BA, BSc Degree Examinations 2019-0
The York Management School
Title of Exam:
24 Hours (PLEASE NOTE: Late papers, even if received 1 second after the deadline, will not be marked. Only assessments received prior to the deadline will be marked.)
Allocation of Marks:
Section A is worth 75 marks.
Section B is worth 25 marks.
Instructions for Candidates:
Section A contains three questions. You should answer ALL the questions in this section.
Section B contains two questions. You should answer ONE question from this section.
Candidates must show all workings
Tax rates and allowances are provided in the examination.
If handwritten answers or notes are required, candidates may not use red pen or pencil.
A note on Academic Integrity
We are treating this online examination as a time-limited open assessment, and you are therefore permitted to refer to written and online materials to aid you in your answers.
However, you must ensure that the work you submit is entirely your own, and for the whole time the assessment is live you must not:
- communicate with departmental staff on the topic of the assessment
- communicate with other students on the topic of this assessment.
- seek assistance with the assignment from the academic and/or disability support services, such as the Writing and Language Skills Centre, Maths Skills Centre and/or Disability Services. (The only exception to this will be for those students who have been recommended an exam support worker in a Student Support Plan. If this applies to you, you are advised to contact Disability Services as soon as possible to discuss the necessary arrangements.)
- seek advice or contribution from any third party, including proofreaders, friends, or family members.
We expect, and trust, that all our students will seek to maintain the integrity of the assessment, and of their award, through ensuring that these instructions are strictly followed. Failure to adhere to these requirements will be considered a breach of the Academic Misconduct regulations, where the offences of plagiarism, breach/cheating, collusion and commissioning are relevant - see AM.1.2.1” (Note this supersedes section 7.3 of the Guide to Assessment).
Please note the York Management School has a policy of checking all submitted assessments using the originality report function of Turnitin text matching software. This policy will be applicable to the 24 hour online examinations. For further information please see the Integrity/Turnitin section of the Study Skills page on the University website.
You are required to answer ALL questions in Section A.
Question 1 Corporation Tax (30 marks)
- Lyons Ltd has provided the following information for the year ended 31 December 2019:
At 1 January 2019, the tax written down value of the company’s main pool of plant and machinery was £75,800. During the year plant costing £225,000 was acquired on 1st June 2019 and external solar shading costing £175,000 was bought on 1st December 2019. In addition Lyons bought a car (with medium level CO2 emission) on 1st September 2019, for £26,000, and a ‘hybrid’ car (with low CO2 emissions) on 1st December for £15,000.
The company has paid dividends to the value of £50,000.
(1) The company rents out property which is no longer required for employees. There are 4 properties which each charge a monthly rent of £1,000 per month, payable quarterly in arrears. There are expenses of £100 per month for each property when let. All 4 properties were let for the whole period and all rent has been paid.
(2) This is interest received from a fixed rate investment account for the 6 months to 30 June 2019. The interest for the 6 months to 31 December 2019 has not yet been received or accounted for.
(3) The land had been purchased in March 2003 for £50,000 and sold in April 2019 for £185,000. In addition, incidental costs relating to acquisition were £6,000 and incidental costs relating to disposal of the land were £9,250. Relevant RPI figures are: March 2003 179.9, April 2019 288.2.
(4) Miscellaneous expenses include:
Entertainment for customers 12,000
Staff entertainment 1,800
Gifts for customers (calendars £8 each & containing company name) 320
Remaining expenses are all allowable.
(5) Legal costs comprise
Cost of tax appeal 10,000
Costs associated with defending a customer complaint 7,500
You are required to compute Lyons:
- tax adjusted trade profits. You should clearly indicate for each item of income and expenditure (either in the computation or accompanying notes) whether or not they are allowable for tax purposes and require adjustment;
- taxable total profits; and
- the corporation tax payable for the year ended 31 December 2019, and state the due date for payment.
Remember to provide full workings and support your calculations with notes.
Note: the tax rate from FY2018 is 19%.
- Briefly explain the process of taxing company chargeable gains in the UK.
CONTINUE TO QUESTION 2
Question 2 Income Tax (25 marks)
Jim Farmer is employed by Gambit Ltd as an engineer. The following information is available for the tax year 2019/20:
- During the tax year 2019/20 Jim was paid a gross annual salary of £45,600 by Gambit Ltd. Income tax of £15,558 was deducted from this figure under PAYE.
- In addition to his salary, Jim received two bonus payments from Gambit Ltd during the tax year 2019/20. The first bonus of £4,300 was paid on 30 April 2019 and was in respect of the year ended 31 December 2018. Jim became entitled to this first bonus on 10 April 2019. The second bonus of £3,600 was paid on 31 March 2020 and was in respect of the year ended 31 December 2019. Jim became entitled to this second bonus on 25 March 2020.
- Throughout the tax year 2019/20 Gambit Ltd provided Jim with a diesel powered motor car which has a list price of £22,500. The motor car cost Gambit Ltd £21,200, and it has an official CO2 emission rate of 232 g/km. Jim made a capital contribution of £2,000 towards the cost of the motor car when it was first provided to him. Gambit Ltd also provided Jim with fuel for private journeys.
- Gambit Ltd has provided Jim with living accommodation since 1 January 2009. The company had purchased the property in 2007 for £160,000, and it was valued at £185,000 on 1 January 2019.
Improvements costing £13,000 were made to the property during June 2015. The annual value of the property is £9,100.
- Throughout the tax year 2019/20 Gambit Ltd provided Jim with two mobile telephones. The telephones had each cost £250 when purchased by the company in January 2016.
- On 5 January 2020 Gambit Ltd paid a health club membership fee of £510 for the benefit of Jim.
- During February 2020 Jim spent five nights overseas on company business. Gambit Ltd paid Jim a daily allowance of £10 to cover the cost of personal expenses such as telephone calls to his family.
- During the tax year 2019/20 Jim received building society interest of £2,200 and dividends of £800. These were the actual cash amounts received.
- On 4 August 2019 Jim received a premium bond prize of £100.
- During the tax year 2019/20 Jim made gift aid donations totaling £2,340 (net) to national charities.
- Calculate the income tax payable by Jim Farmer for the tax year 2019/20. Assume the official rate of interest is 2.5%.
- Define the terms tax avoidance and tax evasion.
Question 3 Capital Gains Tax (20 marks)
John Ball is resident and ordinarily resident in the United Kingdom for tax purposes. He disposed of the following assets during the tax year 2019/20:
- On 21 April 2019 John sold a freehold office building for £246,000. The office building had been purchased on 3rd January 1990 for £104,000. John has made a claim to rollover the gain on the office building against the replacement cost of a new freehold office building that was purchased on 14 January 2019 for £136,000.
Both office buildings have always been used entirely for business purposes in a wholesale business run by John as a sole trader.
- On 26 May 2019 John incorporated a retail business that he had run as a sole trader since 1 June 2009.
The market value of the business on 26 May 2019 was £200,000. All of the business assets were transferred to a new limited company, with the consideration consisting of 140,000 £1 ordinary shares valued at £140,000 and £60,000 in cash. The only chargeable asset of the business was goodwill and this was valued at £120,000 on 26 May 2019. The goodwill has a nil cost. John took full advantage of the available incorporation relief. John has not made a claim for entrepreneurs' relief.
- On 17 August 2019 John made a gift of his entire holding of 10,000 £1 ordinary shares (a 100% holding) in Walls Ltd, an unquoted trading company, to his daughter. The market value of the shares on that date was £220,000. The shares had been purchased on 8 January 2011 for £112,000. On 17 August 2019 the market value of Walls Ltd’s chargeable assets was £180,000, of which £150,000 was in respect of chargeable business assets. John and his daughter have elected to hold over the gain on this gift of a business asset.
- On 3 October 2019 an antique vase owned by John was destroyed in a fire. The antique vase had been purchased for £49,000 on the 7th November 2010. John received insurance proceeds of £68,000 on 20 December 2018 and on 22 December 2019 he paid £69,500 for a replacement antique vase. John has made a claim to defer the gain arising from the receipt of the insurance proceeds.
- On 9 March 2020 John sold ten acres of land for £85,000. He had originally purchased twenty acres of land on 29 June 2003 for £120,000. The market value of the unsold ten acres of land as at 9 March 2020 was £65,000. The land has never been used for business purposes.
Calculate John’s chargeable gains for the tax year 2019/20, clearly identifying the effects of the reliefs claimed in respect of disposals (1) to (5).
Remember to provide full workings and support your calculations with notes.
CONTINUE TO SECTION B
You are required to answer ONE question from Section B.
Question 4 - Taxation principles and policy [25 marks]
“How do we identify a good tax system when we see one? One way is to see how it stacks up against a ‘checklist’ of desirable properties. The most famous is the four canons of taxation set out by Adam Smith in The Wealth of Nations:
- The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities
- The tax which the individual is bound to pay ought to be certain and not arbitrary
- Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.
(iv) Every tax ought to be so contrived as to take out of the pockets as little as possible, over and above that which it brings into the public treasury of the state.”
(Mirrlees Review, 2011, Tax by Design, p.22)
You are required to critically examine whether these characteristics provide the framework for a good tax system in an open economy in the twenty-first century. Support your discussion with examples from the UK tax system.
Question 5 - Debates in tax: Corporation tax [25 marks]
“Governments and policy-makers are increasingly faced with the trade-off of protecting their tax revenue bases while maintaining their international competitiveness. This is exemplified by the international trend of jurisdictions reducing their headline corporate tax rates, which is often justified on the basis that these cuts will lead to improved efficiency and integrity outcomes.”
(Kayis-Kumar, A, 2018, eJournal of Tax Research, vol. 16, no. 1, pp. 201-235)
Given that UK Corporation Tax is expected to raise £55 billion in 2018-19 (7.2% of government revenue) you are required to critically examine and evaluate the role of corporation tax in the UK.
End of Examination Questions
Tax rates & Allowances follow on the next two pages.
Rates and allowances supplement 2019 - 20
Income tax allowances table
Income Tax allowances
Income limit for personal allowance
Blind person's allowance
Transferable tax allowance
Personal savings allowance
Basic rate taxpayers
Higher rate taxpayers
Income tax rates and taxable bands
£0 - £5,000* (/ £2,000**)
£0 / £5,001 (/ £2,001) - £37,500
£37,501 - £150,000
* 0% rate on savings only available up to £5,000 of savings income if non-savings income does NOT exceed this sum. In addition a £1,000 personal savings allowance is available to basic rate taxpayers (£500 for higher rate and £nil for additional rate taxpayers).
** Dividend allowance of £2,000
CAPITAL GAINS TAX
Standard Rate 10%*
Higher rate 20%*
Annual exemption £12,000
Chattels exemption <= £6,000
Entrepreneurs relief : Limit £10,000,000
*An 8% surcharge applies in respect of residential properties
Corporation tax rate
VALUE ADDED TAX
Standard rate 20%
Reduced rate 5%
Zero rate 0%
Registration threshold from 1 April 2019: £85,000 per annum
(unchanged from April 2017)
CAR AND FUEL BENEFIT
gms / km
gms / km
0 – 50
140 – 144
51 – 75
145 – 149
76 – 94
150 – 154
95 – 99
155 – 159
100 – 104
160 – 164
105 – 109
165 or more
110 – 114
115 – 119
120 – 124
125 – 129
130 – 134
135 – 139
Diesel has a 4% supplement.
The maximum charge is 37% (for petrol and diesel).
Actual CO2 figure rounded down to nearest 5 g/km
Set figure used in car / fuel benefit calculation £24,100
AUTHORISED PRIVATE CAR MILEAGE RATES
Business miles Allowance rate per mile
0 – 10,000 45p
10,000 + 25p
Excess payments over these rates are taxable.
Shortfalls can be claimed as tax relief by the employee.
END OF EXAMINATION