment (short life election made) 8,000
12 February 2021 Sold equipment (cost £10,500 in 2012) 4,600
None of the assets had any private use.
REQUIRED
Compute the capital allowances which may be claimed for the year to 31 March 2021. CA2
Explain why a sole trader may claim a reduced amount of capital allowances in a particular tax year.
CA3
Adele prepares accounts for the 9-month period to 31 December 2020. The written down value of her main pool at 1 April 2020 was £85,600, she also had a Nissan Motor car (30% private use) with a written down value of £12,000.
Her purchases and sales of plant during the 9 months to 31 December 2020 are as follows:
£
11 May 2020 Bought plant 171,250
16 June 2020 Sold Nissan motor car 8,500
28 July 2020 Bought Honda motor car (emissions 116g/km)
14 October 2020 Bought Ford motor car (emissions 44g/km) 26,200
12,100
28 November 2020 Bought Renault motor car (emissions 170g/km) 19,200
15 December 2020 Sold equipment (cost £12,500 in 2011) 1,800
There was 30% private use by Adele of the Nissan and Honda motor cars. The Ford motor car had 20% private use. None of the other assets had any private use.
REQUIRED
Compute the capital allowances which may be claimed for the period to 31 December 2020.
CA4
William, who had been trading for many years, decided to cease trading on 31 January 2021. His final trading results, as adjusted for income tax purposes were;
The tax written down values of plant and machinery brought forward at 1 October 2020 were:
£ Main pool 7,800 William’s car 170gm/CO2 4,500
On 1 December 2020 a new machine costing £15,000 was purchased. On 31 January 2021 the assets in the main pool and the new machine were sold for £7,000 with all items being sold for less than their original cost.
William’s car was sold at the same time for £5,000
REQUIRED
Calculate William’s capital allowances for the period ended 31 January 2021.
BASIS PERIODS
BP1
Jade commences trading on 1st January 2016 and makes up her accounts to 31st December each year. What are the basis periods?
BP2
Becky commences trading on the 1st January 2015 and makes up her accounts for the 6 months to 30th June 2015 and annually to the 30th June thereafter. What are the basis periods?
BP3
Louise commences trading on the 1st March 2018 and makes up her accounts for the 14 months to 30th April 2019 and annually to the 30th April thereafter. What are the basis periods?
BP4
Pat, who commenced in business in 1999, has decided to cease trading on 31 March 2019. Her recent results tax adjusted results are
Year ended 30 June 2016 £18,000 Year ended 30 June 2017 £21,600 Year ended 30 June 2018 £25,200 Period ended 31 March 2019 £19,800
Overlap profits on commencement were £5,000.
REQUIRED:
Compute Pat’s assessable profits for the tax years 2016/17 to cessation.
BP5
Blumenthal is a sole trader running a restaurant. He commenced business on 1st January 2013 making up his accounts to the 30 April. His tax-adjusted profits show the following:
£
Period ended 30 April 2014 72,000 Year ended 30 April 2015 90,000 Year ended 30 April 2016 132,000
Year ended 30 April 2017 120,000
He ceased business on 31 December 2017 after making a profit of just £23,000.
REQUIRED:
Compute Blumenthal’s assessable trading profits for all relevant tax years.
CHANGE OF ACCOUNTING DATE
CAD1
1. A/Cs formerly prepared to 30 September. First new accounting period 1 Oct 2013 to 30 June 2014.
2. A/Cs formerly prepared to 31 December. First new accounting period 1 Jan 2013 to 31 March 2014.
3. A/Cs formerly prepared to 30 June. First new accounting period 1 July 2014 to 31 December 2014.
4. A/Cs formerly prepared to 31 January. First new accounting period 1 Feb 2013 to 30 April 2014.
5. A/Cs formerly prepared to 31 October. First new accounting period 1 Nov 2012 to 31 August 2012.
6. A/Cs formerly prepared to 31 December. First new accounting period 1 January 2014 to 28 February 2015.
REQUIRED:
What are the basis periods in these cases?
What is the tax overlap position? CAD2
Rhod commenced in business on 6.4.12. He prepared his accounts to 5 April every year until he changed his accounting date to 31 July – First accounts involved were the 4 months to 31.7.14
His trading profits are as follows:
Year ended 5.4.13 £70,320
Year ended 5.4.14 £65,760
4 months to 31.7.14 £32,480
Year ended 31.7.15 £108,240
REQUIRED
What are the assessable profits for all years?
CAD3
Thomas started trading on 1st January 2013, preparing accounts to 30th April each year. His first accounts were for 16 months to 30th April 2014.
In 2016 he decided to change his accounting date to 30th June. The first accounts made up to the new date were for the 14 months to 30th June 2016 and the conditions necessary for a change of accounting date were all satisfied.
He ceased trading on 31st May 2019. His adjusted trading profits all years were:
£
1st January 2013 to 30th April 2014 33,920 Year to 30th April 2015
29,700
1st May 2015 to 30th June 2016
33,300
Year to 30th June 2017
41,600
Year to 30th June 2018
37,900
1st July 2018 to 31st May 2019 23,500
REQUIRED:
a) Compute Thomas’s taxable trading income for all years
b) Calculate any overlap of profits and show when they are to be relieved.
