University of Dundee School of BusinessTAXATION
Module 3TX – BU30005
Level - 3
TWO FROM SECTION B
TABLES OF TAX RATES, RELIEFS AND ALLOWANCES ARE GIVEN AT THE END OF THE PAPER
The use of approved calculators (FX83, FX85 or FX115) is permitted in this examination
Dictionaries are not permitted in this examination
ANSWER ALL QUESTIONS IN THIS SECTION
Molly plans to return to Glasgow once the new office is properly established.In the meantime she is letting her flat to two students.Each student pays Molly £380 on the first day of each calendar month.The students have occupied the flat since 1 September 2019.Just before the Christmas vacation in 2019, the central heating boiler in the Glasgow flat broke down.Molly decided to improve the central heating at a cost of £1,850.
Molly also received a payment of £4,000 from a discretionary trust created by her grandfather.All of the capital of the trust is invested in UK bank accounts.
Calculate Molly’s income tax liability for the year 2019/20 clearly showing the amount of tax she is to pay or have repaid by HMRC.
Assume an official interest rate of 2%.
2. Diamond Denim Ltd manufactures high quality denim clothing in the UK. The company sells to customers in the UK, the EU and to the international market. The company is registered in the UK and has three directors (Eliza Bennett, Cathy Earnshaw and Emma Woodhouse) who each own one third of the share capital of the company. The company directors each have a company car and they charge their petrol costs to the company. The directors estimate that 60% of their car usage is for business-related activities and 40% is for personal use. Their company car details are as follows:
Directors & Cars CO2 Emission’s rating
E Bennett – Ford Mondeo 2.0 Ecoboost 169g/km
C Earnshaw – Renault Clio Dynamique 105g/km
E Woodhouse – Renault Captur Signature 115g/km
During the quarter ending 31 October 2019, the company made the following sales and purchases:
Value of supply
Value of Purchase
Materials from non-VAT registered suppliers
Materials from VAT registered suppliers
Materials from supplier in Greece
Materials from supplier in Germany
Overhead expenses – all standard rated
In addition, the following payments were made relating to the company cars:
New company car for sales person 23,900
Petrol for company cars 7,940
Bennett, Earnshaw and Woodhouse have been reviewing Diamond Denim’s trade receivables and have written off the following bad debts during the quarter ending 31 October 2019:
UK Customer Total Amount Due Payment Due Date
D’arcy £10,874 31 August 2019
Heathcliff £6,418 28 February 2019
Knightley £9,316 31 March 2019
Note: The bad debts written off relate to customers of adult clothing only.
Calculate any VAT payable/repayable for the quarter ended 31 October 2019, stating clearly the date the VAT return is required to be submitted to HMRC, the amount to be paid/repaid and the date by when any payment via the internet should be made.
3. Liver Bird & Co manufactures luxury statues and ornaments for indoor and outdoor use. The year end is 31 August 2019 and during the year Liver Bird & Co had a number of transactions in fixed assets which are detailed below:
New zero emission goods vehicle for deliveries (although vehicle is for deliveries there is an agreed private use of 15%)
Disposal of old computer system
The capital allowance balances brought forward at 1 September 2018 were:
Special rate pool
Mercedes motor car
(a) Calculate the maximum capital allowances for plant and machinery available to Liver Bird & Co for the year to 31 August 2019.
(b) Discuss the main features of the new Structures and Buildings Allowance that came into effect from 29 October 2018.
4. Boris is the owner of Boris the Animal Boarding Kennels that he has been operating through a leased premise for a number of years. Boris prepares his accounts to 30 June each year. When Boris leased the premises, he paid a premium of £96,000 for a 22-year lease. On 1 October 2018, Griffin was admitted as a partner to the business. The profit or loss account for Boris the Animal Boarding Kennels for the year to 30 June 2019 is as follows:
Gross Profit 148,235
Bank interest received 2,460
Less other expenses:
Wages and salaries (Note 1) 22,945
Bad & doubtful debts (Note 2) 680
Telephone expenses (Note 3) 0,900
Travelling costs (note 4) 005,380
Sundry expenses (note 5) 14,350
Professional fees (note 6) 04,300
Motor expenses (note 7) 7,440
Insurance (note 8) 8,270 (70,720)
Net Profit 079,975
- During the year, Boris took drawings of £13,665 for home improvements, which is included in the figure for wages and salaries. In addition, Boris also paid £350 to his son for doing well in his end of year school exams. This is also included in the wages and salaries figure. The remainder of the figure is paid to part time staff who help in the business.
- During the year £220 was written off as bad debts and the general provision for bad debts was increased by £460.
- It has been agreed that 45% of the telephone costs relate to private use.
- Included in the travelling costs is £1,850 which was incurred by Griffin for travelling to and from work.
- The sundry expenses are made up of:
Subscription to a professional trade association 3,225
Business entertaining 6,675
Entertaining friends and family 3,500
Staff Christmas night out ,200
Other (allowable) expenses ,750
- Professional fees include £2,385 relating to fees for capital expenditure. The remainder relates to accounting fees.
- Motor expenses include the following:
(Boris £) (Griffin £)
Servicing & Repairs 825 365
Fuel & Oil 2,850 1,450
Road tax 70 240
Speeding fines 1,300 340
- The insurance figure includes private health care insurance for both Boris (£963) and Griffin (£467). The remainder relates to insurance for business purposes.
- During the year, Boris allowed his sister to use the kennels for her three dogs for free while she was away. The cost element for the three dogs would usually have been £600, but Boris would have added a 20% mark-up on this due to the time of the year that the dogs were admitted. Although Boris did not charge his sister, he has put £200 into the business for this.
- It has been agreed by HMRC that 20% of all Boris’s cars are for private use. Griffin’s vehicle is only used for business purposes.
- Capital allowances for the year ended 30 June 2019 are £17,490.
- Calculate the taxable trading profits of Boris the Animal Boarding Kennels for the year ended 30 June 2019.
- Assuming that the profits are shared on a ratio of 3:2 in favour of Boris, calculate the share of profits for Boris and Griffin for the year ended 30 June 2019.
ANSWER TWO QUESTIONS FROM THIS SECTION
5. Outline the features of two of the tax efficient schemes listed below:
- Enterprise investment scheme
- Venture Capital Trusts
- New individual savings accounts
(b) Giving examples, explain the expenses that are allowed to be deducted from Property income.
(c) Explain how losses in Property income are treated in the computation of income tax.
- Discuss the key facts and main inferences surrounding the following five well known cases:
(i) Mallalieu v Drummond (1983)
- Rutledge v CIR (1929)
- Strong & Co of Romsey v Woodifield (1906)
- CIR v Scottish and Newcastle Breweries Ltd (1982)
- Yarmouth v France (1887)
8. As the newest member of a small tax firm, you have been asked to provide some advice to one of their existing clients, Mr Brown, regarding loss relief for sole traders. Mr Brown’s business has suffered in recent years due to increased competition in his area and an increase in the number of customers preferring online shopping. As a result of this, Mr Brown has made significant losses over the past four accounting periods and is on the verge of deciding to cease trading.
Mr Brown is unaware of the options available to deal with the losses that he has incurred and has approached your firm to seek advice on how they would be applied if he decides to stay in business or if he decides to cease trading.
Based on Mr Brown’s inquiry and using numerical examples to support your discussion, explain to Mr Brown the options that are available to him to relieve his trading losses.
END OF QUESTIONS
Scottish Taxpayer – non-savings income
Starter rate – taxable income up to £2,049 19%
Basic rate – next £10,395 20%
Intermediate rate - next £18,486 21%
Higher rate – next £119,070 41%
Top rate – above £150,000 46%
Basic rate – taxable income up to £37,500 20%
Higher rate – between £37,501 and £150,000 40%
Additional rate – above £150,000 45%
Starting rate band (first £5000 of taxable income) 0%
Basic rate band 20%
Higher rate band 40%
Additional rate 45%
First £2000 0%
Ordinary rate 7.5%
Upper rate 32.5%
Additional rate 38.1%
Personal Allowance (PA)* £12,500
Married Couples Allowance (one spouse born before 6 April 1935) £8,915
Minimum Married Couples £2,450
Income limit for age-related allowances (MCA) £29,600
*Income limit for PA £100,000
Writing Down Allowance
Special Rate Pool
Annual Investment Allowance from 1 January 2016
First year allowance (FYA)
Low emission cars (<50g/km)
Zero-emission goods vehicles
Energy saving plant & equipment
(1) The AIA Limit has been temporarily raised to £1m between 1 January 2019 and 31 December 2020
(2) Expenditure on charging points for electric vehicles incurred between 23 November 2016 and 5 April 2023 is also eligible for 100% FYA
Capital gains tax
CGT tax rate
Gains in the basic rate band 10%(1)
Gains above the basic rate band 20%(1)
Entrepreneurs’ relief rate 10%
Entrepreneurs’ relief lifetime limit £10,000,000
Annual exemption £12,000
(1) Taxable gains on the disposal of residential property are taxed at 18% and 28%
VAT inclusive fuel scale charges from 1 May 2019
120 or less
225 or more
Fuel scale charge Fuel scale charge Fuel scale charge
Emissions rating (g/km) 12 month period (£) 3 month period (£) 1 month period (£)