Section A (Answer ALL questions)

1. Alexei Carr is 31 years old and is employed by a boutique investment bank as a corporate restructuring consultant. Alexei’s taxable income for the tax year 2019/20 was £35,000.

Alexei made a number of disposals that were subject to capital gains tax during the tax year 2019/20. He does not qualify for either entrepreneurs’ relief or investors’ relief.

The gains did not arise from residential property or carried interest.

What rate of capital gains tax will apply to the disposals made by Alexei during the tax year 2019/20?

A. 10%

B. 18%

C. 45%

D. 20%

2. Oliver Manning has adjusted net income of £123,000 for the tax year 2019/20. Oliver is 29 years old and is married to Bradley Wilson. Bradley is 28 years old; his adjusted net income for the tax year 2019/20 was £94,200.

What is Oliver Manning’s personal allowance for the tax year 2019/20?

A. £12,500

B. £1,250

C. £1,000

D. £0

3. Zhang Wei Watson is employed as a VAT specialist at Dolphins LLP, a large advisory and professional services firm. During the tax year 2019/20, Dolphins LLP provided Zhang Wei with a van and a mobile ‘phone. Zhang Wei used the van and the mobile ‘phone for both work and private purposes.

Which of the following types of National Insurance contributions must Dolphins LLP pay in the contribution period 2019/20?

A. Class 1 primary and Class 4

B. Class 1 primary and Class 1A

C. Class 1 secondary and Class 1A

D. Class 1 secondary and Class 4

4. Sanjida Darnold is employed as a specialist VAT consultant by Stoy Marwick LLP, a large firm of accountants.

One of Stoy Marwick LLP’s clients has recently registered for VAT and Sanjida has been asked to advise on the rates of VAT to be applied to the following sales: ‘basic’ food sold from the client’s retail outlet, hot ‘takeaway’ food sold from the client’s restaurant and a book entitled ‘How to cook the perfect pasta’.

Which of the VAT classifications are correct?

A. The ‘basic food’ and the hot takeaway food are exempt; the book is zero rated

B. The ‘basic food’ and the hot takeaway food are standard rated; the book is zero rated

C. The ‘basic food’ and the book are zero rated; the hot takeaway food is standard rated

D. The ‘basic food’ is exempt; the hot takeaway food and the book are standard rated

5. Francois Montana is 33 years old and was born in San Francisco, USA. Francois worked as an economic advisor at the Bank of England from 1 September 2016 to 31 August 2019; during this period, Francois lived in London, UK.

On completion of his duties for the Bank of England, Francois spent the period 1 September 2019 to 30 September 2019 on holiday in the New Forest, UK. He then spent the period 1 October 2019 to 10 October 2019 on holiday in the Lake District, UK.

On 11 October 2019, Francois travelled to Pretoria, South Africa, where he lived and worked as a corporate tax specialist for the South African Reserve Bank until 31 January 2020. He returned to his permanent home in San Francisco, USA, on 1 February 2020.

What is Francois’s status for UK income tax in 2019/20?

A. UK resident and USA domiciled

B. Non-UK resident and USA domiciled

C. South Africa resident and UK domiciled

D. UK resident and UK domiciled

6. Raiders Ltd had tax adjusted trading profits of £179,000 and qualifying charitable donations of £3,000 for the period ended 31 March 2020.

What is Raiders Ltd’s corporation tax liability for the period ended 31 March 2019?

A. £35,800

B. £31,010

C. £34,010

D. £33,440

7. Lisa Rivers is a personal tax advisor; she owns and manages Rivers Wealth Management. Rivers Wealth Management is an unincorporated business entity: it is not a limited company. Lisa receives drawings from Rivers Wealth Management. The business does not have any employees. Lisa did not dispose of any assets during the tax year 2019/20.

Which of the following are chargeable on Lisa Rivers for the tax year 2019/20?

A. Income tax, Class 4 National Insurance contributions and capital gains tax

B. Income tax and capital gains tax

C. Income tax, corporation tax and Class 1 secondary National Insurance contributions

D. Income tax, Class 2 National Insurance contributions and Class 4 National Insurance contributions

8. Eli Favre owns an investment portfolio of tangible and intangible assets; he is also a keen collector of vintage and classic cars. Eli made a number of disposals (i.e. sales) from his investment portfolio during the tax year 2019/20.

Which of the following disposals would be exempt or wholly relieved from capital gains tax in 2019/20?

A. Sale of an item of tangible usable property that had a predictable useful life of less ten years; the asset cost £3,000 and was sold for £4,300

B. Part disposal of 220 shares in Flacco plc., a company that is resident in London, UK; the shares were acquired in three acquisitions of £13,000 for 210 shares on 1 December 1998, £410 for five shares on 1 February 1999 and £490 for five more shares on 1 March 1999, respectively. Net disposal consideration on the part disposal were £49,300

C. Sale of Eli’s principal private residence (i.e. his main residence), a house in Durham, UK. Eli acquired the house in 1999

D. Sale of a vintage car to Michael Newton. The vintage car had a market value on disposal of £28,000, but Eli sold it to Michael for a total consideration of £25,000. The vintage car cost £13,000 when acquired on 1 January 2010

9. Packers plc sold goods and services to Vikings Ltd. Packers plc paid the related VAT output tax to HMRC. Vikings Ltd has gone into liquidation. Amounts owed to Packers plc by Vikings Ltd will not be paid.

Which two of the following are conditions that must be met in order for VAT bad debt relief to be claimed by Packers plc?

A. Sale invoices must have been outstanding for at least three months after the date of supply

B. The claim for VAT bad debt relief must be made within two years and six months from the date that payment was due

C. The debt must have been written off in the accounting records

D. A copy of the sales invoice must have been retained

10. Guanming is an employee of Chiefs plc, a large firm in the oil and gas sector.  During the tax year 2019/20, Guanming was paid a salary and was provided with a van. Guanming used the van for both work and private purposes. Chiefs plc did not place any restrictions on Guanming’s private use of the van. Chiefs plc met the cost of fuel for the van, including that used on private journeys by Guanming. Guanming used the van throughout the tax year 2019/20.

What is the taxable benefit, if any, will arise as a result of Guanming’s use of the van?

A. £3,430

B. £655

C. £4,085

D. £0

Section B (Answer ONE question)

Question 11

Tunku Manning is employed as market analyst by Cardinals PLC, a boutique investment bank.

Tunku was born in the United Kingdom (UK) and his permanent home (a house) is in Durham, UK. He was UK resident for income tax purposes throughout the tax year 2019/20. He has worked for Cardinals PLC since 2017.

Cardinals PLC headquarters is in Durham UK. The bank also has offices in London, UK and Singapore. Tunku’s job required him to make regular visits to Cardinals PLC’s offices in London and Singapore during 2019/20. Whilst he was working at Cardinals PLC’s offices in London, the bank provided Tunku with non-job related living accommodation.

Tunku is 33 years old and married Natalie Rahman on 1 August 2019. Natalie is 38 years old and had a taxable income of £94,040 in the tax year 2019/20. Natalie is employed as a corporate tax specialist at Cardinals PLC. Natalie was UK domiciled and UK resident for income tax purposes throughout the tax year 2019/20.

Cardinals PLC have offered both Tunku and Natalie the opportunity to temporarily relocate to work at the bank’s Singapore office in 2020/21. If they accept, Tunku and Natalie will live and work in Singapore for a total of 145 days during 2020/21; Cardinals PLC will then pay for Tunku and Natalie to enjoy a 21 day holiday in Tanjung Rhu, Malaysia and Bali, Indonesia. Even if he accepts the opportunity to leave the UK for a total of 166 days during 2020/21, Tunku estimates that he will spend the other 199 days of that year living and working in Durham. He does not plan to sell his house in Durham.

The following information is relevant for the tax year 2019/20:

(1) During the tax year 2019/20, Tunku received a gross annual basic salary of £93,120. Income tax of £59,960 was deducted from Tunku’s gross salary using the Pay As You Earn (PAYE) system.

(2) Tunku’s performance in his role as a market analyst was assessed to be ‘excellent’ by Cardinals PLC. Tunku received a performance related bonus of £29,000 on 30 November 2019. He was awarded a second performance related bonus of £18,000: this amount was received by Tunku on 30 April 2020. Tunku’s contract of employment states that he was entitled to receive this second bonus on 1 March 2019.

(3) During the tax year 2019/20, Tunku made charitable donations of £620 under the Gift Aid scheme.

(4) During the tax year 2019/20, Tunku received income in the form of winnings from National Savings Premium Bonds of £15,000. This amount was received on 1 December 2020. Tunku also received income in the form of interest on an ISA product of £70: this amount was received on 31 March 2020.

(5) An investment portfolio of shares and bonds in UK companies provided Tunku with income of £19,120 during the tax year 2019/20. £18,000 relates to income in the form of dividends. £1,120 relates to income in the form of interest income from corporate loans.

(6) Tunku has a fixed interest savings account that is provided by a major retail bank. He received income in the form of interest from this account of £3,100. This amount was received on 1 January 2019. Natalie has suggested that Tunku should transfer the amount deposited in this fixed interest savings account into an Individual Savings Account.

(7) Cardinals PLC loans a laptop computer to Tunku: Tunku uses the computer for both work-related and private purposes. He has stated that private use of the computer amounts to no more than 30% of his total use of this asset.

(8) Cardinals PLC provided Tunku with rent-free living accommodation for use during his visits to the bank’s offices in London. Tunku used this accommodation for a total of 12 days during the tax year 2019/20. Cardinals PLC acquired the property in 2016 for £2,650,000 and it was valued at £3,050,000 on 6 April 2019. Cardinals PLC added an extension to the property during 2017/18. The extension cost £410,000 and was completed by 1 September 2018. The annual rateable value of the property in the tax year 2019/20 was £51,600. The official rate of interest is 2.50%.

(9) Throughout the tax year 2019/20, Tunku was supplied with a car by Cardinals PLC. The car had a petrol-fuelled engine. Tunku used the car for both work and private purposes. The car retailed at a list price when new of £21,300. The car’s market value when first provided to Tunku was £18,900. The car had an official CO₂ emission rate of 110 grams per kilometre. Tunku made a capital contribution of £2,000 towards the cost of the car. All fuel is paid for by Cardinals, including fuel used by Tunku for private journeys.

(10) Cardinals PLC provides all of its employees with free use of a work-based sports and recreation facilities. The facilities are for the exclusive use of employees of Cardinals PLC: they are not available for use by the general public. The cost to Cardinals PLC of providing these facilities during the tax year 2019/20 was £720 per employee.

(11) Tunku made regular use of free bus travel to and from work at Cardinals PLC’s headquarters in Durham throughout 2019/20. Cardinals PLC provided Tunku with an annual season ticket at a cost of £620. The bus used by Tunku was also available for use by the general public

(12) Tunku made three journeys to Singapore during the tax year 2019/20. Tunku was required to make these journeys as part of his duties as a market analyst for Cardinals PLC. Each of these journeys required Tunku to stay for five nights before returning to Durham. Cardinals PLC paid Tunku a personal expense allowance of £40 per night for each night that he spent in Singapore.

Required:

(a) Calculate income tax payable or repayable for Tunku Manning for the tax year 2019/20. Items that are non-taxable/exempt from UK income tax should be clearly indicated by the use of zero or noted as ‘exempt’ where appropriate. (71 marks)

(b) Explain the UK income tax implications if Tunku were to accept Cardinals PLC’s offer to temporarily relocate to work at the bank’s Singapore office in 2020/21 (assume that the current rules for residence and domicile will apply). (20  marks)

(c) Critically discuss Natalie’s suggestion that Tunku should transfer the amount deposited in the fixed interest savings account into an Individual Savings Account. (9 marks) (Total 100 marks)

Question 12

Joanne Rodgers is 30 years old and is self-employed. Joanne is a physiotherapist: she owns and manages a business that provides physiotherapy and injury rehabilitation services to professional and semi-professional sports clubs in the United Kingdom.

The business is called ‘Sporting Solutions’. Joanne is a sole trader: the business is not a limited company. Joanne has owned and managed Sporting Solutions for many years and the business has always been profitable. The business has clinics at two sites: Newcastle upon Tyne, UK, and London, UK.

Joanne is married to Lou Rodgers. Lou is 29 years old and had a taxable income of £43,590 in the tax year 2019/20. Joanne and Lou married in 2018 and were both UK resident for income tax purposes throughout the tax year 2019/20.

Financial statements for Sporting Solutions are prepared to 31 March. The tax written down values (twdv) at 1 April 2019 for Sporting Solutions were as follows:

	(£)
Main pool	89,205
Special rate pool	15,566

Sporting Solutions does not claim the Structures and Buildings Allowance.

During the tax year 2019/20, Sporting Solutions acquired the following items of plant and machinery:

Date	Item	(£)
9 April 2019	Equipment (a)	7,000
1 October 2019	Car (CO2 emissions 205g/km)	7,200
1 December 2019	Thermal insulation (b)	4,600
31 January 2020	Water saving equipment	3,920
12 February 2020	Car (CO2 emissions 65g/km) (c)	19,000
15 February 2020	Van	11,000

Notes

(a) The equipment acquired on 9 April 2019 was used by Sporting Solutions for the delivery of physiotherapy and injury rehabilitation services.

(b) The thermal insulation acquired on 1 December 2019 was installed at Sporting Solutions clinic at Newcastle upon Tyne.

(c) The car acquired on 12 February 2020 was used by Joanne for business purposes only. .

During the tax year 2019/20, Sporting Solutions disposed of the following items of plant and machinery:

Date	Item	(£)
1 February 2020	Car (CO2 emissions 195g/km) (d)	10,000
3 April 2020	Equipment	1,600

Notes

(d) This car was used by Joanne for both business and private purposes. Joanne estimates (and HMRC agree) that private use of this car during the tax year 2019/20 was 45%. This car was acquired for £18,000.

Net profit per the financial statements for the year ended 31 March 2020 was £275,210. This figure was stated after the addition and deduction, respectively, of the following items of income and expenditure:

Item	(£)
Depreciation	18,600
Employee salaries (a)	36,000
Accountancy fees (b)	2,500
Bank interest receivable	920
Donations to charity (c)	500
Fines and penalties (d)	240
Provisions for irrecoverable debts (e)	2,180
Entertainment (f)	9,000

Notes

(a) Employee salaries

Sporting Solutions employs Joanne’s brother, Henry Rodgers, as a fitness trainer. The business paid Henry a salary of £32,000 during the tax year 2019/20. Similar roles in physiotherapy and injury rehabilitation businesses attract a salary of £25,000. The business paid its other employee (a part-time office assistant) a salary of £11,000.

(b) Accountancy fees

Sporting Solutions paid £1,800 for accountancy fees arising from the preparation of the business’s financial statements. £700 relates to accountancy fees incurred due to an HMRC investigation into Sporting Solutions’ VAT returns for 2019/20.

(c) Donations to charity

A donation of £500 was made to a charity that provides mental health care to professional and semi-professional sportspeople. The charity is considered to be both ‘small’ and ‘local’.

(d) Fines and penalties

Sporting Solutions failed to meet a deadline for the submission of a VAT return in 2019/20: a penalty of £200 was incurred as a result of this breach. The business has one employees: one of these employees (the office assistant referred to in note (a)) incurred a parking fine of £40 whilst undertaking work-related duties.

(e) Provisions for irrecoverable debts

£1,000 relates to an increase in Sporting Solutions’ general provision for doubtful debts. £1,180 relates to a specific provision for irrecoverable debts.

(f) Entertainment

£3,000 relates to entertaining of employees. £3,000 relates to entertaining of potential customers. £3,000 relates to entertaining of suppliers.

The following information is also relevant for the tax year 2019/20:

(1) During the tax year 2019/20, Joanne received income in the form of interest on a fixed interest savings account of £400. This amount was received on 1 January 2020. Joanne is considering withdrawing her deposit in this fixed interest savings account and investing in some National Savings Certificates.

(2) Joanne won a prize of £1,000 in a local lottery. The prize was received on 1 December 2019.

(3) An investment portfolio of shares in UK companies provided Joanne with income of £4,090 during the tax year 2019/20.  £3,000 relates to income in the form of dividends. £1,090 relates to income in the form of interest income from corporate bonds.

(4) During the tax year 2019/20, Joanne made contributions of £11,000 to a personal pension scheme. Joanne also made charitable donations of £2,000 under the Gift Aid scheme.

(5) Joanne paid income tax payments on account (i.e. advance payments of income tax) for the tax year 2019/20 of £172,680.

Joanne is committed to meeting the needs of Sporting Solutions’ clients and to maximising profits from her business. She is keen to take advantage of the simplified rules for the calculation of tax adjusted trading profits.

Joanne believes that the simplified rules will allow her to focus on managing the business; she has asked you, as her tax accountant, to apply the simplified rules for the tax year 2019/20.

Required:

(a) Calculate tax adjusted trading profits for Sporting Solutions for the tax year 2019/20. (29 marks)

(b) Calculate income tax payable or repayable for Joanne for the tax year ended 5 April 2020. Items that are non-taxable/exempt from UK income tax should be clearly indicated by the use of zero or noted as ‘exempt’ where appropriate. (43 marks)

(c) Advise Joanne on the characteristics of the simplified rules for the calculation of tax adjusted trading profits. Your advice should include a statement as to whether these rules can be applied in the calculation of Joanne’s income tax payable for the tax year 2019/20. (23 marks)

(d) Critically discuss the income tax effects of Joanne’s plan to invest in some National Savings Certificates. (5 marks) (Total 100 marks)

Section C (Answer ONE question)

Question 13

Jets Exploration Ltd is a United Kingdom (UK) registered company that provides services to the oil and gas industry. The company has been trading for many years and has always been profitable. For the past nine years, Jets Exploration Ltd has been defined as a ‘large company’ for corporation tax purposes.

Fariza Rahman is the owner and chief executive of the company. As owner and chief executive of Jets Exploration Ltd, Fariza has decided to reward herself for services provided to the company by paying herself using dividends rather than a salary. Dividends of £180,230 were paid to Fariza; Jets Exploration Ltd also paid dividends of £21,020 to other shareholders.

The company’s main source of income is from the maintenance and repair of oil and gas installations in the North Sea. Income is also generated from the letting of industrial property to tenants: this letting activity is not related to the company’s main trading activity. Jets Exploration Ltd was incorporated in the UK and its headquarters are at its site in Jarrow, UK.

Jets Exploration Ltd invests in financial products and shares in other companies. Both of these activities generate additional income. Income is also generated from the provision of loan finance to other companies: this activity is not related to Jets Exploration Ltd’s main trading activity.

Financial statements for Jets Exploration Ltd are prepared to 31 March. Net profit per the financial statements for the year ended 31 March 2020 was £8,905,000. This figure was stated after the addition and deduction, respectively, of the following items of income and expenditure:

Item	(£000)
Depreciation	6,490
Dividends receivable	1,200
Interest receivable (a)	830
Interest payable (b)	1,060
Losses (c)	23
Repairs and maintenance (d)	10,655
Professional fees (e)	255
Charitable donations (f)	52

Capital allowances for 2019/20 were £8,790,000.

Notes

(a) Interest receivable

All of this interest receivable relates to income from investments in financial products.

(b) Interest payable

£780,000 relates to interest payable due to non-trade loan relationships. £280,000 relates to loan relationships for trade purposes.

(c) Losses

Losses of £23,000 were incurred due to the actions of Fariza Rahman. Following an investigation by UK police, a court determined that Fariza had acted dishonestly and that her actions had caused the losses to be incurred.

(d) Repairs and maintenance

£2,200,000 relates to expenditure to modify a dry dock facility at the company’s site at Jarrow: this expenditure enhanced the functionality of the dry dock facility. £8,455,000 relates to expenditure on repairs and maintenance that did not result in a material improvement to or enhanced the functionality of the company’s non-current assets.

(e) Professional fees

Jets Exploration Ltd raised debt finance via an issue of corporate bonds on 1 January 2020. Professional fees of £50,000 were incurred because of this bond issue. The company also paid professional fees of £205,000 to an investment bank in respect of advice regarding the raising of equity finance via a potential initial public offering (IPO) of ordinary shares. Following advice from the investment bank, it has been decided that the IPO will not take place.

(f) Charitable donations

A qualifying charitable donation of £30,000 was made on 1 January 2020. Another qualifying charitable donation of £22,000 was made on 18 April 2020. Both donations were made using the Gift Aid scheme.

Rental income from the letting of industrial property to tenants for the year ended 31 March 2020 was £1,110,000.  The following expenses were incurred in relation to the letting of the industrial property to tenants:

Item	(£000)
Depreciation	146
Services provided to tenants (a)	104
Administrative and management expenses (b)	225
Repairs and maintenance (c)	1,850
Water rates paid on behalf of tenants	120
Subscriptions (d)	15

Notes

(a) Services provided to tenants

£61,000 relates to security services. £43,000 relates to reception services.

(b) Administrative and management expenses

All of this expenditure relates to administrative and management expenses that were incurred due to the letting of industrial property.

(c) Repairs and maintenance

£1,380,000 relates to expenditure on the construction of an extension to an industrial building. £270,000 relates to repairs to existing industrial buildings. £200,000 relates to expenditure that did not materially improve the company’s stock of industrial property.

(d) Subscriptions

Jets Exploration Ltd subscribes to a professional body that represents organisations in the industrial property letting sector: this subscription cost £13,000. £2,000 relates to a subscription to a political party: this subscription did not result in a benefit to the company’s industrial property letting activity.

Required:

(a) Calculate Jets Exploration Ltd’s corporation tax liability for the year ended 31 March 2020. (48 marks)

(b) Determine the dates by which the corporation tax return must be submitted and the dates by which any payments of corporation tax must be paid. (10  marks)

(c) Calculate the total amount of National Insurance contributions (NICs) payable by Fariza Rahman for the tax year ended 2019/20 if she had accepted a salary from the company (rather than dividends). Ignore the timing of the receipt of income in the calculation of NICs. (23 marks)