The Chartered Tax Adviser Examination

Transcription

1 Candidate Number You must tick the box below if you have answered this Module. The Chartered Tax Adviser Examination November 2014 AWARENESS MODULE E TAXATION OF UNINCORPORATED BUSINESSES You should only answer this module if you have not sat/do not intend to sit the Taxation of Owner-Managed Businesses Advisory paper. Each question carries 5 marks. You should answer all 12 questions. You should answer questions in brief bullet points and/or summary computations where appropriate. You must answer questions in the spaces provided. You may not need all the space provided. You should make all calculations to the nearest month and pound unless stated otherwise. Unless otherwise indicated by the provision of additional table information, you may assume that 2013/14 rates and allowances continue to apply for 2014/15 and future years. Candidates referring to actual or pending rates and allowances for 2014/15 and future years will not be penalised.

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3 1. Patrick, who was born in 1960, has traded in partnership with Quentin for many years. The tax-adjusted trading profits of the partnership for the year ended 5 April 2014 were 100,000. Under the terms of the partnership agreement, Quentin is entitled to an annual salary of 20,000 and the remaining profits are shared between Patrick and Quentin in the ratio 3:2. During 2013/14 Patrick paid interest of 1,600 on a loan he had taken out to fund his capital contribution to the partnership. Patrick received no other income during 2013/14. Calculate Patrick s Income Tax liability for 2013/14. Page 3 of 26

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5 2. Helen has been trading for several years, preparing accounts to 5 April. Her trading results and other income are shown below (estimated for 2014/15). 2012/ / /15 Trading profits/(losses) 20,000 (110,000) 30,000 Other income 80,000 80,000 80,000 Helen claims relief for losses as early as possible. Briefly explain, with supporting calculations, how the trading loss of 2013/14 will be relieved. You are NOT required to calculate any Income Tax liabilities or tax savings. Page 5 of 26

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7 3. Judi, who made up her accounts to 31 December each year, incorporated her sole trader business on 31 December On incorporation, Judi transferred the stock of her business (market value 12,000) to the new company for 5,000. The stock had originally cost 4,000. Judi also transferred the plant which had been used in her business to the company for 12,800 (its market value) on 31 December The plant had been purchased for 30,000. At 1 January 2013, it had a tax written down value of 18,500 in the main pool. There were no other transactions in plant during the year. You are required to explain briefly, with supporting calculations, the effect on Judi s taxable trading profits for the year ended 31 December 2013, of the stock and plant transfers if: 1) No elections are made. 2) Elections are made in respect of these transfers. Page 7 of 26

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9 4. At 1 April 2013, Jennifer s business had a tax written down value on its main pool of 16,000. During the year ended 31 March 2014, she made the following payments: 1) Hire purchase payments of 13,600 in respect of an agreement entered into on 1 July 2013 for a machine with a cash price of 50,000. 1,100 of the payments represent interest. 2) Purchase for 20,000 of a car with CO 2 emissions of 145 g/km, used by Jennifer with 20% private use. Calculate Jennifer s maximum capital allowances for the year ended 31 March Page 9 of 26

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11 5. Paul has operated a sole trader business for 40 years. He undertook the following transactions in 2013/14: 1) He sold some fixed machinery for 210,000 which he had bought for 200,000 four years earlier. On the original purchase of the machinery, he had claimed relief for the replacement of business assets for a gain of 50,000. 2) He sold a property which he had used in his business, to his brother, for 250,000. The market value of the property on the date of sale was 350,000. The property had cost 60,000 in January 1978 and had a market value of 80,000 in March Assuming all beneficial claims are made, calculate Paul s total chargeable gains for 2013/14, showing clearly your treatment of each item and any relief claimed. Page 11 of 26

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13 6. Sophie operates a sole trader business. During the year ended 31 December 2013, she incurred the following items of expenditure: 1) Legal fees of 1,000 to renew a lease over the business s office building for another five years. 2) A redundancy payment of 40,000 to an employee who had worked for Sophie for several years. This included statutory redundancy pay of 8,000. 3) 500 for a counselling course for the redundant employee. 4) A donation to a political party of 10,000. 5) 250 on a lunch for overseas suppliers of the business. State briefly, giving reasons, whether each of these items of expenditure is deductible when calculating taxable trading profits for the year ended 31 December Page 13 of 26

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15 7. Tony was the sole shareholder of Homely Ltd from 1 January 2009 until 1 April 2014 when the company disincorporated. On that date, the trade and all the assets of the company were transferred to Tony. On 1 April 2014, the company had fixed assets worth 80,000 including goodwill ( 20,000), plant ( 10,000) and buildings ( 50,000). Tony knows that if he and the company were to make a joint claim for disincorporation relief, the transfers of the goodwill and buildings would not give rise to Corporation Tax. State the conditions, in addition to the joint election being made, that are satisfied here so that disincorporation relief applies. Page 15 of 26

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17 8. Fred started trading on 1 March 2012 and prepared his first set of accounts for the 18 months ended 31 August Fred then prepared annual accounts from this date. The tax-adjusted trading profit for the 18 month period to 31 August 2013 was 36,000. Calculate the taxable trading profits for each tax year relevant to this 18 month period of account, stating clearly the basis periods. Page 17 of 26

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19 9. Mayla had the following trading results: Trading profit/(loss) Year ended 5 April 2013 (10,000) Year ended 5 April ,000 These figures apply for both accounting and tax purposes. Mayla claimed relief for the 10,000 trading loss against general income in 2012/13. Calculate Mayla s National Insurance Contributions for 2013/14. Page 19 of 26

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21 10. Amy is a fitness instructor. At Healthy Gym plc, Amy teaches three classes a week at scheduled times. She is paid a fixed fee per class by the gym, regardless of how many people take the class. If fewer than three people turn up, the class is cancelled and Amy does not get paid. Individual members of Healthy Gym plc can also pay for personal training sessions led by Amy which take place at the gym and for which Amy receives 50% of the members payments, the remainder being retained by the gym for use of its premises and equipment. Both Amy and the gym publicise her personal training services. When Amy sprained her ankle, she asked her friend Tom to teach her scheduled classes instead and did not get paid for these. She was also unable to take any personal training sessions during this time. These were cancelled and no charge was made to the members who were inconvenienced. Amy sometimes teaches at a yoga studio and also writes articles on exercise for a magazine. Identify, and briefly explain, the relevant factors which indicate that Amy may be self-employed in respect of her work at Healthy Gym plc. Page 21 of 26

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23 11. James is self-employed and receives only trading income. His Income Tax liabilities and Class 4 National Insurance Contributions (NIC) for 2012/13 and 2013/14 were: 2012/ /14 Income Tax liability 2,379 4,112 Class 4 NIC 1,116 2,002 James had made on-time payments on account in respect of 2012/13, totalling 2,000. You are required to calculate: 1) The amounts payable by James under self-assessment on 31 January ) The penalty payable if such amounts are paid 40 days late. Page 23 of 26

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25 12. Meredith, Nina and Olive have been trading in partnership for many years, sharing capital profits equally. They are all additional rate taxpayers. The partnership had internally generated goodwill, although this was not shown on the balance sheet, and also owned a property which had cost 200,000. During 2013/14, the following events took place: 1) On 1 May 2013, the property was sold to a third party for 500,000. 2) On 1 July 2013, Olive left the partnership. 3) On 1 January 2014, the goodwill was valued and recognised in the accounts at 90,000. 4) On 1 April 2014, Philip and Quentin joined the partnership, after which all capital profits were shared equally between the four partners. Briefly explain the immediate Capital Gains Tax implications of these events. Page 25 of 26

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