Question 1:

The Following information relate to Ryan Hughes for tax year 2019-20

  • Ryan Hughes is a finance director of TDW Ltd. His remuneration is £92,000 per annum (PAYE £24,300).

 

  • During 2019-20, Ryan is provided by his employer with the use of a petrol-driven car first registered in 2016 with a list price at that time of £21,000.His employer bought the car for £16,700 in 2018.Ryan contributed £6,000 towards the cost of the car. The car’s emission rating is 121g/km.

 

TDW Ltd also provided Ryan with fuel for private journeys. Ryan pays the company

£50 per month for the use of the car.

 

  • TDW Ltd, in addition, pays £4,500 medical subscription for Ryan.

 

  • Ryan receives £15,000 rent from the letting of her property. He also receives £5,000 interest from her building society account and £400 interest from his ISA and also dividends of £8,500 from the shares he received from his grandfather.

 

  • Ryan pays £503 professional subscription.

 

  • Ryan makes a gift aid donation of £20,000 to a charity under the Gift Aid Scheme.

 

  • Ryan was given a company loan of £50,000 on 5th August 2019 on which he is charged interest of 1%.

 

  • Ryan is provided with the use of company house to the value of £8,000 annually (TDW Ltd purchased the property for £300,000 in December 2016). TDW limited has made some improvement during October 2019 costing £35,000. Ryan does not contribute towards the cost of the house or towards its running costs, which cost the company £700 in 2019-20. The company has also furnished the house at a cost of £4,000. Ryan’s occupation of the house is not job-related.

 

  • TDW provides a free meal to Ryan which is also available to all employees. The cost of free meal to company was £1,200 in tax year 2019-20.

 

You are required to

 

  1. Calculate Ryan ‘s total income tax liability for the tax year 2019/20. Assume that the official interest rate is 2.5%.  (25 marks)
  2. Re-calculate Ryan’s total income tax liability for the tax year 2019/20 without any gift aid donation to a charity under the Gift Aid Scheme. (5 marks)

                                                                                                Total (30 marks)

 

End of Question 1

 

Question 2:

  • Peter made the following acquisitions of ordinary shares in Acorn plc:

 

Date Number of Shares Cost (£)
27 September 1999 1,000 3,500
28 July 2001 800 2,900
3 February 2006 600 3,000
5 July 2010 200 1,000

 

Compute the chargeable gain arising on 1 February 2020 when Peter sold 1,200 shares for £5 each, assuming that he made no further acquisitions within the next 30 days.                                                                                                               (4 marks)                                                                                                            

 

(b)      Gloria bought 10 acres of land for £10,000 in August 1990. She sold 3 acres of the land for £30,000 in January 2020. At that time, the remaining land was worth £90,000.

In March 2020 Gloria sold the remaining acres for £75,000.

Compute the chargeable gains arising on disposal of the asset.          (4 marks)           

 (c)    Mike sold a picture on 1 February 2020 for £6,900. He had acquired it on 1 March 2004 for £3,200.

Calculate the chargeable gain arising on the disposal.                          (4 marks)                           

(d)  Which of the following disposals are exempt from, and which are chargeable to, capital gains tax?                                                                                                          

                    

(1) Gift of a necklace which was bought for £4,000. Its market value at the date of gift was £7,000.

(2) Sale of shares in a quoted trading company for £2,000 which were bought for £1,000.

(3) Sale of a motor car, for £5,000, which was used for business purposes. It was acquired for £6,000.

(4) Sale of a boat for 20,000, which was acquired for £15,000.                                  

(5) Sale of a painting for £5,000, which was acquired for£ 1,000                  (5 marks)

                        

(e)  Mary bought a house on 1 January 2000 for £40,000.The house was sold on 1 January 2020 for £200,000.Mary occupied the house throughout her period of ownership with the exception of the period between 1 June 2002 and 31 May 2006 when she lived with a friend .During this time the house stood empty.

Compute the chargeable gain arising on the disposal of house.    (4 marks)         

 

(f)  In July 2010, Sandy bought an oil painting for £150,000. In October 2019, the painting was damaged by fire. In February 2020, Sandy received compensation from her insurance company of £30,000. Sandy spent none of the insurance money on restoration and the damaged painting was valued at £220,000 in February 2020.

Compute the chargeable gain arising on receiving compensation from insurance company and the allowable expenditure of painting in February 2019.  (4 marks)

                                                                                                              (Total 25 marks)

 

Question 3:

Norm Ltd runs a small trading business and produces the following income statement for the year to 31 December 2019:

£                                        £

Gross Profit from trading                                                                                           25,000

Interest receivable                                                                                                      6,500

Profit on sale of business premises (Note1)                                                               2,000

33,500

         

Advertising                                                                      1,100

Depreciation                                                                   2,500

 Light and heat                                                                  425

Miscellaneous expenses (Note 2)                                   507

Motor car expenses (Note 3)                                        1,600                                                                                                                       Business rates                                                              1,900

Repairs and renewals (Note 4)                                     2,800

Staff wages (Note 5)                                                    12,500

Telephone                                                                         351

(23,683)

Profit before tax                                                                                                        9,817

 

 

Notes:

1- The profit on the sale of business premises relates to the sale of a small freehold industrial unit in which the company stored paper, before building the extension (see Note 4).

2- Miscellaneous expenses is made up as follows:                                             £

Subscription to printers’ association                                                           150

Contribution to national charity under Gift Aid                                              50

Gifts to customers:

Calendars costing £12 each and being the company’s name                    120

Two food hamper bearing the company’s name                                        100

Other allowable expenses                                                                                  87

507

3- A director uses the motor car 65% for business purposes and 35% for private purposes.

4- Repairs and renewals comprise the following expenditure:

£

Redecorating administration office                                                                            800

Building extension to enlarge paper store                                                              2,000

2,800

5- Staff wages included an amount of £ 250 for a staff Christmas lunch.

Required:

  Calculate Norm Ltd’s tax-adjusted trading profit before capital allowances for the year ended 31 December 2019.

Your computation should commerce with the profit before taxation figure of £9,817 and should list all of the items referred to in Notes (1) to (5) indicating by the use of zero (0) for any items that do not require adjustment.                       

                                                                                                                                                          

                                                                                                               Total (15 marks)

 

 

 

 

 

UK TAXATION