Answer all questions in Section A and one question from Section B.

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1 UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination PERSONAL AND CORPORATE TAXATION NBS-3A7Y Time allowed: 3 hours Answer all questions in Section A and one question from Section B. Pages 2 and 3 have tables of Tax Rates and Allowances which are to be used in tax calculations. Reference to HMRC in this examination paper means H M. Revenue and Customs. Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator. NBS-3A7Y Module Contact: Mr John Wyett, NBS Copyright of the University of East Anglia Version 1

2 Page 2 Tax Tables : Income tax: Taxable bands Lower rate 0-2,560 10%**Savings Basic rate 0 or 2,561-35,000 20% non-savings, 20% savings, 10% dividends Higher rate 35,000 to 150,000 40% non-savings, 40% savings, 32.5% dividends Additional rate Over 150,000 50% non-savings, 50% savings, 42.5% dividends **the 10% lower rate applies only to taxable savings income up to 2,560 if non-savings income does not exceed this sum. Personal allowance 7,475 Capital Gains Tax rate: Standard rate 18%. Higher rate 28%. Annual exempt amount 10,600 Entrepreneurs relief, lifetime limit, 10,000,000 Pension scheme allowances: Annual allowance 50,000, lifetime allowance 1,500,000 Car benefit (petrol fuel): Emission rating qualifying for a 0% charge 0 gm/km Emission rating qualifying for a 5% charge 75gm/km Emission rating qualifying for a 10% charge 120gm/km Emission rating qualifying for a 15% charge 125gm/km (plus 1% for every 5gm CO2/Km above 125gm/Km to a maximum of 35%) The base figure for calculating the car fuel benefit is 18,800 HMRC authorised mileage allowance for motor cars (to 10,000 miles p.a.) 45p/mile, 25p/mile thereafter

3 Page 3 Capital Allowances, rates of allowances Item % Plant and machinery: Main pool 20 Special rate pool 10 Motor cars purchased since April 2009: CO2 emissions up to 110gm/km 100 CO2 emissions 111 to 160 gm/km 20 CO2 emissions over 160 gm/km 10 Annual investment allowance: First 100,000 of qualifying expenditure 100 Corporation tax (Financial year 2011) Small company rate 20% Full rate 26% Lower limit 300,000, Upper limit 1,500,000 Marginal Relief: (U-A) *N/A* marginal relief fraction (3/200) Official rate of interest: 4% (assumed) Value Added Tax. Standard rate 20% Reduced rate 5% Registration threshold 73,000 National insurance contributions. Class 2: 2.50 per week Class 4: Lower profits limit 7,225 Class 4: contributions rate 9% for profits in the range 7,225 to 42,475 a year and 2% over 42,475. Class 1: Employers national insurance contribution rate 13.8% on earnings over 7,072 a year ( 136 per week). Employees national insurance contribution rate 12% on earnings in the range 7,228 to 42,484 and 2% over 42,484 a year. TURN OVER

4 Page 4 SECTION A Answer all questions 1. a) Phillip is an engineer employed by Argos Ltd. The following details relate to his employment for Salary 160,000. Phillip contributed 5% of this salary to a pension scheme run by Argos Ltd. Bonus received February ,000. He paid a subscription to the Institute of Civil Engineers 300. He was provided with a motor car on 6 October 2011 which had a list price of 95,000, a petrol engine and emissions of 245 gm/km, he used this for business and private journeys. Fuel for all journeys was provided by Argos Ltd. He was provided with a laptop computer by his employer at a cost of 1,200 on 6 April Calculate the income tax liability for Phillip for (12 marks) b) Explain how Phillip s income tax liability would have changed if he had paid a gift aid donation to the Civil Engineering Research Trust (an HMRC approved body for gift aid) in YOU ARE NOT REQUIRED TO RE-CALCULATE THE INCOME TAX LIABILITY (4 marks) c) Phillip sold the following assets during the tax year An antique table sold for 6,500, original cost 2, A vintage car sold for 18,000, original cost 3, ,000 shares in Express Plc sold for 12,000 from his holding of shares in Express Plc which were acquired as follows: i. 2,000 shares bought in 2001 cost 2,500. ii. 8,000 shares bought in 2008 cost 12, Two hectares of land sold for 200,000, part of a five hectare holding originally purchased for 100,000, the market value of the remaining unsold land was 80, Phillip sold all his shares in Wisebuy Plc for 1,000, they originally cost 3,000.

5 Page 5 Phillip had capital losses brought forward from of 9,000. Calculate Phillip s total capital gains tax liability for (14 marks) 2. Zonga Ltd is a company incorporated in England and is UK resident. Zonga Ltd has no associated companies for tax purposes. Its DRAFT summary statement of comprehensive income for the year ended 31 March 2012 is shown below. Note Revenue 2,300,000 Cost of sales 1,800,000 Gross profit 500,000 Operating costs 1 200,000 Add non-trade interest received 2 20,000 Add profit from the sale of assets 3 30,000 Profit before taxation 350,000 Corporation tax 70,000 Profit after taxation 280,000 Gain from revaluation of assets 100,000 Total comprehensive income 380,000 Note 1: Operating costs included the following items: Purchase of new assets 55,000 Entertaining clients 5,000 Depreciation of assets 45,000 Bad debts written off 20,000 Loan interest paid on a trading loan 20,000 Theft of cash 5,000 Fines for breach of environmental legislation 15,000 Salaries of staff employed by Zonga 44,000 Dividend received from UK investment shareholding 9,000 Total 200,000 Note 2: This is interest received from a non-trade investment during TURN OVER

6 Page 6 Note 3: This is the profit arising on the sale of an asset for 80,000, the net book value at the date of sale was 50,000. The asset originally cost 60,000 in January The indexation factor applying to this asset from January 2005 to the date of sale was Capital expenditure (totalling 55,000) during the year ended 31 March 2012 was as follows: Sales staff car cost 25,000 in January 2012 (CO2 emission rating 180gm/km). Machinery (eligible for capital allowances) purchased during the year to 31 March ,000. The tax written down value of the non-current assets of Zonga Ltd at 1 April 2011 was 120,000. a) Calculate the maximum capital allowances which Zonga Ltd could claim for its chargeable accounting period to 31 March (6 marks) b) Calculate the corporation tax liability for Zonga Ltd for (20 marks) c) Zonga intends to form an overseas subsidiary company in , explain how the profits from this company will be taxed in the UK in (4 marks) 3. a) Jane has run her shop for a number of years. She registered for Value Added Tax (VAT) in the previous year. She is completing her VAT return for the quarter ended 31 March Her standard rated sales were 130,000 and her standard rated expenses were 35,000 (both excluding VAT). She purchased assets for 15,000 (including VAT) during the quarter. She also made zero rated sales of 20,000. Calculate the VAT payable for the quarter. (5 marks)

7 Page 7 b) Sheila has a tax adjusted trading profit of 50,000 in Her business is not yet incorporated as a limited company. Calculate the total income tax and national insurance payable by Sheila and her net income for (assume a 52 week trading period). National insurance contribution percentages and limits are given in the tax tables at the start of this examination paper. ( net income is total income less income tax and national insurance) (5 marks) c) Sheila is considering incorporating her business as a limited liability company (Sheila Ltd). The trading profit remains at 50,000 after incorporation. She plans to take a salary of 30,000 from the company and a dividend equal to the remaining net profit after taxation. (The marginal rate of corporation tax on the company profits is 20%). National insurance contribution percentages and limits are given in the tax tables at the start of this examination paper (i) Calculate the corporation tax and the dividend payable by the company (4 marks) (ii) Calculate Sheila s income tax and National insurance liability (6 marks) TURN OVER

8 Page 8 SECTION B Answer one question only 4. The UK, according to some commentators, is claimed to have the most complex taxation system in the world. Suggest ways in which the UK taxation system could be simplified. (20 marks) (Note that the abolition of the tax system is not a feasible option!) 5. Charles is an engineer who has just left his employment with Quantum Plc. to start his own self-employed consultancy business. He plans to start his self employed business by working for Quantum Plc and to develop his portfolio of other clients. Suggest factors which Charles should consider, in negotiating his working arrangements for Quantum Plc., which he will need to consider in order to demonstrate that he is self employed rather than employed by Quantum. Also, discuss the consequences of being self-employed rather than employed by Quantum. (20 marks) END OF PAPER