UNIVERSITY OF GLOUCESTERSHIRE

BUSINESS SCHOOL

AC5007 TAXATION PRINCIPLES AND PRACTICE 2020-21

INSTRUCTIONS

This assignment contains 3 questions.

You are required to answer all 3 questions

Question 1 is for 30 marks

Show all workings, as marks will be given to the computational elements which form
part of your final solution to each question.

Calculations and workings need only be made to the nearest £.

All apportionments should be made to the nearest month.

RELEVANT TAX TABLES WILL BE SUPPLIED SEPARATELY

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QUESTION 1.1
Lockwood Limited is a new UK company which was incorporated on 1 April 2019. It began
to trade on 1 July 2019 and its financial year end is 31 March 2020.

It has prepared the following draft trading profit and loss account for the period ended 31
March 2020 and you are preparing the calculation of the corporation tax charge for
incorporation in the final accounts which will be sent out to the shareholders.

The net trading profit for the period amounted to £1,450,000 after charging/crediting the
following items

£
Income
Bank interest received 13,250
Dividends received from an unrelated listed company 25,000
Expenditure
Depreciation 315,000
Professional fees (note 1) 87,500
Gifts and donations (note 2) 46,750
Gift Aid payment to a national charity 15,000
Premium on the acquisition of a new lease (note 4) 125,000
Interest paid on overdrafts (note 5) 2,500

Further information

1. Professional fees comprise the following:

£
Audit fees, accounting and tax compliance fees 62,500
Legal fees defending a case for damages against the company
for injury following an accident due to faulty goods supplied 25,000

2. Gifts and donations include the following:

£
Gifts to the first 50 customers: bottles of wine 30,000
Christmas party for directors, staff and their partners 10,250
Sponsored first aid facilities at a local marathon and half
marathon displaying the company’s name and logo. 2,500
Donation to a local political party fund raising 4,000

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 3. Capital expenditure:

As this was the first trading period of the company, a substantial amount was
invested in new capital equipment as follows:

£
Company cars for the directors. Each has a CO2 emission rating
over 110 g/km 80,000
Low emission hybrid motor cars (total) 100,000
Plant and machinery 1,400,000

4. On 1 July 2019 the company signed a 15-year lease on its factory and offices,
paying a premium of £125,000 (related monthly rentals have been included in the
profit and loss account).

5. Interest paid on overdraft facilities during the year related to borrowings for trading
purposes.

Required:

1. Identify the corporation tax accounting period or periods in the above

2. Prepare a corporation tax computation to calculate the tax liability for the
accounting period ended 31 March 2020. [26 marks]

NB: Calculate the tax adjusted trading profit and compute corporation tax liability
for the accounting period ended 31st March 2020.

3. State when the corporation tax returns should be submitted to HMRC and the
latest date by which corporation tax should be paid.
[2 marks]

[Total for part 1: 30 marks]

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QUESTION 1.2
Earnshaw Limited sold an old factory building on 31 October 2019 (RPI: 278.1) for
£1,400,000 before legal fees of £60,000.
The building originally cost £250,000 when it was purchased in June 2006 (RPI: 198.5). In
May 2010 (RPI: 223.6), the company spent £180,000 on enhancement expenditure when
it extended the building.
Required:
1. Calculate the chargeable gain to be included in the corporation tax return of
Earnshaw Limited for the year ended 31 March 2020 [5 marks]

[Total for question 1 parts 1 and 2: 35 marks]

QUESTION 2
Joseph Linton is employed by his family company throughout 2019-20. Details of his
income and outgoings are as follows:

Employment income

His employment package was made up of the following:

1. Annual salary of £85,000 payable in equal instalments in arrears on the last day of
each month. PAYE of £29,000 was deducted during the year.
3. During the year Joseph became entitled a company car, an Audi diesel 2,500cc. The
car was first registered on 1 July 2019 and was made available to him on the same
date. It has an emission level of 210 g/km of carbon dioxide and had a list price of
£28,000 when new. Joseph made a contribution of £6,000 to the cost of the car when
supplied. All running expenses, including private fuel, are paid for by the company.
4. His employer also pays private medical insurance for Joseph. The cost to the company
amounts to £65 per month.
5. Joseph was provided with a rent free furnished flat while seeking a new permanent
home. This was available from 6 April 2019 to 30 November 2019 when he moved
into his new home. It has an annual value of £2,900. The flat had cost Joseph’s
employer £95,000 in 2017. The company also provided all furniture for the flat costing
£18,000.

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Partnership income
Joseph and two of his friends started a new partnership during the year providing
book-keeping services. As he is in employment also, he is a minor partner in the
business which began on 1 September 2019 with its first accounting year ended on
31 August 2020.
Total profits for the first year amount to £60,000. Under the partnership agreement,
the partners may allocate part of the profits to partners’ salaries and any remaining
balance to the partners in accordance with their established profit-sharing ratios.
In allocating partners’ salaries in year 1, Joseph was allocated the sum of £3,000 and
his two colleagues were allocated £7,500 each. Profit sharing ratios are 20% for
Joseph, and 40% for each of his other two friends.
Investment income
Joseph received £3,600 during the year in dividends from shares held in UK
companies, and £1,400 in interest from his building society accounts. He received no
other income during the year.
Outgoings
Joseph made total Gift Aid donations of £3,600 during the year.

The requirements are on the next page.

Required:
1. Prepare a personal tax computation for Joseph for the tax year 2019–20.
Note: you should ignore any national insurance implications in this scenario.
[33 marks]
2. State the latest date by which Joseph must file his tax return and pay any
underpayment of tax due [2 marks]

[35 marks]

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QUESTION 3.1
You are a tax adviser in a firm of chartered accountants. Your client Hindley Green is a
sole trader whose business makes a combination of zero rated, standard rated and exempt
supplies.
The following information was extracted from the records of the business for the quarter
ending 31 March 2020.
The purchases, but not the sales, are inclusive of VAT):
£
Fixed assets purchased (all standard rated) 18,000
Other Purchases (see note) 50,000

Sales of zero-rated items 75,000

Note:
Of the purchases, £30,000 relates directly to taxable supplies, and £8,000 directly to
exempt supplies. The business does not use the cash accounting or other special VAT
schemes.

Required (1):

Prepare a computation showing the VAT payable for the quarter ended 31 March
2020 [14 marks]

After completing the draft return you observe that the client made a material mistake in a
previous VAT return submitted for the quarter ended 31 December 2019 leading to the
underpayment of VAT properly due for the quarter. You have raised this with the client
who has stated that the government gets enough revenue out the of the company and it
will not be submitting an amended return.

Required (2):

Outline three of the possible steps that you should take in the light of the company’s
response to ensure that you fulfil your professional responsibilities under relevant
law and regulations. [3 marks]

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QUESTION 3.2

Ellen Dean sold a number of assets during 2019–20 as follows:

1. Her home in Oxford which she sold on moving to a new house and job in Gloucester
at the beginning of May 2019. She had bought the house in 2010 for £350,000 and
lived in it throughout the period up to her move. She made a gain of £160,000 when
she sold the property.

2. A holding of 150,000 shares in a family company of which she was a director until
December 2019. The shares had cost her £20,000 in 1989 and were disposed of
for £320,000.

3. Shares in an unrelated public company which were disposed of for £75,000 (cost
£15,000)

4. An antique vase which had cost her £4,500 in October 2014. She sold the vase at
auction in March 2020 for £7,500. The auctioneer’s commission amounted to £100

Other information:

Ellen’s earned income for the year exceeds the income tax basic rate threshold of £37,500.

The shareholding in the family company qualifies for entrepreneurs’ relief.

Ellen had capital losses from previous disposals amounting to £10,000 brought forward on
6 April 2019.

Required:

1. For each of the items sold, indicate whether or not they are subject to capital
gains tax and calculate the resulting tax due on any chargeable items
[12 marks]

2. State the date on which the capital gains tax will be payable and by what
mechanism. [1 mark]

[Total marks for question 3: 30 marks]

END OF ASSESSMENT

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NOTES FOR STUDENTS:-

1. The rules relating to assessment offences apply as usual; you must therefore ensure you do
not collude or plagiarise in the production of your answers. Your answers will go through
Turnitin so they will be compared with existing sources (including internet sources) and
answers submitted by other students.

2. You will need to reference in order to ensure appropriate recognition of sources used,
however it is not expected that you will undertake research of academic sources. It is
envisaged that there will not be a requirement to reference except for limited circumstances
of using, for example, a direct quotation. You should also note that the use of academic
sources is not part of the assessment marking criteria because the focus is on demonstration
of your own knowledge and application.

3. Students answers to be submitted via Turnitin (refer to the class ID and password below)

4. Late submissions are strictly not allowed. Student’s submission will be recorded, therefore
the students advised to submit their work before (at least by 9am) the submission time.

5. Students are required to attach their Assignment Cover page (declaration not required)
when submitting their answers in turnitin.

6. Students are advised to double check the contents of the assignment before submitting
it in Turnitin to make sure all the information are in order since resubmission are
strictly not allowed.

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