There are six (6) questions. Questions one to five are worth 10 marks each and question six is worth 50 marks. Answer ALL questions.
Tax tables are provided on pages 10 -13.
Question 1
Mr Shea is an employee with a remuneration package of £95,000 per annum
and his employer provides him with the following benefits during the tax year
2019/20:
- The personal use of two mobile phones, each costing £1,800
- Medical insurance of market value £1,000 but the company got a 35% group discount
- Two new suits which cost the company £250 each but retail value was £400 each
- An interest free loan of £11,000 from 6 September 2019.
Calculate the National Insurance Contributions due for 2019/20 from both Mr Shea and his employer in respect of his employment package.
State two actions that Mr Shea should do to ensure his taxable benefit in the future is reduced.
(10 marks)
Question 2
Ann, Bea and Cal have been in partnership for many years preparing
accounts to 30 September each year. The partnership agreement is that Bea
receives £15,000 per annum salary and the balance of profits is shared
equally between the three partners. During the year ended 30 September
2019 the partnership made trading profits of £180,000.
Ann wants to claim rollover relief in respect of the office that she owns but the partners trade from.
Calculate the trading profits assessable on each partner and state the tax year of assessment in respect of 30 September 2019, explaining how and when the tax is payable.
State the conditions that must apply to allow Ann to make a claim for rollover
relief. (maximum word count 200 words)
(10 marks)
Question 3
In 2019/20 Sasha earns a salary of £125,750 per annum and bank interest of
£12,800 and dividends of £13,500. Sasha uses her own car to visit clients
and during 2019/20 her business mileage totals 25,000 miles. Her employer
reimburses her at a rate of 50p per mile.
Sasha’s civil partner is a higher rate taxpayer in 2019/20 but will have no source of income in 2020/21 due to a career break.
Calculate Sasha’s income tax liability for 2019/20 and explain what changes
Sasha and her civil partner should make for the tax year 2020/21 outlining
the tax savings that Sasha could achieve by making these changes.
(10 marks)
Question 4
Bethany began trading on 1 May 2016 and made up accounts for the year ending 30 April 2017. She then made up accounts annually thereafter. Her results have been as follows:
Period |
£ |
1.5.16 – 30.4.17 |
21,000 |
1.5.17 – 30.4.18 |
24,000 |
1.5.18 – 30.4.19 |
27,000 |
On submission of the accounts to HMRC, the inspector of taxes dealing with Bethany’s case asks for further breakdown of the expense accounts relating to entertaining, motor expenses, repairs and employee salary costs.
Calculate Bethany’s assessments for the first four tax years indicating the overlap created and explain when relief will be obtained for this overlap. Explain to Bethany why the inspector is requesting further information. (maximum word count 200 words)
(10 marks)
Question 5
Kish is an employee of Sin Ltd and his only source of income in 2019/20 is the
remuneration received from Sin Ltd. Kish pays 5% of his salary into the
company pension scheme and Sin Ltd pays 2% contributions. Kish also
paid £24,000 (net) into his personal pension scheme.
The company accounts show the following remuneration paid to Kish:
|
Salary |
Bonus |
|
£ |
£ |
30 June 2019 |
120,000 |
5,000 |
30 June 2020 |
128,000 |
8,000 |
The bonuses are paid on 1 January following Sin Ltd’s year end.
Calculate Kish’s total tax liability for the tax year 2019/20. Calculate the maximum personal pension contribution that Kish can make in the tax year 2020/21 assuming his salary remains the same.
You should assume the tax rates for 2019/20 continue to apply in the future.
(10 marks)
Question 6 Harjot
Harjot worked for Soul Ltd as a music producer until 31 July 2019. He earned a salary of £46,200 per annum (PAYE £4,000) and received the following benefits:
From 6 April 2019 until 31 July 2019, Soul Ltd provided Harjot with a petrol motor car. The motor car cost Soul Ltd £24,000 and had carbon dioxide emissions of 143g/km. Soul Ltd also provided Harjot with fuel for private journeys. Harjot returned the car on leaving the company on 31 July 2019.
On 30 April 2019, Soul Ltd paid private medical insurance of £360 for Harjot.
Harjot contributed 6% of his gross salary into Soul Ltd’s occupational pension scheme. The company also contributed 4%.
On 1 June 2019, Harjot paid a professional subscription of £220 to the Guild of Producers, a HM Revenue and Customs’ approved professional body.
Harjot resigned from Soul Ltd on 31 July 2019 to focus on running his own recording studio. He set up in business many years ago and his income statement for the year ended 31 March 2020 is as follows:
|
£ |
£ |
Revenue |
|
76,885 |
Depreciation |
1,780 |
|
Motor expenses (see Note i) |
5,000 |
|
Professional fees (see Note ii) |
1,890 |
|
Repairs and renewals (see Note iii) |
2,124 |
|
Entertaining and sundry items (see Note iv) |
22,860 |
|
|
|
33,654 |
Net profit |
|
43,231 |
Notes to the accounts:
- i) During the year to 31 March 2020, Harjot drove a total of 4,200 miles, of which 3,360 were for business journeys. These journeys were made in the motor car acquired by Harjot in October 2019 (see Note v).
- ii) The figure for professional fees includes £400 for accountancy fees incurred to draft his accounts and £510 for personal tax advice.
iii) The figure for repairs and renewals relates to repairs to sound equipment during the period.
- iv) Entertaining includes £370 for entertaining clients. Sundry items include £120 for parking fines for Harjot, £400 for a specific write off of trade receivables and a further £2,000 general provision.
- v) Harjot’s main pool had a tax written down value of £15,000 at the start of the year. He acquired the following plant and machinery during the year for use in his business:
|
|
£ |
October 2019 |
Recording equipment |
15,130 |
October 2019 |
Car for Harjot |
|
|
(CO2 emissions 185g/km) |
25,400 |
January 2020 |
Office furniture |
1,300 |
Harjot received other income from investments as follows:
|
£ |
Dividends received 10 April 2019 |
2,671 |
Dividends received 8 April 2020 |
2,000 |
Dividends in Harjot’s share ISA account May 2019 |
370 |
Bank deposit interest received 15 March 2020 |
1,720 |
From 1 August 2019, Harjot paid £280 (net) per month into a personal pension plan under a relief at source arrangement.
Harjot has already made payments on account in respect of tax for 2019/20 in the sum of £1,500 each.
In order to finance his new business, Harjot disposed of the following assets in August 2019:
- An antique table inherited from his mother. His mother purchased the table for an original cost of £1,500 and the value of the table when she died was £3,200. The table was sold for proceeds of £5,700.
- Half of a 100 acre plot of land purchased in 1989 for £180,000. The 50 acre plot was sold for £500,000 to a house developer. The unsold plot was worth only £250,000 as it was not suitable for development.
In order to expand the business next year Harjot has decided that he needs to work with his brother Shiven. Either Harjot may employ his brother part time, paying him a salary and tax efficient benefits whilst Shiven continues to be employed by Zonker Ltd.
Alternatively Shiven will resign from his job with Zonker Ltd and go into partnership with Harjot.
You are required to:
- Calculate Harjot’s taxable income from employment from Soul Ltd for the tax year 2019/20.
(7 marks)
- Calculate the National Insurance Contributions (NICs) payable by Harjot for 2019/20 in respect of his employment package.
(2 marks)
- Calculate Harjot’s adjusted trade profit, after capital allowances, for the year ended 31 March 2020 and calculate any NICs due in respect of the business.
(11 marks)
- Calculate Harjot’s total Income Tax payable for 2019/20 stating the due date.
(11 marks)
- Explain the difference in deductibility of expenses for self-employed and employed taxpayers. (maximum word count 60 words)
(3 marks)
- Compute the capital gains tax payable by Harjot for 2019/20. Suggest four assets that Harjot could invest in that will not create a capital gains tax liability when sold.
(6 marks)
- Advise Harjot on four tax efficient benefits in kind that he could offer his brother and explain why these benefits may be more tax efficient than receiving salary. (maximum word count 100 words)
(5 marks)
- Explain the tax consequences if Harjot’s brother joins the business as a partner. (maximum word count 100 words)
(5 marks)
TOTAL FOR THIS SECTION – 50 MARKS
Tax Rates and Allowances 2019/20
Income Tax
Main Personal Allowances £
Personal allowance |
12,500 |
Income limit for personal allowance (Note 1)Marriage allowance (Note 2) |
100,0001,250 |
|
|
Note 1: When income exceeds the limit a clawback applies reducing the personal
allowance by £1 for every £2 above the limit.
Note 2: Spouses/civil partners are able to transfer £1,250 of their unused personal
allowance to their partner if both are basic rate taxpayers.
Tax Rates and Taxable Bands
|
|
Normal rate |
Dividend rate |
Basic rate |
£0 – £37,500 |
20% |
7.5% |
|
|
|
|
Higher rate |
£37,501 – £150,000 |
40% |
32.5% |
|
|
|
|
Additional rate |
Over £150,000 |
45% |
38.1% |
|
|
|
|
|
|
Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal
allowance have been applied as follows:
£
Basic rate taxpayers 1,000
Higher rate taxpayers 500
Additional rate taxpayers Nil
Note 4: The first £2,000 of dividend income is taxed at 0% for all taxpayers.
Note 5: The first £7,500 of rental income from renting part of the taxpayer’s home is tax
free if rent a room relief is claimed.
Pension Scheme Limits
Annual allowance |
£40,000 |
Lifetime allowance |
£1,055,000 |
Maximum contribution than can qualify for tax relief without earnings |
£3,600 |
ISA Annual Subscription Limit
Overall Individual savings Accounts limit £20,000
Lifetime ISA (18 to 40) £4,000
Help to buy ISA £1,000 (initial maximum investment) then £200 per month
Relevant to Employees
Authorised Mileage Allowances
When an employee has business usage of their own car
Up to 10,000 miles |
45p |
Over 10,000 miles |
25p |
Car Benefit Percentage
0 – 50 g/km |
16% |
51 – 75 g/km |
19% |
76 – 94 g/km95g/km (the base level of emissions) |
22%23% |
Each additional 5 g/km above the base level |
+1% |
Diesel additional surcharge |
+4% |
Maximum rate |
37% |
Car Fuel Benefit
The base figure for calculating car fuel benefits £24,100
Relevant to Traders
Capital Allowances
Plant and Machinery |
|
Main pool |
18% |
Special rate pool |
6% |
Energy & water efficient equipment |
100% |
Motor Cars |
|
C02 emissions up to 50 grams per kilometre |
100% |
C02 emissions over 50 grams up to 110 grams per kilometre |
18% |
C02 emissions over 110 grams per kilometre |
6% |
Annual Investment allowance
Rate of allowance
Expenditure limit |
100%
£1,000,000 |
Capital Gains Tax
Annual exemption |
£12,000 |
|
Standard rate of tax (assets other than residential property) |
10% |
|
Higher rate of tax (assets other than residential property) |
20% |
|
Standard rate of tax on residential property |
18% |
|
Higher rate of tax on residential property |
28% |
|
Entrepreneurs’ relief:
For trading businesses and companies held for at least one year (minimum 5% employee shareholding) |
|
Lifetime limit of gainsRate of tax
Lease Premium Formulae
Capital proportion is 2% (n-1) P
Chattels Formulae
Gains restricted to 5/3(gross proceeds – £6,000) |
£10,000,00010% |
|
National Insurance (not contracted-out rates)
Primary |
|
% |
Class 1 employees |
£0 – £8,632 per year |
Nil |
|
Above £8,632 – £50,000 per year |
12.0 |
|
Above £50,000 per year |
2.0 |
Secondary |
|
|
Class 1 employer |
£0 – £8,632 per year |
Nil |
|
Above £8,632 per year |
13.8 |
|
|
|
Class 1A employer |
On benefits in kind |
13.8 |
Sole traders |
|
|
Class 2 |
Paid weekly If earnings are above the small profits threshold of £6,365 pa |
£3pw |
Class 4 |
£0 – £8,632 per year |
Nil |
|
Above £8,632 – £50,000 per year |
9.0 |
|
Above £50,000 per year |
2.0 |
Rates of Interest
Official rate of interest for benefits in kind |
2.50% |
Rate of interest on underpaid tax |
3.25% |
Rate of interest on overpaid tax |
0.50% |
Supplementary Instructions
- You should assume that the tax rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future unless you are instructed otherwise.
- Calculations and workings need only be made to the nearest £.
All apportionments should be made to the nearest