CASE STUDY You are a trainee accountant in the taxation department of Mills, Boon & Partners, a large regional accountancy practice based in York. The Tax Manager (who is your line manager and supervisor) is Ms Jayne Air. She is away on annual leave for two weeks. In her absence she has asked you to look at some client work and prepare detailed responses ready to discuss with her on her return to work. She has given you the follow

Assignment instructions

 Remember to include your student number in the heading of your work.

 This assignment is based on a case study which reflects the reality of the work of a professional accountant in practice. It contains four different scenarios covering different taxes, as well as a theoretical question which covers the UK tax system generally (so there are five separate elements overall). 20 marks are available for each element. PLEASE NOTE THAT YOU MUST ANSWER ALL FIVE OF THESE ELEMENTS.

 

Please use Word to complete this assignment. You are only permitted to upload one document to Canvas.  If you submit more than one document then only the final one submitted prior to the submission date and time will be marked. Please use a clear font (Arial 11 point is recommended) and tables where appropriate.

 

A summary of the main tax rates and allowances for the 2019-20 tax year is given at the end of the case study, but you are of course able to refer to the core text (Melville A., Taxation – Finance Act 2019, 25th ed, Pearson) and the HMRC website.  If you source material from any other publication or website you must cite your source and include it in a list of references at the end of your work. Use the Harvard referencing system.

 

There is no overall word count limit but please limit your discussions around the theoretical element to a maximum of around 700 – 800 words. When presenting your computational solutions you may wish to write some explanations or state the assumptions you have used, and this is acceptable. However, apart from the theoretical discussion referred to above, this assignment is mostly based on calculations, computations, and the correct application of taxation rules. All of your calculations and computations (including cross-referenced supporting workings) should be shown in full and incorporated into the main body of your answer.  Please do not use appendices for this purpose. You may wish to use Excel for some of your calculations but you should then copy the results (including all of the detail) into the word document.

 

Tax computations for all of the various taxes should be presented in the correct format.  Marks will be given for presentation and use of the correct layout for each computation.

 CASE STUDY

You are a trainee accountant in the taxation department of Mills, Boon & Partners, a large regional accountancy practice based in York. The Tax Manager (who is your line manager and supervisor) is Ms Jayne Air.  She is away on annual leave for two weeks. In her absence she has asked you to look at some client work and prepare detailed responses ready to discuss with her on her return to work. She has given you the following client files to work on whilst she is away. Summarised file contents are given below, together with details of the work you are required to complete:  

 

File 1 – Rosie Posy and her parents Reg and Gladys

 

(a) Rosie is employed as an office manager by The Beverley Bun Company Ltd (TBBC).  Her salary is £36,000 per annum. The following information is also relevant:

 

· TBBC provided Rosie with a Vauxhall Corsa Petrol 5-door hatchback car which she used for private purposes as well as business. The list price is £17,800 and the CO2 emissions are 115g/km.  Rosie had the use of this car for the whole of the tax year.

· Rosie drove 13,000 business miles during 2019-20. She paid for all of the fuel herself and the company reimbursed her for her business mileage at the rate of 37p for every mile.

· Rosie was a member of the company’s private health insurance scheme throughout the year.  The premium which TBBC paid for her for 2019-20 was £980.

· In January 2019 TBBC made Rosie a loan of £30,000 to fund the deposit when she purchased her own home. TBBC charges her 1.5% interest per annum and the official rate of interest is 2.5%.

 

Required:

(i) Calculate the total value of Rosie’s Benefits in Kind for 2019-20. Show your calculations in detail.                                                 7 marks

(ii) Calculate the amount which Rosie can deduct for tax purposes under the AMAP scheme. State the amount which Rosie has been over- or under-reimbursed by TBBC.                                                       3 marks

Total marks for part (a)     10

 

 

(b) Reg was born in 1932 and he is married to Gladys who was born in 1937.  Reg and Gladys have been married for 64 years. Reg had the following income for 2019-20:

State pension £10,150

Private pension   £9,000

Bank and building society interest   £5,450

Dividends   £6,100

Gladys’s income consisted of the state pension only (£7,800 for 2019-20).

 

Required:

Prepare Reg’s income tax computation for 2019-20 and calculate his tax liability.

Marks for part (b)     10

 

 

Total marks for File 1      20

 

File 2 – Bellingham Limited

 

Bellingham Ltd has the following results for the four years ended 30th June:

 

30/06/2016 30/06/2017 30/06/2018 30/06/2019

      £       £       £       £

Trading profits/

(losses)      7,800   (41,000)  (40,600)    10,200

Property income      8,400    10,600   13,600    14,800

Chargeable gains      7,200            –            –    22,000

Capital losses             –            –            –   (12,000)

Gift Aid donations      2,000     2,000     2,000      2,000

 

Required:

 

(a) Assuming that all possible claims are made to relieve the trading losses against total profits, at the earliest possible time, calculate the company’s taxable total profits (TTP) for each of the four years. Using loss memoranda, clearly show how each of the losses for the years ended 30th June 2017 and 2018 has been relieved, identifying any amounts which remain unrelieved. State whether there are any unrelieved charitable donations.

15 marks

 

(b) Explain the reforms to s45 of the Corporation Tax Act 2010 introduced by the Finance Act 2017 and comment on the advantages or disadvantages of the amendments to the rules for relief of corporate losses.

5 marks

 

Total marks for File 2     20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


File 3 – Fred Forsyth

 

Fred is a married man aged 61.  He is semi-retired but still works part-time as a chartered surveyor.  For the 2019-20 tax year his income from all sources (after deduction of personal allowances) was £33,500.  He had unrelieved capital losses brought forward from earlier years of £12,000.  During the tax year 2019-20 he made the following capital transactions:

 

A. On 5th June 2019 Fred sold a buy-to-let house for £140,000, incurring agents’ and legal fees of £750.  He acquired the house in 1992 for £65,000, and survey and legal fees cost £550.  The house was unmodernised and before it could be let to a tenant Fred spent £8,000 on a new kitchen and bathroom (this expenditure qualifies as “enhancement expenditure”). This house was not his Principal Private Residence at any time.

B. On 31st August 2019 Fred gave a valuable first edition book (market value £30,000) to the British Museum.  He inherited this book from his aunt in 2012, when its probate value was £25,000. There were no incidental costs of either disposal or acquisition.

C. On 3rd December 2019 Fred sold a second buy-to-let house to his son Jacob for £40,000. The market value of the house at that date was £85,000.  Legal costs for the sale were £800.  Fred inherited this house in 1992 from his grandmother (probate value £45,000, no incidental costs of acquisition). The house was not his Principal Private Residence at any time.

D. On 18th January 2020 Fred sold an antique table for £5,300 (no incidental costs of disposal).  He had purchased the table for £6,200 in 2016 from an antique shop (no incidental costs of acquisition).

E. On 3rd March 2020 Fred sold 2,000 shares in ABC plc for £19.00 each. Ignore incidental costs, which were minimal.  He acquired his shareholding over a period of time as follows:

 

1st August 2019 acquired 2,500 shares for £2 per share

15th February 2020 acquired 200 shares for £16 per share

3rd March 2020 acquired 1,200 shares for £18 per share

 

Required:

 

(i) Compute the chargeable capital gain or loss on each of the above transactions.

10 marks

(ii) Calculate Fred’s Capital Gains Tax liability for 2019-20 and state the due date for payment. Allocate the annual exemption and losses in the most advantageous way.     10 marks

 

Total for File 3     20 marks

 

 

 


File 4 – Chris Dickens

 

Chris has been a tax client of Mills, Boon & Partners for many years. He is a retired Professor of Computer Science. He frequently asks Jayne challenging theoretical questions about the UK taxation system, and he likes to receive detailed written answers.  Recently he spotted the following quotation on the internet:

 

“The importance of fairness in taxation rests particularly in the natural desire of governors and governed for justice. ….. What is clear is that practical problems arise if the taxation system is perceived to be unjust.  At the extremes, such cataclysmic events as the French and American Revolutions were partly due to perceived inequity in taxation.  Less dramatic but nevertheless important, is the tendency for evasion and other forms of taxpayer resistance to increase under systems which are perceived to be seriously unfair.”

James S. and Nobes C (2018) The Economics of Taxation: Principles, Policy and Practice (2018) 18th edition, Fiscal Publications, Ch5 p78.

 

 

Jayne requires you to do the following so that she can reply to Professor Dickens:

 

Critically evaluate the above statement. Comment on the factors which have resulted in what some people perceive to be the unfairness of the current system, and the criteria which are fundamental to an equitable system of taxation.  Support your arguments by reference to UK tax law, academic literature and theory, and any other sources which you consider to be relevant.

20 marks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 5 – Liam Bronte

 

1. Liam, aged 71, is considering his Inheritance Tax position.  He estimates that if he were to die in the near future his assets would consist of the following:

£

House (the family home) 220,000

Interest in a business * 340,000

Cash in bank and building society accounts 160,000

National Savings & Investments – Premium Bonds   31,000

Equity based investments 135,000

Personal effects   25,000

911,000

 

*This is Liam’s own business and his interest in it satisfies all the conditions for Business Property Relief.

 

Liam’s wife Janet died on 31 December 2015. Janet’s estate was valued at £240,000 and in her will she left it all to her sister Angela.  Janet had not made any chargeable lifetime transfers.

 

On 20 December 2013 Liam gave cash of £200,000 (net of all relevant exemptions) to his and Janet’s two children.  Liam has not made any other gifts which exceed the annual exemptions.

 

In his will Liam leaves £35,000 to a local museum (which is a registered charity) and everything else equally to the two children. An estimate of funeral expenses, professional fees and general creditors when Liam dies is £11,000.

 

Required:

a) Calculate the Inheritance Tax payable if Liam dies on (i) 30 November 2020 and (ii) 30 December 2020. Note that the amount of the Residential Nil Rate Band for 2020-21 will be £175,000.

15 marks

b) Suggest ways in which Liam might reduce any IHT liability, both now and in the future.       5 marks

 

Marks for File 5     20 marks

 

 

 

 

END OF CASE STUDY AND QUESTIONS

YOU SHOULD HAVE ANSWERED FIVE QUESTIONS IN ALL

 

 

 


 Tax rates and allowances 2019-20

 

Income tax

Tax rates and bands

 

Basic rate 20%

Higher rate 40%

Additional rate 45%

 

Basic rate limit   £37,500

Higher rate limit £150,000

 

Taxable income    Band Rate Tax payable on band

£      £ % £

0–37,500    37,500 20 7,500

37,501–150,000  112,500 40 45,000

150,001- 45

 

Starting rate for savings 0%

Starting rate limit for savings £5,000

Personal savings allowance (basic rate taxpayer) £1,000

Personal savings allowance (higher rate taxpayer)    £500

Dividend allowance £2,000

Dividend ordinary rate   7.5%

Dividend upper rate 32.5%

Dividend additional rate 38.1%

 

Allowances

 

£

Personal allowance

12,500

Marriage allowance

       1,250

Blind person’s allowance

2,450

Married couple’s allowance

  Born before 6 April 1935

  Minimum amount

 

8,915

         3,450

Income limit for basic personal allowance

100,000

  Income limit for age-related allowances                           29,600

 

 

Corporation tax                                                                 FINANCIAL YEARS

                                         2019          2018              2017          2016

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%

  (12% w.e.f. 01.01.2018)

 

Note:  The main rate for FY 2020 will be 17%

Tax rates 2019-20 (cont.)

 

Company car and fuel benefits

 

 

Car Benefit

Fuel Scale Rate

 

 

 

 

 

List price x CO2 emissions

 

Zero                                        0%

50g/km or less                      16%

51-75g/km                            19%

76-94g/km                            22%

95g/km                                 23%

1% increase for every 5g/km over 95g/km (max 37%)

£24,100 x CO2 emission %

 

 

 

 

 

 

Diesel cars – add 4% (max 37%)

Diesel hybrid cars are exempt from this supplement

 

Approved mileage allowance payments (AMAP)

The statutory system of tax and NICs free mileage rates for 2019/20 are as follows:

Car and Vans

First 10,000 miles 45p per mile

Over 10,000 miles 25p per mile

Motorcycles 24p per mile

Bicycles 20p per mile

 

Value added tax

 

Standard rate 20% (1/6 x Gross)

Reduced rate   5%

Zero rate   0%

Registration limit £85,000 taxable turnover in cumulative 12 month period

Deregistration limit £83,000

 

Capital allowances

 

Writing Down Allowance (WDA)

· Main pool 18%

· Special rate pool   6%

Other

· Annual Investment Allowance (AIA)   £200,000 per year from 1 January 2016

· AIA rate 100%

· First Year Allowance (FYA) 100%

 


Tax rates 2019-20 (cont.)

 

Inheritance tax

 

Value up to £325,000    nil                    

Value above £325,000                                  40%

Lifetime gifts rate                                          20%

Charitable gifts                                             36%

Annual gifts exemption     £3,000

Main residence nil rate band £150,000

Taper relief:

Period between transfer and death %age tax reduction

            3 years or less 0

Over 3 but not more than 4 years 20

Over 4 but not more than 5 years 40

Over 5 but not more than 6 years 60

Over 6 but not more than 7 years 80

 

National insurance

Class 1 Employed Earners from 6 April 2019

£ per week earnings

Employee:

Earnings up to £166 a week          nil

Earnings between £166 and £962 12.0%

Earnings over £962 per week   2.0%

Employer:

Earnings up to £166 a week         nil

Earnings above £166 a week 13.8%

Self-employed    £

Class 2 contributions                   3.00 per week

Small profits threshold 6,365

Class 4 contributions 9% of profits between         8,632 – 50,000

2% above          50,000

 

Capital gains tax

 

Standard

Rate

%

Residential

Property

Rate

Annual exempt

amount 2019-20

£

 

Standard rate

10

18

12,000

 

Higher rate

20

28

 

 

Entrepreneurs’ rate

Entrepreneurs’ relief     lifetime limit:

10

 

 

 

£10,000,000

 

 

 

 

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