Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 1
UNIVERSITY OF WESTMINSTER
WESTMINSTER BUSINESS SCHOOL
On-line TEST Semester 2 replacing the in-class test
Date: 26 March 2020
Question Paper available: 25 March 2020 @ 11.00 am
Submission date:26 March 2020 @ 11.00am
MODULE CODE: 6ACCN005W
MODULE TITLE: TAXATION
INSTRUCTIONS TO CANDIDATES:
This is an individual test.
The DATA SUMMARY TABLES for Finance Act 2019 are given at the back of the in-class test paper.
Answer both questions – All questions are COMPULSORY, and all parts of each question must be attempted.
TIME ALLOWED: Submission via Blackboard using the icon “submit coursework” > assignment title “6ACCN005W semester 2 test Taxation” and then click on >> View/Complete Ensure that you submit a word document, font 12, using the front page provided with your details. Note only one submission is allowed. Check before you submit your final test. Font colour “black”. If you use highlights, ensure that you use a pastel shade. >> View/Complete
The use of silent non-programmable calculators is permitted.
Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 2
FRONT PAGE -Student to complete and insert as the first page of the answer.
Module Code
Module Title
Student Surname
Student Name
Student ID number
Date submitted
Copy and paste the above information on to your word document that you are going to submit
Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 3
Question 1 Income tax, national insurance contributions, capital gains tax and inheritance tax
1. Sephora has asked you to advise her on her tax liability or refund for the tax year 2019/20. The information required is shown below:
Sephora is a finance director of Hanson ltd, based in London. Her remuneration for the tax year 2019/20 is gross £110,000. Sephora contributes 5% of her gross salary towards the HMRC recognised company pension scheme and the company contributes 6% towards her pension. Sephora has been told that a monthly PAYE of £3,000 will be deducted from her salary
In addition, Sephora receives the following benefits from her company, Hanson ltd, for the tax year 2019/20:
(i) On 6 April 2019, she is provided with the use of a company house which has an annual value of £7,100 and which cost Hanson ltd £385,000 in March 2015. It was valued at £485,000 on 1 January 2019. Improvements costing £13,000 were made in June 2015. Sephora’s occupation of the house is not job-related.
(ii) For the tax year 2019-20 the company provides Sephora with a diesel-powered company car (emission rate of 45g/km CO2), which had a list price of £21,800 but the company paid £20,500. Hanson ltd also provided Sephora with fuel for private journeys and all the running costs of the car.
(iii) On 1 June 2019, Hanson ltd provided Sephora with a laptop costing £950, which she uses for both business and private use. HMRC have agreed that the private use will be 80%.
(iv) On 6 April 2019, the company provided Sephora with a mobile phone for business use, costing £150
(v) Sephora pays £251 from her own bank account for a first class rail ticket as she had to travel on business to Glasgow University. However, her employer has agreed to give her a travel allowance to cover the cost of a standard rail ticket, which is £76.
Other receipts:
£800 interest from her building society account and dividends of £20,000 from the UK shares, interest on ISA account of £1,500 and Premium bond winnings of £1,000.
Other payment: Sephora makes a donation of £1,000 under the gift aid scheme.
2. Sephora wants your advice on two other separate matters relating to capital gains tax and inheritance tax for the tax year 2019/20.
(i) On 31 January 2020, she sold some of her shares in Tawny Owl plc, a listed company. The shares had been acquired as follows:
Date of Transaction
Number of shares
Purchase cost of shares
1 January 2009
1500
£6,300
19 June 2010
1050
£4,425
31 December 2016
1802
£8,430
11 August 2019
400
£2,100
Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 4
On 31 May 2018, she took up a 1 for 4 rights share issue at £3.50 per share.
On 31 January 2020 she sold 4,350 of her shares for £38,000.
(ii) On 31 January 2020, she sold two acres of land for £92,000 a plot of land. Sephora’s father in law had originally purchased three acres of land in August 2007 for £20,000. When he died in June 2014, the land was inherited by Sephora’s husband, Michael. On the date of the death of his father the land was valued at £28,600. Michael then transferred the land to Sephora in November 2017 when the market value of the three acres of land was £39,000. The market value of the unsold one acre of land was £38,000 on 31 January 2020.
(iii) In February 2020, Sephora sold an antique dresser for £9,900, which she had originally purchased for £2,500.
(iv) In March 2020, Sephora sold a speed boat for £15,000, which she had bought in 2010 for £12,000.
(v) Sephora has capital losses brought forward from the tax year 2018/19 of £2,000.
3. Sephora’s father Perry died on 25 October 2019, leaving for Sephora a net estate worth £337,000, this figure includes his home worth £198,000. In December 2017, Perry had made a cash gift to his son, Danny, with a value of £440,000. Perry had made no other lifetime gifts and had divorced his wife over 25 years ago. Assume no previous lifetime gifts were made.
Required:
Assume that the official interest rate is 2.5%
a) Calculate Sephora ’s employment income and total income tax payable (refund) for the tax year 2019/20 and state when any additional tax is due. (25 marks)
b) Calculate the national insurance payable by Sephora and her employer. (7marks)
c) Compute the lowest capital gains tax payable by Sephora for the tax year 2019/20, using the taxable income from part (a) and state when the capital gains tax is due. (20 marks)
d) Calculate any inheritance tax due on Perry’s death, state who pays the inheritance tax and the due date. (8 marks)
(Total 60 Marks)
Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 5
Question 2: Corporation Tax
You have gone for an interview as a trainee accountant for KPL ltd. The interviewee, Mr Douglas, presents you with a draft income statement for a client Elvis ltd as shown below. He says that he will time you as to how fast you can complete the task using the correct format and terminology. Elvis ltd Draft Income Statement for the year ended 31 March 2020
£
Turnover
2,666,475
Operating Expenses
note 1
(1,600,050)
Operating Profit
1,066,425
Interest received
45,000
Profit on disposal of land and buildings
note 2
630,000
Loss on disposal of investments
note 2
(4,600)
Dividends income
121,500
Profit for the year
1,858,325 Note 1: operating expenses include the following:
Note 1: operating expenses include the following:
£
Depreciation of plant and machinery
228,050
Entertaining customers at £30 each
12,375
Entertaining staff at £40 each
1,200
Political donation
4,500
Qualifying donation to a charity
22,500
Legal fees for chasing trade customers
1,875
Legal fees for new director’s contract
750
Penalty for late VAT return
975
Adding a new air conditioning system, a feature integral to the building
12,500
Purchase of motor car with Co2 emissions of 135g/km
50,651
Note 2: Interest received was a non-trade relationship. Notes 3 and 4:
Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 6 The disposal of the land and building and the investments gave rise to net chargeable gains for tax purposes of £250,000. Note 5: On 1 April 2019, the written down value for the main pool brought forward was £10,000. During the year ended 31 March 2020, the following additions were made to the general plant and machinery.
£
Lorry
25,000
Car with Co2 emission 105g/km
5,000
Required: a) Calculate the capital allowances for Elvis ltd for the year to 31 March 2020. b) Calculate the net adjusted trading profit for Elvis ltd for the year to 31 March 2020. You should start with the profit for the year figure of £1,858,325. c) Calculate the corporation tax liability of Elvis ltd for the year to 31 March 2020 and state when the tax is due. Note: you must show by zero for expenses that are in the accounts and allowable for tax purposes.
(Total: 30 Marks)
End of In-Class Test
Summary of Tax Data Tables are available on the pages following
Neeta Shah Neeta Shah Neeta Shah Neeta Shah | UNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMIUNIVERSITY OF WESTMI UNIVERSITY OF WESTMINSTER NSTER 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON 6ACCNOO5W ON 6ACCNOO5W ON6ACCNOO5W ON6ACCNOO5W ON -LINE TLINE TLINE T LINE TLINE TEST SEM 2 2019EST SEM 2 2019 EST SEM 2 2019 EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019EST SEM 2 2019-20 PAGEPAGEPAGEPAGE | 7
Income Tax
2019-20
2019/20
TAX RATES AND BANDS†
Basic rate
20%
20%
Higher rate
40%
40%
Additional rate
45%
45%
Basic rate limit
£37,500
£34,500
Higher rate limit
£150,000
£150,000
† Different tax rates and bands apply to the non-savings income of Scottish taxpayers (see below)
Starting rate for savings
0%
0%
Starting rate limit for savings
£5,000
£5,000
Personal savings allowance (basic rate taxpayer)
£1,000
£1,000
Personal savings allowance (higher rate taxpayer)
£500
£500
Dividend ordinary rate
7. 5%
7. 5%
Dividend upper rate
32.5%
32.5%
Dividend additional rate
38.1%
38.1%
Dividend allowance
£2,000
£2,000
SCOTTISH TAX RATES AND BANDS‡
Starter rate
19%
19%
Basic rate
20%
20%
Intermediate rate
21%
21%
Higher rate
41%
41%
Top rate
46%
46%
Starter rate limit
£2,049
£2,000
Basic rate limit
£12,444
£12,150
Intermediate rate limit
£30,930
£31,580
Higher rate limit
£150,000
£150,000
‡ These tax rates and bands apply only to the non-savings income of Scottish taxpayers
Summary of Tax Data
Neeta Shah | UNIVERSITY OF WESTMINSTER 6ACCNOO5W IN-CLASS TEST SEM 2 2019-20
P A G E | 8
Su m m a r y o f T a x D a t a
PERSONAL ALLOWANCES
2019-20
2019/20
Personal allowance
£12,500
£11,850
Marriage allowance
£1,250
£1,190
Blind person’s allowance
£2,450
£2,390
Married couple’s allowance: Born before 6 April 1935
£8,915
£8,695
Minimum amount
£3,450
£3,360
Income limit for basic personal allowance
£100,000
£100,000
Income limit for married couple’s allowance
£29,600
£28,900
CAR AND FUEL BENEFIT
Not exceeding 50g/km
16%
13%
51g/km to 75g/km
19%
16%
76g/km to 94g/km
22%
19%
95g/km
23%
20%
Each additional 5g/km
+1%
+1%
Maximum charge
37%
37%
Amount used in car fuel benefit calculation
£24,100
£23,400
PENSION SCHEMES
Annual allowance
£40,000
£40,000
Lifetime allowance
£1,055,000
£1,030,000
Capital Allowances
Writing Down Allowance (WDA)
Main pool of plant and machinery
18%
18%
Special rate pool of plant and machinery
6%
8%
Annual Investment Allowance (AIA)
AIA annual limit from 1 January 2016†
£200,000
£200,000
AIA rate
100%
100%
First Year Allowance (FYA)
Low emission cars
100%
100%
Zero-emission goods vehicles
100%
100%
Gas refuelling equipment
100%
100%
Charging points for electric vehicles
100%
100%
Energy saving or water efficient technology
100%
100%
† AIA annual limit temporarily raised to £1m between
1 January 2019 and 3
1 December 2020
Neeta Shah | UNIVERSITY OF WESTMINSTER 6ACCNOO5W IN-CLASS TEST SEM 2 2019-20
P A G E | 9
Su m m a r y o f T a x D a t a
National Insurance Contributions
2019-20
2019/20
CLASS 1
Lower earnings limit (weekly)
Primary threshold (weekly)
£166
£162
Upper earnings limit (weekly)
£962
£892
Secondary threshold (weekly)
£166
£162
Upper secondary threshold (weekly) Employee contributions
Rate on earnings between primary threshold and UEL
£962
12%
£892
12%
Rate on earnings beyond UEL
2%
2%
Employer contributions
Rate on earnings beyond secondary threshold
13.8%
13.8%
CLASS 1A
Rate
13.8%
13.8%
CLASS 2
Weekly contribution
£3.00
£2.95
Small profits threshold
£6,365
£6,205
CLASS 3
Weekly contribution
£15.00
£14.65
CLASS 4
Lower profits limit
£8,632
£8,424
Upper profits limit
£50,000
£46,350
Rate on profits between lower and upper limit
9%
9%
Rate on profits beyond upper limit
2%
2%
Capital Gains Tax
2019-20
2019/20
Standard rate†
10%
10%
Higher rate†
20%
20%
Entrepreneurs’ relief rate
10%
10%
Entrepreneurs’ relief lifetime limit
£10,000,000
£10,000,000
Annual exempt amount
£12,000
£11,700
† Taxable gains on the disposal of residential property are taxed at 18% and 28%
Neeta Shah | UNIVERSITY OF WESTMINSTER 6ACCNOO5W IN-CLASS TEST SEM 2 2019-20
P A G E | 10
Su m m a r y o f T a x D a t a
Corporation Tax
Corporation Tax
Financial Year
FY2019
FY2018
FY2017
FY2016
Main rate
19%
19%
19%
20%
Patent box (effective rate)
10%
10%
10%
10%
R&D SMEs payable credit
14.5%
14.5%
14.5%
14.5%
R&D expenditure credit†
12%
12%
11%
11%
† R&D expenditure credit 12% as from 1 January 2018
Note:
The main rate for FY2020 will be 17%.
Inheritance Tax
Date of transfer
Nil rate
Rate on life-
Rate
Lower
band
time transfers
on death
rate
6 April 2006 to 5 April 2007
0 – £285,000
20%
40%
–
6 April 2007 to 5 April 2008
0 – 300,000
20%
40%
–
6 April 2008 to 5 April 2009
0 – £312,000
20%
40%
–
6 April 2009 to 5 April 2012
0 – £325,000
20%
40%
–
6 April 2012 to 5 April 2020
0 – £325,000
20%
40%
36%
Note:
The residence nil rate band for 2019-20 is £150,000.
Value Added Tax
Standard rate
20%
4 January 2011)
Reduced rate
5%
Registration threshold†
£85,000
(from 1 April 2017)
Deregistration threshold†
£83,000
(from 1 April 2017)
Neeta Shah | UNIVERSITY OF WESTMINSTER 6ACCNOO5W IN-CLASS TEST SEM 2 2019-20
P A G E | 11
† Thresholds frozen until April 2022
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