Tolley® Exam Training

ATT PAPER 4
REVISION MOCK: MAY 2020 (delayed to JULY 2020)

NAME Imran Majid

FIRM KPMG
ADDRESS 32 Stretton Avenue
Manchester
M32 9SD

EMAIL Imran.majid@icloud.com/imran.majid@kpmg.co.uk

INSTRUCTIONS

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 REVISION MOCK: MAY 2020 (delayed to JULY 2020)
ATT PAPER 4: CORPORATE TAXATION

MARKING SHEET

% Comments

SFQs

____
40

Q15

____
15

Q16

____
16

Q17

____
14

Q18

____
15

Mark
awarded %
Please type up your answer script here, adding extra pages as required (you can delete this line).

Part 1

General pool (18%) Special pool (6%) SLA

WDV b/f 18000 20000

Cold room for storing food 35000

Shelving/racking 8250
Front door (n/a)
Installation of lift 50000
Computer equipment 20000

Totals 61250 70000 20000

CA (11025) (4200) (3600)

Wdv c/f 50225 55800 16400

CA @ 18% 61250 * 0.18 = 11025

CA @ 6% 70000 * 0.06 = 4200
CA @ 18% 20000 * 0.18 = 3600

Total CA claim 31 March 2020 (11025 + 4200 + 3600) = 18825

CT Provision

Dr cr

Provision 15000
charge 14500
bank c/f 500

3
If Everett was to transfer all of the assets from his sole trader business (except cash) in exchange for shares in the new
incorporated business he would be eligible for incorporation relief.

The premises and assets would be transferred at market value at the time of incorporation.

If there is a gain on the assets he may be eligible for incorporation relief.

If any of the assets are worth more than 6000 they would give rise to a gain.

The gain would be calculated with the market value being the deemed proceeds. The original cost would then be taken
away from this figure. If there is a gain at this point then the gain would be multiplied by the deemed consideration to
leave an amount as the incorporation relief. This would then be deducted from the gain and also reduce the base cost of
the shares in the newly incorporated business.

In a mixed member partnership, profits are allocated in the same way as a normal partnership based on their partnership
agreement.

The individual could potentially transfer some of their porofits to the company in order to creat a tax saving.

Rather than receiving an income of 50000 and being charged income tax and national insurance on the 50000, brian will
be able to deduct 5% of the 50000 immediately and also any expenses he has incurred and then pay himself a salary that
he will then have to pay income tax and national insurance on. This is in effect creating a potential tax saving for brian.

Although there was a gain made on the desk, its gain wil be exempt for tax purposes as the proceeds were less than
6000.

The painting will however give rise to a chargeable gain. This will be the lower of the actual gain or the proceeds minus
6000 * 5/3.

In this case the lower of:

9000-500 = 8500
(9000 – 6000)* 5/3 = 5000

Therefore the gain on the painting would be 5000.

Net profit 64000

Depreciation 14000
Legal fees 750
Trade profit 78750

Trade profit 78750

Property income 7500

TTP 86250

Ct at 19% 16388 due on 1st September 2020

Cost 400 * 25 = 10000

Indexation 10000 * (278.1-252.6/252.6)= 1010

Proceeds 400 * 375 = 150000

Less cost 10000
Less indexation 1010
Aea 12000

Gain 126990

126990 * 0.10 = 12699 (the disposal qualifies for entrepreneurs relief)

Tax due 12699

As alf is receiving the benefit of having a company car from marvins confectionery ltd he will be deemed as an employee.
The company will pay class 1a national insurance. It will be clsdsed as a benefit in kind for alf so he will not have any
further payments to make.

11

Period 1 – 1 January 2018 to 30 June 2018 – CT return due 01 April 2019

Period 2 – 1 July 2018 to 30 June 2019 – CT return due 01 April 2020
Period 3 – 1 July 2019 to 31 December 2019 – CT return due 1 September 2020

12

1. The date of disposal is the date in which the company was no longer under the control of the group. In this case it
is 30 june 2019
2. As both companies had the same year end we can use the period in which they were both part of the same group
to determine the group relief calculation. They were part of the same group for 3 months of their accounting
periods. Therefore we can apportion the profits and loss to calculate the maximum group relief claim available.

(80000) * 3/12 = (20000)

100000 * 3/12 = 25000

The maximum group relief claim available for the year ending march 2020 is 20000. This means that the trading loss of
meyrick will be reduced by 20000 as it will have surrendered this to Barton. Bartons trading profit will also have been
reduced by 20000.

13

To claim bad debt relief a company must have paid the output vat to HMRC and have not received the input vat back from
the customer within 6 months.

14

Companies that have r and d expenses are able to claim a tax credit for their expenditure on R and D. this is calculated
by multiplying the RandD expenditure by 12%. This figure is then added to the trading profit of the company and used in
calculating the CT liability. Once the liability has been calculated the same figure is then deducted from the liability due
therefre creating an overall saving for the company and an incentive to spend on research and development.
15

To: Alice Scott

From: Tax Manager
Date: Today
Subject: Re: Repurchase of shares

Hi Alice,

Thank you for your email. I have prepared below responses to the concerns you raised in your email.

Tax treatments that may apply

When there is a repurchase of shares there are two possible treatments for tax purpses. They are an income treatment
and a capital treatment.

The gains from an income treatment will be subject to income tax as dividends and in most cases there is also an element
of a capital gain or loss. The income treatment is only available when a repurchase is from individual shareholders.

The gains from a capital treatment will be solely chargeable as capital gains. The rates of Capital gains tax are also lower
than those for dividends so it is preferable for the capital treatment in most cases.

There are various conditions that need to be met fr it to be possible to apply the capital treatment. The repurchase must
be wholly for the benefit of the trade, which in this case it would be as there are differences between ythe board on the
future direction of the company; the shares must have been held for at least 5 years; the shareholder must be uk resident
and the shareholding must be reduced substantially (at least 25%).

Repurchase of Saxe Ltd shares

The repurchase of Saxe Ltd shares would be under the capital treatment. Saxe Ltd current holding of Coburg Ltd is 31%
and would be reduced to 5% satisfying the criteria for the capital treatment as the shares have also been held for more
than 5 years and Saxe Ltd is a a UK company.
The repurchase would create a gain of (23-1)*(3100-500)=57200 for saxe ltd.

Repurchase of Marie Dagmar shares

As Marie Dagmar is an individual the income treatment will apply to the repurchase of her shares. The calculation for this
would be as follows

Proceeds 23*2900 = 66700

Less original cost 1*2900 =

Dividend = 63800

Original subscription 1*2900 = 2900

Cost of shares 20 *2900 = (58000)
Capital loss (55100)

Legal requirements of repurchase

In terms of legal requirements for the repurchase of the shares, there must be agreement from the board,. The
repurchase must be wholly for the benefit of the trade (as opposed to for tax advantage purposes).

16 (did this question last and ran out of time)

3
The tax director is incorrect as the fact that senna plans to be repositioned as a supplier to the food industry would mean
that there has been a substantial change and the losses would not be available in the future to be used. Although they
would still be producing cardboard, their customer would have changed so it would not be seen as a continuing of their
trade.
4

A branch would be a separate entity but still be controlled by the UK parent and under UK laws. A subsidiary would be
owned by the parent but separate from them and be governed solely under the laws of the country where it is located.

17
1
As this is a resignation the termination package is not exempt for corporation tax purposes. In terms of the restrictive
covenant payment, Irene will be liable for income tax and national insurance as if this was normal income that she had
received from the company.

2
All 5 of the companies are related as their ultimate parent is Radium Ltd. In terms of the consideration for quarterly
payments, only those companies that have a 51 % link to the parent are classed as relevant companies for this
consideration. Rad and Curie Ltd have a link which is smaller than 51% which means that there are 3 companies which
the 1.5million limit needs to be split between.

This means that if the following limits for augmented profits are exceeded then that company will need to pay their
corporation tax in quarterly instalments:
Large companies: 1500000/3=500000
Very large companies: 20000000/3= 6666666.67

3
Glow Ltd would have been required to register for vat when its turnover exceeded 85000. This would have occurred in
novembver as the 7000 from the new contract would have taken the turnover over the threshold. The requirement is to
register for vat within 30 days of the threshold being exceeded or 30 days from when you realise the threshold will be
exceeded.

4
Irene will be able to reclaim the following input vat
1200/6=200
12960/6=2160
3900/6=650

She will not be able to reclaim the input vat for the advice in February as it was not to do with Glow ltd. It was in regards
to the tax implications of her remuneration package. If the advice was in regards to the incorporation of Glow then she
would have been able to recaliam the imput VAT.

18

1
As ellie is gifting the shares to her daughter the deemed proceeds are the market value at the time of the transfer.

12000 shares at a cost of 4.52 = 54240

Original cost 6200

Indexation 6200 * (278.1-262.1)/262.1=378.48

Gain
Deemed proceeds 54240
Less original cost 6200
Less indexation378.48

Gain 47661.52

Ellie is not eligible for entrepreneurs relief as she does not work at storey but she will be able to use her AEA if she has
not already used it.

Peacock (a trading company) has held the shares in storey (a trading company) for 12 months (continuously) and has at
least a 10% overall holding in storey. This means that any gains or losses will be eligible for SSE and exempt for CG
purposes.
2

20000 * (50-15/50) = 14000

Gain from grant of lease = 14000

The firm should write a written response explaining that they will not adhere to the request. They should also advise that
they no longer wish to represent the client as what the client was asking for is illegal and considered tax avoidance. It
would be extremely unethical for the firm to agree to his request or even to continue working with the client after rejecting
his request. The firm should also report the client to HMRC.