Icaew-Bpt QB 2024

The Institute of Chartered Accountants in England and Wales
Business Planning:
Taxation
Question Bank
For exams in 2024
icaew.com
Business Planning: Taxation
The Institute of Chartered Accountants in England and Wales
ISBN: 978-1-0355-0942-3
Previous ISBN: 978-1-0355-0180-9
e-ISBN: 978-1-0355-0927-0
First edition 2013
Twelfth edition 2023
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, graphic, electronic or
mechanical including photocopying, recording, scanning or otherwise, without the
prior written permission of the publisher.
The content of this publication is intended to prepare students for the ICAEW
examinations, and should not be used as professional advice.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library.
Contains public sector information licensed under the Open Government Licence
v3.0
© ICAEW 2023
Contents
The following questions are exam-standard. They are not the original questions from the exams. The
marking guides provided with the answers are illustrative to help students understand how marks
may be allocated in the exam and to identify gaps in their answers.
Title Time Page

Marks allocation
(Mins) Question Answer
Individuals – owner managed businesses
1 Philippa Hassan (March 2015) 35 52.5 1 141
2 Delia, Chris and Ella (March 2016) 40 60 2 146
3 Stollen Ltd (June 2017) 30 45 5 153
4 Joe Gregory (September 2018) 40 60 5 157
Individuals – capital taxes
5 Boxit Ltd (June 2014) 35 52.5 9 163
6 Derek Woodhouse (September 2016) 35 52.5 10 167
Overseas aspects of personal taxation
7 Bill Mickelson (June 2015) 30 45 13 173
8 Gooch Food (June 2014) 25 37.5 14 178
Single companies
9 Valese plc (June 2015) 40 60 17 185
10 Gold Ltd (September 2018) 25 37.5 18 191
Groups and consortia
11 Splite Ltd 40 60 21 195
12 Principia Ltd 40 60 23 199
13 Expandit plc (December 2015) 35 52.5 25 203
Overseas aspects of corporation tax
14 Elexi plc (March 2016) 25 37.5 27 209
15 Fragmarb plc (March 2016) 40 60 28 212
16 Tea Group (March 2017) 40 60 30 217
Changing business structures
17 Upten plc (June 2015) 30 45 33 221
18 Montgomery Ltd (September 2015) 40 60 34 224
19 ZD Holdings plc (March 2016) 35 52.5 36 229
June 2016 exam questions
ICAEW 2024 Contents iii

Title Time Page
Marks allocation
20 Marmalade Ltd 40 60 39 235
21 Kamran Siddiqi 30 45 40 239
22 John 25 37.5 41 242
December 2016 exam questions
23 Ant plc 40 60 43 247
24 Jolene and Kenton (amended) 35 52.5 44 251
25 Royston Clark 25 37.5 45 256
March 2017 exam questions
26 Taul plc 40 60 49 261
27 Marie Gao 30 45 51 266
28 Lyre Ltd 30 45 52 270
September 2017 exam questions
29 LM Ltd 40 60 55 275
30 Aldo, Zeta and Greg 54 45 57 281
31 Gig plc 30 45 58 286
32 Philip and Estelle 40 60 61 291
33 TabletTech Ltd 35 52.5 63 295
34 Elm plc 25 37.5 64 298
35 2B plc 72 60 67 303
36 Recruit plc 25 37.5 69 308
37 Frank and Hari 30 45 70 311
38 Swell Gallery 40 60 73 317
39 Albion Ltd 35 52.5 75 322
40 Dolphin Ltd 25 37.5 76 327
41 Tumble Toys Ltd 40 60 79 333
42 Aughton plc 35 52.5 81 339
43 Mark Prescott 25 37.5 83 344
iv Business Planning: Taxation ICAEW 2024

Title Time Page
Marks allocation
44 Draco Ltd 40 60 85 349
45 The Potter Group 30 45 87 353
46 Dimitri Petrov 30 45 88 358
47 MB plc 40 60 91 365
48 MD Ltd 35 52.5 92 371
49 Inca Ltd 25 37.5 95 378
50 Emma plc 40 60 97 385
51 Joanna Adams 30 45 98 391
52 Kalia Davis 30 45 100 396
53 Cabbage plc 70 60 103 403
54 BetterYou Ltd 30 45 105 410
55 Jennifer Woodhouse 30 45 107 416
56 Joe Higgins 40 60 109 423
57 BD plc 30 45 110 430
58 Yi-Ling Zhao 30 45 112 436
59 Sprinter Ltd 40 60 115 443
60 ABC plc 35 52.5 116 449
61 Faster Food Ltd 25 37.5 118 453
June 2022 exam
62 Healthdata Ltd 40 60 121 459
63 Camilla and Henry Smithers 35 52.5 123 464
64 Singh Technology plc 25 37.5 124 467
September 2022 exam
65 Laura North 40 60 127 471
66 Hare plc 35 52.5 128 478
ICAEW 2024 Contents v

Title Time Page
Marks allocation
67 Wren Ltd, Eagle plc and Tomas 25 37.5 130 484
68 Bobby Sparks 40 60 133 489
69 Phyllis plc 35 52.5 135 494
70 Albert Perks 25 37.5 136 498
vi Business Planning: Taxation ICAEW 2024

Question Bank topic finder
Set out below is a guide showing the Business Planning: Taxation syllabus learning outcomes, topic
areas, and related questions in the Question Bank for each topic area. If you need to concentrate on
certain topic areas, or if you want to attempt all available questions that refer to a particular topic, you
will find this guide useful.
Topic area Syllabus Question number(s) Workbook

Learning chapter(s)
outcome(s)
Administration/liquidation/ 2b, 2c 9, 12, 21, 26, 29, 33, 49 16

winding up
BPR 2a, 2c 1, 6, 7, 14, 25, 32, 37, 43, 44, 7

55, 63, 70
Business asset disposal relief 2a 1, 5, 6, 7, 20, 21, 26, 30, 32, 5

(BADR) 33, 36, 37, 41, 44, 46, 49, 59,
63
Choice of trading entity – single 1b 17 20

company, group, consortium
Choice of trading entity – 2a 2, 24, 43, 58, 65 20

unincorporated vs company
Close companies 1d 5, 10, 28, 41, 55 12
Controlled foreign companies 1a, 1b, 1i 11, 14, 15, 16, 18, 35, 45, 62 15
Corporate interest restriction 1a, 1e 26, 42 15
Deferred consideration 1q 26, 59 6
Disincorporation 1e 21 21
Diverted profits tax/hybrid 1a 15, 35, 42, 50, 61, 69 15

mismatch
Dividend v salary 2a 2, 24, 38 20
Employment income including 1p 22, 52, 60 2

benefits
Ethics – fundamental principles, 3a 6, 8, 9, 11, 12, 13, 16, 19, 27, 1

threats, PCRT 29, 35, 39, 42, 45, 52, 54
Ethics – POTAS/DOTAS 3d 20, 40, 45, 56 1
Ethics – SAO 3a 23, 39, 47 1
Ethics – tax planning, avoidance 1k, 3d 8, 11, 20, 23, 29, 33, 35, 39, 1
and evasion incl GAAR, BEPs, 40, 45, 47, 52, 56, 59, 62, 68,
disclosure, AML 69
Ethics – tax strategies 3c 50 1
Foreign exchange 1a, 1m, 1n 10, 19, 31,47, 11
Gains groups 1e, 2a, 2d 11, 12, 13, 17, 23, 34, 45, 13
47, 57, 64
Gift relief 2a 1, 5, 6, 7, 30, 32, 44, 59, 63, 5

65, 70
ICAEW 2024 Introduction vii

Learning chapter(s)
outcome(s)
Gifts with reservation of benefit 2c 25, 30, 55, 70 7

(GWROB)
Hive down 2c 12, 19, 64 22
IHT and CGT interactions 2a 1, 5, 6, 8, 25, 30, 37, 43, 55, 7

57, 59, 63, 65, 70
Income tax - transfers of trade 1g, 1h 1, 51 2

(successions)
Incorporation 1b 24, 37, 38, 43, 68 21
Incorporation relief 2a, 2d 24, 37, 38, 68 6
Inheritance tax computations 1g 6, 7, 25, 32, 44, 48 7
Intangible fixed assets 1a 2, 15, 21, 23, 26, 31, 10
Investors’ relief 2a 46 5
Losses – changes in ownership 1e, 2a, 2d 44, 47, 50, 64, 66 10, 13
Losses – consortia 1e, 2a, 2d 11, 17, 23, 62, 66 13
Losses – corporation tax single 1h, 2a, 2d 9, 13, 21, 29, 49, 65 9, 10
company
Losses – groups 1e, 2a, 2d 11, 13, 17, 34, 47, 66 13
Losses – income tax 1h, 2d 1, 2, 7, 9, 37, 65, 68 2, 4
Losses – successions 1e, 2a, 2d 21, 37, 64 13, 22
Management buyout 2c 44 22
Overseas corporation tax – 1l 11, 13, 14 , 40, 53, 69 14

double tax relief
Overseas corporation tax – 1i 15, 34, 42, 53 14

incorporation of a PE
Overseas corporation tax – 1i, 2a 16, 53, 62 14

migration
Overseas corporation tax – 1k 14 14

OECD
Overseas corporation tax – 1i 15, 16, 53 14

residence
Overseas corporation tax – 1b, 1c 11, 14, 18, 40, 47, 69 14

subsidiary/permanent
establishment
Overseas gains – temporary non- 1t 11, 36, 46, 57 8

residence
Overseas income tax – double 1r, 2a, 2d 27, 46, 52 8

tax relief
Overseas income tax – 1s, 1t 7, 27, 39, 46, 53, 60 8

remittance basis
viii Business Planning: Taxation ICAEW 2024

Learning chapter(s)
outcome(s)
Overseas income tax – residence 1s 7, 8, 11, 15, 27, 36, 39, 42, 8
and domicile 46, 57, 60, 62, 67
Overseas VAT 1a 36 17
Partnerships 1a, 1q 8, 24, 37 2, 20
Pension schemes 1p 3, 6, 41 2
Personal service companies 1b 1, 2, 4, 48, 51, 54, 67 12

/managed service companies
Property 1a 12, 18, 19, 24, 28, 43, 55 19
Purchase of own shares 1g 5, 20, 30, 41, 44, 63 16
Research and development 1a 2, 23, 31, 40, 41, 58, 62 9, 10
Rollover relief 2a 11, 12, 17, 23, 28, 57 5
Sale/purchase of shares or trade 1g, 1h, 2c 18, 19, 30, 32, 33, 50, 57, 59, 22
and assets 61, 63, 64, 66,
Self-employed vs employed 2a 4, 31, 48, 54, 56 12
Share schemes 1p 3, 17, 22, 26, 46, 52, 54, 60 3
Stamp duty land tax (SDLT) 1a, 1e, 1g, 1h, 1, 5, 12, 18, 19, 23, 24, , 28, 18
2b, 2c 33, 38, 55
Stamp duty/stamp duty reserve 1a, 1e, 1g, 1h, 12, 26, 33 18
tax 2b, 2c
Substantial shareholding 1a 9, 12, 13, 23, 50, 66, 9

exemption
Takeovers and reconstructions 2a, 2c 14, 15, 26, 47, 50, 66 6
Termination payments 1p 22, 31, 49 3
Trading profits – income tax 1q, 2d 37 2
Transfer of a going concern 1g, 2c 1, 11, 18, 21, 26, 37, 38, 68 17
(TOGC)
Transfer of trade in a group 2c 19 22
Transfer pricing/thin 1f 14, 16, 18, 35, 42, 53, 61, 69 15

capitalisation
Trusts – capital gains tax 1v, 1w 6, 27, 32 8
Trusts – income tax 1v, 1w 27, 32, 52 8
Trusts – inheritance tax 1v, 1w 6, 8, 32, 70 7
Value shifting/depreciatory 1g 12, 50 15

transactions
Variation of wills 2c 43, 48, 70 7
ICAEW 2024 Introduction ix

Learning chapter(s)
outcome(s)
VAT groups 1e 10, 13 17
VAT on property and capital 1a 1, 10, 11, 13, 18, 19, 23, 24, 17
goods scheme 26, 28, 38, 45, 48, 50, 57
Venture capital schemes 1o 2, 4, 22, 39, 44, 52, 56, 58, 11

60
x Business Planning: Taxation ICAEW 2024

Exam
Your exam will consist of:
• 3 questions – 100 marks
• Pass mark – 55
• Exam length – 2.5 hours
The ACA student area of our website includes the latest information, guidance and exclusive
resources to help you progress through the ACA. Find everything you need, from exam webinars,
past exams, marks plans, errata sheets and the syllabus to examiner and tutor-written articles at
icaew.com/examresources.
ICAEW 2024 Introduction xi

Professional skills
Professional skills are essential to accountancy and your development of them is embedded
throughout the ACA qualification. The level of competency in each of the professional skills areas
required to pass each module exam increases as ACA trainees progress upwards through each Level
of the ACA qualification.
The professional skills embedded throughout this Question Bank provide the opportunity to develop
the knowledge and professional skills required to successfully pass the exam for this module.
During your question practice, remain mindful that you should be demonstrating each of the four
professional skills within your answers. You are advised to familiarise yourself with the full ACA
professional skills development grids which can be found at icaew.com/examresources.
The following advice will help you demonstrate each of the professional skills when completing your
answers to questions in this Question Bank.
There are only three questions in the exam, but each has a high number of marks available and will
test a number of different syllabus areas. Time management will be key to ensure that you leave
enough time to plan and fully answer each question. Below are the key skills required in the Business
Planning: Taxation exam that you will need to master.
Professional skills focus: Assimilating and using information
For each question you will receive a scenario and one or more exhibits providing further detail ie,
there may be a large amount of information for you to read. You will need to use your professional
skills to be able to assimilate large volumes of information, prioritise the key tax issues and identify
the facts relevant to each requirement.
Professional skills focus: Structuring problems and solutions
Each scenario will be different so you should practise as many questions as you can in order to be
able to identify the analysis required in a specific situation. In the exam, you should ensure that you
leave time to plan each of your answers fully so that you can be sure you have answered all the
requirements and your answer is presented in a logical format which makes it easier for the examiner
to award marks.
Professional skills focus: Applying judgement
Many questions will require you to consider alternatives eg compare different options or consider
the timing of transactions. You will need to use your judgement in order to select appropriate
options and/or compare the impact of different outcomes whilst being mindful of the fact that there
may be different stakeholder perspectives eg, between two individuals or between a company and
an individual investor.
Professional skills focus: Concluding, recommending and communicating
All questions in the Business Planning: Taxation will require you to provide a conclusion on a
technical question or recommend a course of action. Ensure you leave enough time in the exam to
do this based on your technical analysis and that any conclusions are clear and relate specifically to
the requirements set out in the scenario.
xii Business Planning: Taxation ICAEW 2024

Question Bank
xiv Business Planning: Taxation ICAEW 2024
Individuals – owner managed businesses
1 Philippa Hassan (March 2015)
Assume it is March 2024. You work as a tax adviser for a firm of ICAEW Chartered Accountants. Your
firm acts as personal tax advisers to Philippa Hassan who, until recently, was a sole trader, running an
online party decoration and fancy dress business.
Lynn Svletka, the engagement manager, has asked for your assistance in preparing for a meeting
with Philippa, to advise her on her tax affairs for 2023/24 and to discuss the implications of a
consultancy contract she will undertake from 2024/25.
Lynn Svletka has provided you with notes of an initial meeting held with Philippa.
Meeting notes: Meeting with Philippa Hassan

Prepared by: Lynn Svletka
Date: 4 March 2024
Cessation of trade
Philippa ceased trading as a sole trader on 30 September 2023 and on that date, transferred the
trade and assets of the business to her daughter, Jessica. Philippa had started trading in June
2001. Her recent tax adjusted trading profits/(losses) are:
£
Nine months ended 30 September 2023 (54,000)
Year ended 31 December 2022 12,500
As at 30 September 2023, Philippa had unrelieved overlap profits of £1,200 brought forward from
commencement of trade.
Jessica believed she could improve the profitability of the business. Jessica paid £600,000 to
Philippa in respect of the building owned by the business, but no other purchase consideration
was paid.
The cost of the assets of the sole trader business and their market values at 30 September 2023
were as follows:
Market value 30 September

Cost 2023
£ £
Plant and machinery (Note 1) 10,000 25,000
Building (Note 2) 500,000 600,000
Goodwill Nil 75,000
Notes
1 The cost and market value of all items of plant and machinery were less than £6,000.
2 Philippa operated the business from a building, which had originally cost £500,000 plus VAT
on 1 October 2016. At that date, the building was a new commercial building. Until 31
December 2020, Philippa had used the building 100% for business purposes, but from 1
January 2021 she had rented 20% of the building to an unconnected company.
Philippa did not opt to tax the building. On cessation of trade, the building was transferred to
Jessica for £600,000, with the existing tenant in situ. No option to tax has been exercised. Both
Philippa and Jessica are VAT registered and have a VAT year end of 31 March.
ICAEW 2024 Individuals – owner managed businesses 1

Other income
Philippa’s only other income in all years until 2023/24 is building society interest totalling £2,200
per annum. She expects to have no income in future years other than that mentioned below.
Consultancy work
Philippa will start work as a computer consultant on 6 April 2024. She will operate through a
limited company, PH Ltd, which will have a 5 April year end. Philippa will own 100% of the shares
in the company. A two-year consultancy contract has been negotiated with Logan Ltd, a small
marketing company which employs 10 staff members and has an annual turnover of £1 million.
PH Ltd will invoice Logan Ltd £5,000 per month in respect of Philippa’s services. Logan Ltd has
stated that while Philippa is engaged on the contract, she must work exclusively for Logan Ltd and
be on Logan Ltd’s premises during normal working hours. Logan Ltd will supply her with all of the
equipment she needs to undertake work on the contract. The terms of the contract are that
Philippa provides a personal service to Logan Ltd. Logan Ltd has stated that Philippa is not an
employee and does not have any sickness benefits or annual leave entitlement with the company.
In 2024/25, Philippa will draw £30,000 as salary from PH Ltd on which employers’ national
insurance of £2,884 will be paid.
Philippa has expressed some concern that operating via a limited company is an administrative
burden. However, other consultants have informed her that doing so is far more tax efficient,
because if she treats the £30,000 which she draws from PH Ltd as dividends, instead of salary,
there is much less tax to pay.
Requirements
1.1 Explain, with supporting calculations, how the trading loss for the nine months ended 30
September 2023 may be relieved.
1.2 Advise Philippa of the capital tax consequences of the transfer of the trade and assets of her
sole trader business to Jessica and explain the availability of any reliefs, which may be used to
mitigate her overall tax liability. Ignore the impact of VAT in this part of the question.
1.3 Explain, with supporting calculations, the VAT and Stamp Duty Land Tax implications of the
transfer of the building to Jessica.
1.4 Determine the factors which would be considered to evaluate whether the contract between
PH Ltd and Logan Ltd falls within the scope of the intermediaries legislation. Assuming the
intermediaries legislation applies, calculate any tax payable on the deemed employment and
advise Philippa if there are any tax advantages for her by taking dividends from PH Ltd in the
future.
Total: 35 marks
2 Delia, Chris and Ella (March 2016)

You are a trainee ICAEW Chartered Accountant working for Huy and Hennison LLP (HH), which
specialises in advising start-up businesses. Your manager provided you with information concerning
two new separate start-up business clients: Delia Schlank (Exhibit 1) and Chris Yen (Exhibit 2).
Your manager gave you the following briefing:
“I have separate meetings scheduled with Delia and Chris tomorrow to discuss how they can each
structure their businesses tax efficiently. Both Delia and Chris intend to take an after-tax amount of
£20,000 from their businesses in the first year of trading.
Ella Markow is a client of HH who has recently moved to the UK. Ella has £250,000 to invest in
exchange for a 20% share in a start-up business. Delia is seeking an investor and has given me
permission to discuss with Ella a potential investment in her business. Ella does not require an
income return from her investment over the next three years but would like to make her investment
tax efficient. I have provided you with details of Ella’s projected income and gain for the tax years
2023/24 and 2024/25 (Exhibit 3).
I would like you to prepare briefing notes for me in which you:
2 Business Planning: Taxation ICAEW 2024

(1) Explain and recommend a tax efficient business structure for each of Delia (Exhibit 1) and Chris
(Exhibit 2).
(2) Calculate and explain, based on your recommendations regarding business structure in part 1,
the tax implications for each of Delia and Chris of extracting an after-tax amount of £20,000 from
their businesses in the year ending 5 April 2025.
(3) Explain and calculate, assuming Ella invests £250,000 in Delia’s business, any tax savings arising
from the investment for Ella for the tax years 2023/24 and 2024/25.
In preparing your briefing notes, you should include advice on any relevant claims or elections
available.”
Requirement
Prepare the briefing notes requested by your manager.
Note: Assume that the rates and allowances as they apply to the tax year 2023/24 continue to apply
for future years.
Total: 40 marks
Exhibit 1: Delia Schlank

Delia works in food research for Nisty Foods plc. Her taxable employment income in the tax year
2023/24 will be £140,000. In 2024/25, Delia will continue to work for Nisty Foods plc on a part-time
basis and will have employment income of £55,000.
Delia is planning to set up a new diet business, D4Diet, which will start trading on 6 April 2024. The
business will have two separate income streams:
• D4Diet will trade through a website. It will charge users a membership subscription providing
access to information, tailored diet advice and will also sell diet products via its website.
• D4Diet will also receive £85,000 in the tax year 2024/25 for providing Delia’s services as a
dietician to a private clinic. Delia will attend the private clinic on days specified by the clinic and
provide diet advice to the clinic’s clients for an agreed hourly rate of pay. The clinic will make all
the appointments for clients to see Delia.
On commencement of the trade, Delia will immediately purchase £45,000 of new computer
equipment.
Delia needs an investment of £250,000 to provide working capital, to build the website and
undertake research and development.
Delia will carry out research and development on a new weight loss product called ‘Luzit’. Luzit is
expected to be a significant improvement compared to existing products in the market. Delia hopes
to patent the ‘Luzit’ product.
Projected results for the years ending 5 April
2025 2026 2027

£ £ £
Revenue
Online advice and sales 345,000 415,000 650,000
Dietician service at private clinic 85,000 85,000 85,000
430,000 500,000 735,000
Taxable trading profit before capital allowances 290,000 360,000 425,000
Costs not included in the above calculation of projected taxable trading profit are:
2025 2026 2027

£ £ £
Website costs:

2025 2026 2027
£ £ £
Computer equipment (purchase 6 April 2024) 45,000 – –
Advertising and marketing 8,000 5,000 5,000
Research and development costs:

Power, water and materials 23,000 8,000 –
Salary costs of research staff 45,000 45,000 –
Plant and machinery 18,980 – –
Exhibit 2: Chris Yen

Chris is 24 years old. He studied garden design for three years and received no taxable income until
the tax year 2022/23 when he was employed as a gardener. Chris had taxable employment income
of £35,000 in the tax year 2022/23 and £40,000 in the tax year 2023/24.
On 1 March 2024, Chris was made redundant receiving £2,500 statutory redundancy pay and a
discretionary termination payment of £8,000, none of which relates to his notice period. He used this
money to prepare a portfolio of garden designs and to advertise himself as a garden designer and
landscaper at a national garden show. His garden design business, CYGarden, will start to trade on 6
April 2024.
Projected results for the years ending 5 April
2025 2026 2027

£ £ £
Revenue 150,000 350,000 655,000
Taxable trading (loss)/profit before capital allowances (36,000) 15,000 185,000
Costs not included in the above calculation of projected taxable trading (loss)/profit are:
2025 2026 2027

£ £ £
Equipment 22,000 5,000 5,000
Exhibit 3: Ella Markow – Projected income and gain

On 2 November 2023 Ella moved from Poland to the UK to work as a surgeon at a hospital in
London. Her contract is for three years. Ella has not visited the UK prior to her arrival on 2 November
2023. Her projected income and gain are as follows:
2023/24 2024/25
Income £ £
Employment income
6 April 2023 to 31 October 2023 – in Poland 35,000 –
1 November 2023 to 5 April 2024 – in London 127,000 –
6 April 2024 to 5 April 2025 – in London – 210,000
Gain
Gain on sale of property in Poland – sold on 1 February 2024 55,000 –

3 Stollen Ltd (June 2017)
You are an ICAEW Chartered Accountant working for a firm of ICAEW Chartered Accountants as a tax
adviser. Both Stollen Ltd and its managing director, Amy Crisp, are clients of your firm.
Background information
Stollen Ltd is a UK registered company, incorporated in 2010, and trades as a bakery, with 25 full-
time employees and gross assets of £500,000.
Amy owns 22% of the ordinary share capital of the company. The company has a 31 March year end.
Stollen Ltd has been successful and Amy plans to take additional remuneration from the company
during the year ending 31 March 2025.
The bakery is outgrowing its current business premises and new, larger premises will be needed in
the near future. Amy has located a suitable industrial unit for the company to purchase at a cost of
£200,000 and she hopes the purchase will be completed in the next few months.
Amy’s income
Amy normally receives a gross salary of £78,600 pa and a dividend of £1,000 pa from Stollen Ltd.
She would now like to receive an additional, gross remuneration of £100,000 from Stollen Ltd.
Amy wants to take the additional £100,000 as follows:
• Stollen Ltd is to make the maximum tax deductible pension contribution to the Stollen Ltd small
self-administered pension scheme (SSAS), on Amy’s behalf.
• The balance of the £100,000, remaining after the pension contribution, is to be paid into a tax-
advantaged share scheme, which will be set up for Amy’s sole benefit.
The only change in Amy’s remuneration package from Stollen Ltd between 2023/24 and 2024/25 will
be the payment of the additional gross remuneration of £100,000. Amy is the only member of the
Stollen Ltd SSAS and has £10,000 of unused annual allowance brought forward from 2023/24.
Stollen Ltd has contributed £145,000 on Amy’s behalf to the SSAS in total prior to 2024/25.
Amy also inherited a large portfolio of investment properties in April 2024 and expects to have
property income of £50,000 in 2024/25.
Requirements
3.1 In relation to Amy’s pension scheme:
• determine the maximum pension contribution that Stollen Ltd can make into its SSAS in
2024/25 without Amy incurring an annual allowance charge; and
• advise Amy on how the funds in the SSAS could be used to help purchase the industrial
unit.
Ignore any potential payment into the share scheme for this part.
3.2 Advise Stollen Ltd on which tax-advantaged share scheme should be used to reward Amy and
the tax implications for both Stollen Ltd and Amy.
3.3 Based on your advice in parts 1 and 2 above, calculate Amy’s income tax due for 2024/25.
Total: 30 marks
4 Joe Gregory (September 2018)

Assume it is September 2024. You are an ICAEW Chartered Accountant employed by a firm of
ICAEW Chartered Accountants. Your firm acts for Joe Gregory and JG Ltd. Your manager has
provided you with the following information:
Joe is 45 years old and is UK resident and domiciled. He is a financial adviser and was employed by a
bank until April 2023. On 6 April 2023 Joe started his own business operating through a limited
company, JG Ltd. Joe lectures in finance and is the sole director and shareholder of JG Ltd. Details of
the lecturing engagements of JG Ltd for 2023/24 and Joe’s future plans for the business are in
Exhibit 1.

Joe recently inherited £20,000 on the death of his father. He would like some advice on how to invest
this money and has sent your manager an email (Exhibit 2).
Requirements
4.1 Prepare a briefing note for your manager which includes:
(a) An explanation of whether the personal service company legislation is relevant to each of
the contracts undertaken by JG Ltd in 2023/24 (Exhibit 1), and the implications for JG Ltd.
Include calculations of the deemed employment income, together with the income tax
and NIC liabilities for any relevant engagements.
(b) A comparison of Joe’s net disposable income for 2025/26 if he operates as a sole trader
or via a limited company. For the purposes of this part of the question, assume that the
personal service company or managed service company legislation is not applicable.
Assume income tax and NIC rates continue as 2023/24.
(c) A brief explanation of the managed service company legislation and a conclusion on
whether or not it is likely to apply in respect of Joe’s business plans for 2025/26. Include a
recommendation on how Joe should operate his business in the future. Detailed
calculations are not required for this part of the question.
4.2 Explain the tax reliefs available for the two potential investments (Exhibit 2) and recommend
which one is the most tax efficient.
Total: 40 marks
Exhibit 1: File note – details of lecturing engagements in 2023/24 and future plans
2023/24 client engagements for JG Ltd are as follows:
AM Ltd
AM Ltd provides private tuition for exam training for graduates. AM Ltd entered into a contract with
JG Ltd for a fee of £80,000. AM Ltd has 33 employees and annual turnover of £6 million. AM Ltd
determined the dates and times of the lectures and that Joe had to personally deliver them. AM Ltd
provided the textbooks and equipment they felt necessary for delivery of the lectures. JG Ltd
purchased some additional textbooks at a cost of £125 and incurred travel expenses to the various
sites of the AM Ltd offices of £1,251.
During 2023/24, in relation to this work, Joe drew a salary of £51,000 from JG Ltd which was taxed
via PAYE and on which employers’ NIC of £5,782 is due.
Pennington Local Authority
Pennington Local Authority is a local government body. It engaged JG Ltd to deliver public finance
training to its employees. The contract was for 20 days’ work for a fee of £20,000. Pennington Local
Authority provided the equipment and the course materials to JG Ltd and specified that Joe had to
be on the premises from 9am until 5pm, on each of the 20 days. Pennington Local Authority
deducted income tax of £8,000 under PAYE and employers’ NIC of £1,504 from the fee.
Jupiter Ltd
Jupiter Ltd is a private company which agreed a fee of £10,000 for five lectures on dates to suit JG
Ltd throughout 2023/24. JG Ltd contracted to write and supply all training material and stipulated in
the contract that any suitably-qualified lecturer could be supplied. The contract did not specifically
name Joe.
Future plans for JG Ltd
JG Ltd has no lecturing engagements during 2024/25.
For 2025/26 Joe is considering changing the way his business operates due to the administrative
burden involved. He could either operate as a sole trader or outsource the general day-to-day
running of JG Ltd to an independent management company. In addition to sourcing work for JG Ltd
from third party clients, the management company would operate the payroll and prepare all
accounts and tax returns for JG Ltd.
Joe is also negotiating with his former employer to provide in-house lecturing services. He estimates
that 80% of his time will be spent working for his former employer whilst the remainder of the work
will be for a number of clients sourced by the management company.
Joe estimates that his business will have business income of around £175,000 pa with tax-adjusted
profits of £145,000 before deducting salary, if he operates as either a sole trader or as a company

through JG Ltd. If Joe operates his business as a limited company, through JG Ltd, he will draw a
gross salary of £24,000 per annum and the balance of his income as dividends.
Exhibit 2: Email
To: Tax Manager

From: Joe Gregory
Subject: Investment opportunities
I have inherited £20,000 and would like to invest this in shares during 2024/25. However, I am
likely to sell some of these shares during 2026/27, as my daughter will start university in 2027.
I have the opportunity to invest in two alternative companies:
(1) Belle Ltd
Belle Ltd is an unquoted trading company which started trading on 1 March 2024. The
company currently has issued share capital of 30,000 £1 ordinary shares, gross assets of
£55,000 and five full time employees. In return for my investment, I will receive 10,000 new £1
ordinary shares.
(2) Boo Ltd – issuing new shares
Boo Ltd is an unquoted trading company, formed six years ago. It currently has issued share
capital of 500,000 £1 ordinary shares and gross assets of £10 million. The company employs
150 staff across the UK. In return for my investment, I will receive 3,125 new £1 ordinary
shares.
During 2024/25, I intend to sell shares in Weiner plc, purchased seven years ago. The current
market value of my holding is £23,500 and the shares originally cost £3,000. My shareholding is
less than 0.5% of the total issued share capital.
I am unsure which investment will be better for me in terms of tax savings. I would also like to
understand if there are any reliefs available.

Individuals – capital taxes
5 Boxit Ltd (June 2014)
You are Fiona Farr and you work as a tax assistant for Kilps ICAEW Chartered Accountants. Boxit Ltd
is a UK resident trading company which designs and manufactures card packaging for the food
industry. Boxit Ltd is a tax client of your firm. Two of the directors Adam Kard and his daughter Jane
Furness are also tax clients of your firm.
Background information on Boxit Ltd
Adam Kard and Jane Furness bought the entire 100,000 £1 ordinary shares of Boxit Ltd in 2001 for
£5 per share. In 2010, Adam and Jane accepted an offer from DrinkUp plc, a company operating in
the plastic bottling industry, to purchase 10% of the ordinary shares in Boxit Ltd. Using DrinkUp plc’s
expertise and customer base, Boxit Ltd expanded its operations to include the production of plastic
packaging.
The current shareholdings in Boxit Ltd are:
Number of £1
ordinary shares
Adam Kard 70,000
Jane Furness 20,000
DrinkUp plc 10,000
100,000
Adam and Jane are directors of Boxit Ltd and work full-time in the business.
Summary statement of financial position for Boxit Ltd at 31 March 2024
£‘000
Property – Ben Lane factory (bought in 2000) 840
Plant and machinery 385
Cash and other net current assets 750
1,975
Share capital 100
Revaluation surplus 550
Retained earnings 1,325
1,975
Email from Adam Kard
To: Kilps ICAEW Chartered Accountants

From: Adam Kard
Date: 5 June 2024
Subject: Sale of shares in Boxit Ltd
I had serious concerns when the business moved to producing plastic packaging as I feel strongly
about the adverse impact of plastic on the environment. I have also been very unwell and have
therefore decided to retire and make way for Jane to take on my role in the business.
ICAEW 2024 Individuals – capital taxes 9

Boxit Ltd is a profitable company and although DrinkUp plc has offered to buy my 70,000 shares
in Boxit Ltd for £20 per share, I do not want Jane to lose control of the business. I am personally
wealthy and my income in the tax year 2024/25 will be over £150,000. Therefore, I am in no hurry
to sell my entire holding and will consider selling just 20,000 shares for now. I have decided that I
will either sell shares to Boxit Ltd as a purchase of own shares for £20 per share or at a discount to
Jane for £16 per share. DrinkUp plc, as the minority shareholder, has agreed to the sale of my
shares.
The date of the sale of my shares will be 1 September 2024. I have set out below two alternative
scenarios:
Scenario 1: Sale of 20,000 shares to either:
• Boxit Ltd for £20 per share as a purchase of own shares; or
• Jane for £16 per share.
Jane has no spare cash. Therefore, if Jane buys the shares, Boxit Ltd will make an interest-free loan
to her of £320,000. Jane will ultimately have control of the business as she will inherit my
remaining 50,000 shares when I die.
Scenario 2: Sale of all 70,000 shares to Boxit Ltd.
Boxit Ltd has only enough spare cash to buy 20,000 shares at £20 per share. However, it will raise
additional finance to purchase the remaining 50,000 shares by downsizing from its existing Ben
Lane factory to a new purpose-built factory. I have provided you with details of this proposed
transaction (Exhibit).
Requirement
Explain the tax implications for Boxit Ltd, Jane and Adam, of the sale of Adam’s shares in Boxit Ltd for
each of the Scenarios 1 and 2. Include in your explanation the tax implications of the proposed loan
of £320,000 from Boxit Ltd to Jane and the sale of the Ben Lane factory and acquisition of the smaller
factory.
Total: 35 marks
Exhibit: Proposed sale and lease back transaction

Boxit Ltd will sell its Ben Lane factory (which is too large for its trade) to BB Bank on 1 August 2024
for £1.2 million. Boxit Ltd will purchase a new purpose-built factory from a developer for £200,000 on
the same date. The factory will be immediately brought into use in Boxit Ltd’s trade.
There is a chargeable gain arising on the disposal of the Ben Lane factory of £500,000 and there is
no option to tax on the factory. However, I do not know what the tax implications of this information
are for Boxit Ltd or whether there will be any other tax implications of the sale of the Ben Lane factory
and the purchase of the new factory.
6 Derek Woodhouse (September 2016)

You are an ICAEW Chartered Accountant employed by a firm of ICAEW Chartered Accountants. Your
firm acts for Derek Woodhouse and his wife Veronica in personal tax matters. Derek has built up a
successful unincorporated floor tiling business, ‘DW Floors’ over the past 30 years. He is planning to
retire from the business in the near future due to ill health. Derek wants to make plans to ensure his
daughter Fiona and his grandchildren are financially secure. Derek has sent you the following email.
Hi,
Please could you advise me on the following matters.
Retiring from my business
I would like to pass my business on to my daughter, Fiona. She currently works in the business as a
sales representative. I will pass the business on using one of two alternative methods:
• transfer of the business to Fiona during my lifetime; or
• leaving my business to Fiona in my will when I die.

I am not sure if there would be any difference for tax purposes, but I would like to retire from the
business on 31 December 2024.
If I transfer my business in my lifetime, I will do this on 31 December 2024. On this date, Fiona
would pay me £600,000 for the business premises. On the same date, I would then gift the
remaining assets to Fiona. The assets of my business are:
Projected market value on the

Cost 31 December 2024
£ £
Premises 225,000 625,000
Goodwill Nil 500,000
Plant and machinery 100,000 60,000
Inventory 10,000 6,500
The cost and projected market value of each item of plant and machinery is less than £6,000.
Providing for my grandchildren
I own a 5% shareholding in Fiestar plc, a UK quoted company. I inherited the shares from my
mother when she died in April 2022 and £25,000 inheritance tax was paid in relation to the
shares. At the time, the probate value of the shares was £425,000. The current market value is
£500,000. I would like to gift the shares to my two grandchildren, Ella and Daniel, who are 8 and
13 years old respectively, so that they have funds to pay for their future education. I want to
minimise any tax liabilities which may arise from this gift and have three alternative courses of
action:
Alternative 1: Gift the shares to them on 31 December 2024.
Alternative 2: Set up a trust for their benefit on 31 December 2024 by gifting the shares to the
trust.
Alternative 3: Leave the shares to them in my will.
I believe that if I gift the shares to a trust under alternative 2, then, as these are quoted shares,
there will be no tax liability as inheritance tax was paid when I inherited the shares.
Payment to senior manager
I have recently recruited a senior manager from a competitor. The manager has many trade
contacts from his former employment and, as I am keen to leave my daughter a successful
business, I have asked the senior manager to pass me a list of these contacts in exchange for a
one-off bonus of £25,000. I will be advising payroll to describe this as a ‘restraint of trade
payment’. I believe this payment to be capital in nature, so no PAYE or NIC will be deducted from
it.
Veronica would also like some advice and has sent you a separate note which I have attached
(Exhibit).
Regards
Derek
Requirements
6.1 Draft a response to Derek’s email in which you:
(a) Advise of the capital tax consequences of each alternative method suggested for his
retirement from the business, including a calculation of the estimated tax due and a
recommendation on which method will minimise the overall tax liability.
(b) Explain the inheritance tax implications of the transfer of the quoted shares to Derek’s
grandchildren, under each of the three alternative methods for transfer considering any
beneficial claims, elections or reliefs which may be applicable.
(c) Explain the tax treatment of the senior manager’s bonus and identify any threats to the
fundamental ethical principles and any action you should take.
ICAEW 2024 Individuals – capital taxes 11

6.2 Respond to Veronica’s note (Exhibit).
Total: 35 marks
Exhibit: Note from Veronica
Hi,
I am employed by Star Ltd as an HR Director earning a basic salary of £120,000 pa. I am a member
of Star Ltd’s money purchase pension scheme and over the past three years I have utilised my
annual allowance for pension contributions (including a small contribution from my employer),
paying the maximum amount, to provide for my retirement.
My salary is likely to increase significantly and I am concerned what this might mean for my
pension contributions. Without doing detailed calculations could you please let me know how to
work out my annual allowance?
Veronica

Overseas aspects of personal taxation
7 Bill Mickelson (June 2015)
You are a tax adviser working for Grandal LLP, a firm of ICAEW Chartered Accountants.
Bill Mickelson, his daughter Wilma and her husband-to-be Jorge are tax clients of your firm. Bill is the
owner of a bicycle business. He started his business in 1996 when he inherited a workshop from his
father which he still uses in his business. You have received an email from Bill (Exhibit 1). Your
assistant has had a short meeting with Wilma and Jorge and has left you some notes (Exhibit 2).
Requirements
7.1 Reply to Bill’s email explaining the capital gains tax implications for him of the sale and gift of
his business assets to Wilma and the income tax liability in respect of the rental income.
7.2 Prepare briefing notes for a meeting with Jorge and Wilma which include:
• advice for Jorge on his residency status in the tax year 2024/25 and the tax implications of
the timing of the sale of his property in Barcelona;
• an explanation and calculation of Wilma’s income tax and capital gains tax liabilities for
2023/24 after taking into account any reliefs and elections available to her; and
• advice for Wilma of the inheritance tax implications of the gift to her by her grandmother of
the holiday home.
Total: 30 marks
Exhibit 1: Email from Bill
To: Tax Adviser

From: Bill Mickelson
Date: 5 June 2024
Subject: Retirement plans
I have been offered a job touring round the world as a mechanic with an international cycle team
and I have decided to sell my business to my daughter, Wilma. I will leave for a two-month trip to
Australia on 1 August 2024. After I return from Australia I will be in the UK until the cycling season
starts again in May 2025.
I need you to explain to me whether I have any tax to pay. The date of the sale has been agreed as
1 August 2024. I have set out below valuations of and information about my business assets and
some notes of the terms I have agreed with Wilma:
Business assets of bicycle business
Market value at 1
Notes August 2024 Information
£
Retail building 1 130,000 Purchased in 2006 for £55,000
Inherited in 1996 with probate value
Workshop 2 250,000 of £128,000
Goodwill 3 175,000 Created since 1996
Inventory 4 45,000 All purchased since January 2024
The tax written down value of plant
Plant and machinery 4 1,000 and machinery is £1,000
Notes of terms agreed with Wilma

(1) Wilma will eventually inherit the retail building when I die so I have agreed to gift it to her. As I
will receive no cash from her for the retail building, I believe that this will save me tax.
ICAEW 2024 Overseas aspects of personal taxation 13

(2) I would like to retain ownership of the workshop. Wilma has agreed to pay me £6,000 for the
first six months’ rent in advance on 1 August 2024 and she will continue to pay six-monthly in
advance. She will pay this £6,000 rent direct to a bank account in Australia which I recently
opened. Therefore, I believe that this amount will not be taxed in the UK.
(3) On 1 August 2024 Wilma will pay me £175,000 for the goodwill of my business. I cannot
believe I would have to pay any tax on this amount received for goodwill as I have worked
hard to build up the reputation of the business.
(4) Wilma has agreed to pay me £1,000 for the plant and machinery on 1 August 2024. For the
inventory, we agreed she will pay me three instalments of £15,000 with the first instalment
due on 1 September 2024.
Exhibit 2: Notes from meeting with Wilma and Jorge

Jorge is a professional cyclist and was born in Spain where he is currently tax resident. Jorge and
Wilma are getting married on 1 October 2024 in the UK. After the wedding, Jorge will retire as a
professional cyclist and live in the UK working for Wilma in the bicycle business. Jorge’s only stay in
the UK since 6 April 2024 is a nine-day visit to make the wedding arrangements. Jorge intends to
settle in the UK and needs advice on his residency status. He owns a property in Barcelona, Spain. He
is unsure whether to sell this property before or after his wedding on 1 October 2024.
In June 2019, Wilma’s grandmother gifted a holiday home to Wilma which was valued at £445,000.
Wilma decided to let out the holiday home for the first time in December 2023. The property was
actually let out for 31 days during the period from 1 December 2023 to 31 March 2024 and Wilma
received net rental income of £16,000 for this period. On 31 March 2024, in order to raise finance to
buy her father’s business, Wilma sold the holiday home for £485,000. Wilma would like us to confirm
that because she did not actually buy the holiday home, she will not have any tax to pay on its sale.
Sadly Wilma’s grandmother has just died and she has received a letter from her grandmother’s
executor asking for details of the gift of the holiday home. Wilma was very concerned that she would
have tax to pay as a result of the gift and needs more information on this.
After buying her father’s business, Wilma intends to invest in new plant and machinery and shop
fittings and therefore projects that the business will, in the first 12 months to 31 July 2025, make a tax
adjusted trading loss of £240,000 and will then break even in the year ending 31 July 2026.
Wilma does not intend to withdraw any money from the business. She will pay Jorge an annual salary
of £30,000 starting from 3 October 2024 which she has included as a cost in her projections above.
On 1 May 2024 Wilma resigned from her position as marketing director for an international cycle
manufacturer. Her gross salary for the period from 6 April 2024 to 1 May 2024 was £10,000. In
2023/24 her salary was £120,000. Wilma made no other capital disposals in 2023/24 but she does
have a capital loss brought forward at 6 April 2023 of £5,000.
8 Gooch Food (June 2014)

Assume it is June 2024.
Saira Gooch is a sole trader operating as Gooch Food. Saira’s business manufactures ready meals for
sale to supermarkets. Saira is married to Viraj and they have three children. Saira was born in the
country of Ganda where her parents still live. She came to the UK in January 2014 to set up the
Gooch Food business and has been UK tax resident since then. Saira prepares and submits her own
tax returns. Gooch Food has a 5 April year end.
You are a newly-qualified ICAEW Chartered Accountant and have recently started working as the
accountant at Gooch Food. Saira gives you the following briefing:
I have just been to a meeting with a firm of business advisers called Tx3 who I may appoint as my
tax advisers. I would like you to help me understand the advice given to me by Tx3. At the
meeting, which was free-of-charge, the Tx3 adviser made the following tax planning proposals:
Proposal 1 – Make my husband Viraj a partner in Gooch Food

My business, Gooch Food, has made a taxable profit of £150,000 for the year ended 5 April 2024.
This is after the deduction of a salary of £9,100 per annum paid to Viraj who works in product
development at Gooch Food. The Tx3 adviser suggested I could save tax by making my husband
a partner in the business. If I do this, it will be from 6 April 2025 and Viraj will receive a partnership
profit share of £50,000. I expect Gooch Food profits to remain at £150,000 per annum for the
foreseeable future before the deduction of Viraj’s profit share.
Proposal 2 – Set up a discretionary trust for my granddaughter
As I have recently become a grandmother, I would like to set some assets aside for my
granddaughter who was born last month. I have a portfolio of UK quoted shares with a market
value of £300,000. I expect to receive dividends of £36,000 from these shares in the tax year
2024/25.
The Tx3 adviser suggested that I set up a discretionary trust and gift my portfolio of UK quoted
shares to the trust making my granddaughter the beneficiary of the trust. Tx3 advised that this
would ensure that no inheritance tax would be payable in respect of these shares when I die. My
granddaughter does not need any money just yet but it would be good to set aside funds for her
future education.
Proposal 3 – Paying key employees using an offshore company
The Tx3 adviser proposed the following tax planning scheme which he claimed would save my
business national insurance contributions (NIC) as it effectively ‘hides’ employees from HMRC. The
scheme involves making key members of the Gooch Food management team redundant. These
key employees, who each earn £100,000, would continue to work at Gooch Food but would
become employees of an offshore company called LK O/S which is managed by Tx3. LK O/S
would invoice Gooch Food for the services of these employees together with a small
administration fee.
LK O/S would then pay the salaries direct to the key employees without paying NIC or tax to
HMRC on behalf of these employees.
Moving to Ganda
We also discussed my move to Ganda on 1 November 2024, the country where I was born. I will
live there for 10 months and will set up a spice production factory in partnership with my brother.
Although it will be difficult to be separated from my husband and children who will remain in the
UK, I feel that the move is necessary to ensure that Gooch Food is supplied with good quality raw
materials. I will be returning to the UK for the holidays; in December 2024 for four weeks and in
the summer of 2025 for five weeks.
The Tx3 adviser told me that the move would save tax as I will not be taxed on any of the profit
from Gooch Food after the date of my departure from the UK. Gooch Food’s taxable profit for the
year ending 5 April 2025 will be £150,000. My share of the partnership profits in Ganda for the
period to 5 April 2025 will be £75,000. The Tx3 adviser told me that as long as the Ganda
partnership profit share was not remitted to the UK, I would not pay any UK tax on these profits.
Requirements
8.1 Explain to Saira and Viraj the tax and NIC implications of Viraj becoming a partner in Gooch
Food (Proposal 1). Detailed calculations are not required.
8.2 Explain to Saira the inheritance tax implications of setting up a discretionary trust for her
granddaughter (Proposal 2).
8.3 Advise Saira whether she should consider entering into the scheme to pay employees through
the offshore company LK O/S managed by Tx3 advisers (Proposal 3).
8.4 Determine whether Saira will be tax-resident in the UK in the tax years 2024/25 and 2025/26.
Calculate the income tax payable by Saira in 2024/25 and identify any relevant claims or
elections available, making appropriate recommendations on whether these claims or
elections should be made.
8.5 Evaluate the ethical and professional issues for you in advising Saira and Viraj in respect of the
tax planning proposals made by the Tx3 advisers.
Total: 25 marks
ICAEW 2024 Overseas aspects of personal taxation 15

Single companies
9 Valese plc (June 2015)
Assume it is June 2024. Valese plc is a UK resident parent company which has a number of
subsidiaries operating in the software engineering industry. You are a trainee ICAEW Chartered
Accountant working at Valese plc as the financial controller. Your manager is the Valese plc finance
director who is currently away on annual leave; therefore you report directly to the CEO, Kiera
Kingsley.
Valese plc has a 70% shareholding in Mendit Ltd, a UK resident company which provides software
support for the aerospace industry in the North of England. The remaining 30% of the shares are
owned by Gary Jones who is the technical director at Mendit Ltd. Mendit Ltd has a 31 March year
end. Following a strategic review, the Valese plc board has decided to divest itself of its investment in
Mendit Ltd. The board decided that Mendit Ltd should be wound up.
At a recent board meeting, the directors of Mendit Ltd determined that a resolution would be
presented to shareholders to commence the winding up of Mendit Ltd under a members’ voluntary
liquidation. The liquidation will take place on 1 September 2024 when the company will cease to
trade. The Mendit Ltd board made a statutory declaration of solvency.
Kiera Kingsley gives you the following briefing:
Gary has agreed to the winding up of Mendit Ltd and would like to understand the tax
implications for his personal tax position. Gary has accepted the position as technical director at
another of Valese plc’s subsidiaries on a salary of £250,000 pa. Gary also has substantial
investments that use his dividend nil rate band.
Mendit Ltd’s finance director has prepared some information for the Valese plc board which
includes information regarding the liquidation of Mendit Ltd (Exhibit 1) and two alternative
proposals for the timing of the sale of Mendit Ltd’s office building (Exhibit 2).
I would like you to do the following:
Explain the possible loss reliefs for Mendit Ltd’s trading losses arising in the year ended 31 March
2024 and projected for the five-month period ending 31 August 2024 and recommend the most
tax efficient use of the losses. Calculate the amount of tax repayment due to Mendit Ltd as a result
of your recommendation. (Ignore for this purpose the disposal of Mendit Ltd’s office building.)
For each of the two alternative proposals for the timing of the sale of Mendit Ltd’s office building
(Exhibit 2):
• explain and calculate the tax implications for Mendit Ltd, Valese plc and for Gary of the
liquidation of Mendit Ltd on 1 September 2024;
• calculate the cash receivable post liquidation by both Valese plc and Gary; and
• recommend which proposal should be chosen.
On another matter, I have heard a rumour that the Valese plc’s finance director has been buying
and selling Valese plc shares without informing the board. I understand that he has given you the
password for his personal email account. I want you to access his personal email account and read
any emails concerning share transactions. Report your findings to me so that I, together with the
Valese plc board, can determine our response.
Requirements
9.1 Prepare a working paper responding to the briefing from Kiera Kingsley.
9.2 Evaluate the ethical and professional issues for you arising from Kiera Kingsley’s request for
you to access the finance director’s personal email account. Determine the actions you should
take.
Total: 40 marks
ICAEW 2024 Single companies 17

Exhibit 1: Information for the Valese plc board ─ Liquidation of Mendit Ltd
Mendit Ltd’s share capital comprises of 250,000 £1 ordinary shares. Gary incorporated the company
in 2004 when he subscribed for 100% of the shares at par. In 2007, he sold 175,000 shares to Valese
plc for £5 per share.
Recent tax results for Mendit Ltd
Years ended 31 March 2021 2022 2023 2024

£’000 £’000 £’000 £’000
Tax adjusted trading profit/(loss) 234 121 148 (350)
Property income 16 13 15 18
A further tax adjusted trading loss of £321,000, including all closure costs is projected for the five
months ending 31 August 2024. No non-trading profits are expected to arise in the five months
ending 31 August 2024.
Mendit Ltd – projected carrying amounts and amounts realisable on liquidation on 1 September
2024
Carrying Amounts realisable on

Notes amounts liquidation
£’000 £’000
Office building 1 1,500 1,600
Other assets 2 800 400
Bank loan 3 (500)
Bank overdraft 4 (200)
Trade and other payables (300)
Notes
1 Mendit Ltd purchased the office building in 2007 and a chargeable gain of £300,000, after
indexation allowance, will arise on its disposal.
2 These assets are non-chargeable assets.
3 The bank loan is secured by a fixed charge over the office building.
4 The bank overdraft is secured by a floating charge over the other assets.
Exhibit 2: Alternative proposals for the timing of the sale of Mendit Ltd’s office building
Hakett Ltd, an unconnected company, has made an offer to buy Mendit Ltd’s office building for £1.6
million.
Proposal 1
The office building will be sold for £1.6 million to Hakett Ltd on 1 August 2024, before the
appointment of a liquidator. This will enable Mendit Ltd to pay a total dividend of £900,000 to its
shareholders. The liquidator will then be appointed on 1 September 2024 and will sell all the other
assets for £400,000, settle all liabilities and make a final distribution to the shareholders.
Proposal 2
The liquidator will be appointed on 1 September 2024. The liquidator will sell the office building for
£1.6 million to Hakett Ltd and the other assets for £400,000, settle all the liabilities and make a
distribution to the shareholders.
10 Gold Ltd (September 2018)

Your firm acts as tax advisers for the Gold Ltd group of companies and its directors.
Corporation tax year ended 31 March 2024

Gold Ltd is a UK resident trading company, designing and manufacturing jewellery. It supplies items
to retail businesses in the UK and overseas. Gold Ltd started trading in 2005.
Gold Ltd has one wholly-owned subsidiary, Silver Ltd. Gold Ltd acquired its shares in Silver Ltd in
2008 for £65,000.
Gold Ltd’s share capital is held as follows:
Percentage
Shareholder Number of £1 ordinary shares holding
Amber Ltd 10,000 50%
Topaz Ltd 5,000 25%
Estelle Thomas 5,000 25%
Both Amber Ltd and Topaz Ltd are controlled by their directors.
For the year ended 31 March 2024, Gold Ltd has taxable total profits of £560,000, before any
adjustments for the following:
(1) On 1 June 2023, Gold Ltd purchased an investment property in the non-EU country of Anchara
(where the currency is the A$), costing A$300,000, when the rate of exchange was £1 = A$3.20.
On 31 January 2024, Gold Ltd sold the property for A$380,000 when the rate of exchange was
£1 = A$4.00. The proceeds from disposal were left in an overseas bank account and remitted to
the UK on 25 March 2024 when the rate of exchange was £1 = A$4.50.
(2) On 30 June 2023 Gold Ltd issued £100,000 of 6% loan stock for the purposes of raising finance
for its trade. The cost of issuing the loan stock was £8,000.
(3) Estelle Thomas has been employed as a director of Gold Ltd since incorporation, on an annual
salary of £150,000. In August 2022 she borrowed £80,000, at an interest rate of 1%, from the
company. This loan was written off on 31 January 2024. Estelle had paid all interest due up to
that date and the interest and associated class 1A NIC have been correctly recorded in the
accounting records. The loan write-off has been treated as a non-trading loan relationship debit
for corporation tax purposes. Estelle is an additional rate taxpayer and receives dividends from
other investments.
VAT
Gold Ltd purchased Antalya House, a new commercial building, in April 2017 and it exercised the
option to tax. In January 2019 the building was transferred to Silver Ltd.
Silver Ltd has decided to sell Antalya House to an unconnected third party. The sale is likely to take
place in December 2024 for £2.5 million.
Since Gold Ltd acquired it, Antalya House has always been let to tenants under a short lease. The
tenants have the right to terminate the lease should the ownership change but no information has
been obtained on whether they will exercise this right.
Requirements
Prepare notes for a meeting with the financial accountant of Gold Ltd that include:
10.1 A revised computation of the taxable profits and tax liabilities of Gold Ltd for the year ended
31 March 2024 including an explanation of any adjustments you have made.
10.2 An explanation, including calculations of the impact for Estelle of the loan write off.
10.3 An explanation of the potential VAT implications on the sale of Antalya House, identifying areas
where further information is needed to give accurate VAT advice. Calculations are not required.
Total: 25 marks
ICAEW 2024 Single companies 19

Groups and consortia
11 Splite Ltd
You work for a firm of ICAEW Chartered Accountants, which acts for the Splite group and its
directors.
Splite Ltd is the holding company for a group of UK trading companies, although the directors are
considering expanding the group overseas. Your firm’s permanent file contains details of the group
structure and loss policy (Exhibit 1).
The finance director of the Splite group has provided you with details of the performance of the
companies during the year ended 31 December 2023 (Exhibit 2).
The directors want to exploit an overseas market in the country of Ritopia. They have identified a
possible acquisition target, Trubo Inc. They want your firm’s advice regarding the structure of a
potential purchase, specifically whether to purchase the shares or the trade and assets of Trubo Inc.
The directors want to offer one of their managers, Fran Line, a secondment to Ritopia when the new
operation is acquired. Extracts of minutes of a Splite group board meeting are included in Exhibit 3.
The finance director has been awarded shares in Splite Ltd and he insists that there are no tax
implications in a telephone conversation with your manager (Exhibit 4).
Requirements
11.1 Prepare notes for a meeting with the group finance director in which you:
(a) Advise on the impact of the capital transactions on the group’s tax liabilities for the year
ended 31 December 2023, and any appropriate claims or elections that will minimise the
group tax liabilities (Exhibits 1 and 2).
(b) Explain the tax implications of purchasing the Trubo Inc shares or its trade and assets
(Exhibit 3).
(c) Advise on the tax treatment in 2024/25 and 2025/26 of Fran’s income and any gain if she
sells her shares, stating any further information required (Exhibit 3).
11.2 Prepare a file note to your manager, summarising the taxation and ethical issues concerning
the award of the shares in Splite Ltd to the finance director (Exhibit 4).
Note: Ignore stamp taxes.
Total: 40 marks
Exhibit 1: Extract of the permanent file on Splite group

Splite Ltd has owned the following shareholdings for several years:
• 90% of the ordinary share capital of Yogi Ltd
• 80% of the ordinary share capital of Poppie Ltd
• 40% of the ordinary share capital of Lilts Ltd
Poppie Ltd acquired 80% of the ordinary share capital of Qusi Ltd on 1 October 2023.
The remaining shareholdings of Yogi Ltd, Poppie Ltd and Qusi Ltd are owned by individuals. The
remaining shares in Lilts Ltd are owned 40% by Rile Ltd, a UK trading company and 20% by a UK
resident individual.
All companies except Splite Ltd are trading companies, making standard-rated supplies and
preparing accounts to 31 December. Each company is registered separately for VAT and has a VAT
year end of 31 December.
If Splite Ltd or any of its group companies claims losses from another company, the claimant
company must pay the surrendering company £0.50 per £1 of corporation tax relief received.
It is group policy to claim maximum loss relief possible in the current year.
ICAEW 2024 Groups and consortia 21

Exhibit 2: Results of the Splite group for the year ended 31 December 2023
Splite Ltd Yogi Ltd Poppie Ltd Qusi Ltd Lilts Ltd
£ £ £ £ £
Trading profits/(loss) 3,400,000 1,678,000 5,500,000 (800,000)
Chargeable gains See note See note
Property income 500,000 200,000
Note: Capital transactions

Yogi Ltd sold a factory on 30 October 2023, receiving £2,400,000 from the purchaser. Yogi Ltd had
purchased the newly constructed factory, paying £1,800,000 in January 2015. Yogi Ltd had used the
factory in its trade until January 2023. From 1 February 2023, the company had rented out the
property to a third party, who remained as tenant after the sale.
Qusi Ltd sold an office building in April 2023 receiving £500,000. Qusi Ltd had bought the building,
built in 1984, for use in its trade in January 2002 for £800,000. However, the building frequently
flooded and was in a state of disrepair.
There have been no options to tax made in respect of the properties.
Exhibit 3: Extract of Splite group board meeting minutes regarding Trubo Inc
Trubo Inc is a trading company which was incorporated in Ritopia on 1 January 2022 and has
operated there ever since. Trubo Inc generates trading profits, calculated under Ritopian tax rules,
equivalent to £250,000 per annum. Trubo Inc has no other income. The rate of tax on trading
profits in Ritopia is 12%. There is no double tax treaty between the UK and Ritopia.
Ritopian tax rules are similar to UK corporation tax rules except that investment in any capital
expenditure (plant or buildings) for use in a trade qualifies for 100% tax relief in the year of
purchase. Trubo Inc incurs expenditure on plant and machinery of approximately £30,000 per
annum and invests £50,000 in new buildings or building improvements each year.
We have agreed a purchase price of £1 million but do not know whether to buy Trubo Inc’s shares
or its trade and assets.
If Splite Ltd buys the Trubo Inc shares, the directors would expect an annual dividend of £100,000
to be paid to Splite Ltd. Dividends are paid by Ritopian companies net of withholding tax of 2%.
Our directors will not be involved in the trade of Trubo Inc but will retain the existing local
management. However, Fran Line, a manager at Yogi Ltd, will be offered a secondment to Ritopia
from 1 July 2024 and this is expected to last for two years. Fran, aged 32, wants to travel in Ritopia
for the month of June before starting work in the Trubo Inc business, and we will pay her during
this time. We will pay for Fran’s accommodation in Ritopia and for her parents to visit her three
times during her secondment. Fran owns a house in the UK which she will rent out during her
secondment. She also owns shares in UK-quoted companies which she might sell while on
secondment.
Exhibit 4: Extract of email to your manager from the finance director
The managing director talked about giving me shares in Splite Ltd in 2013 when I joined the
company. They were then worth £2 per share, but I did not actually get them then. I paid the
company £20,000 for my 10,000 shares in March 2024. I have completed the share register now,
but I put the date of the share transfer in the board minutes as 1 January 2013 as that was when I
joined the company and I should have got the shares then.
The shares are now worth £40 per share but I paid the full 2013 value for them, so there was no
reason for me to record this on my tax return for 2023/24.

12 Principia Ltd
Assume it is early September 2024. You are an ICAEW Chartered Accountant recently appointed as a
tax specialist to the finance department of Principia Ltd, with responsibility for all group activities.
Principia Ltd is a UK resident holding company of a trading group and was set up by two siblings
Johanna and Ibrahim Newton in 1984. Johanna and Ibrahim are the only shareholders of Principia
Ltd. The group companies manufacture and sell various items of furniture and employ approximately
400 people. Until recently the group had been successful. Due to increased competition and a
significant legal issue regarding materials used in some soft furnishings, the group has had financial
difficulties. As a result, the Newtons have decided to reduce the size of the group and focus on the
core manufacturing business. All group companies prepare accounts to 31 March each year.
You have been sent the following email by Johanna.
To: Tax Adviser

From: Johanna Newton
As you know we are looking to restructure the group and sell off some of the companies that are
not part of our core business. At a recent board meeting we agreed to:
(1) sell the shares in Opticks Ltd to Einstein Ltd, a third-party company, for £2.2 million. I have
given you some background to this company in the first attachment to this email (Exhibit 1);
and
(2) sell the business of Scritti Ltd. The potential purchaser, Plato Ltd has mentioned a couple of
methods for this. I have given more detail about the company and the methods mentioned by
Plato Ltd in the second attachment (Exhibit 2).
I would like you to prepare a report for me on the tax implications of these two disposals, which
are both expected to take place in October 2024. Your report should include the following:
(1) Explanations showing the amount of the loss available on the sale of Opticks Ltd to offset
against the large gains that we expect to make on the sale of Scritti Ltd. Also set out any other
tax implications.
(2) Advise me of the amount of tax payable by any Principia Ltd group companies under the two
methods suggested by Plato Ltd, and recommend the most tax efficient method for Principia
Ltd.
(3) If you can think of any other method of disposal that may be acceptable to both parties,
briefly explain how this works and the advantages and disadvantages of this method for
either party compared to our preferred method from your previous analysis. I do not expect
you to do detailed calculations for this method.
Finally, I know that you previously worked in the finance department of Plato Ltd and are likely to
have a good insight into their negotiation methods. It would really help us if you could have a chat
with me about this later. I am particularly interested in whether there is the possibility of an
increase in the current price if we suggest one. There may be a bonus in it for you if we get an
increase in price!
Regards
Johanna
Requirements
12.1 Using calculations where appropriate, prepare the report requested by Johanna Newton in her
email.
12.2 Explain your ethical position from Johanna’s request relating to your knowledge of Plato Ltd.
Total: 40 marks

Exhibit 1: Information on Opticks Ltd
As the business developed, we decided that the group should diversify and in March 2013, Principia
Ltd purchased the entire share capital of Opticks Ltd for £3.5 million. Opticks Ltd is a property
investment company, investing in both residential and commercial properties.
A large residential property investment owned by Opticks Ltd decreased significantly in value
recently due to a landfill site being opened close to the property. This had an impact on the value of
the company.
Opticks Ltd also owned the office building used as the headquarters of the Principia group. The
building will still be required by the Principia group after the sale of Opticks Ltd. Therefore, Opticks
Ltd sold the office building to Principia Ltd for £500,000 in August 2024. At that time the office
building was valued at £850,000 and it had cost Opticks Ltd £300,000 when new in February 2004.
At the time of the share sale Opticks Ltd is expected to be worth £2.2 million.
Exhibit 2: Information on Scritti Ltd

Scritti Ltd manufactures high-quality bespoke oak furniture. The company was purchased by Principia
Ltd for £450,000 in June 1987. Scritti Ltd had trading losses brought forward from the year ended 31
March 2024 of £410,000 and is expected to break even in the year ended 31 March 2025. The
directors have decided that the group should focus on mid-range mass-market furniture and so
should dispose of Scritti Ltd.
Two alternative methods of disposing of the business to Plato Ltd have been proposed by the
purchasers:
• Option 1 – sell the trade and assets of Scritti Ltd for £3.21 million. Plato Ltd will take all assets and
liabilities.
• Option 2 – sell the shares in Scritti Ltd to Plato Ltd for an amount such that Plato Ltd’s total costs
are the same as under Option 1.
If Option 1 is chosen, the company will undergo a solvent liquidation and will distribute all available
proceeds of sale to Principia Ltd.
The trade and assets of Scritti Ltd are as set out below, shown at their expected market value in
October 2024:
£’000 £’000
Freehold factory 2,500
Plant and machinery (all items valued at less than original cost) 400
2,900
Current assets
Inventory 450
Receivables 270
Cash 10
730
Current liabilities
Trade payables 210
Bank overdraft (unsecured) 110
Hire purchase liability 100
(420)
Net current liabilities 310
3,210
The freehold factory was transferred to Scritti Ltd by Principia Ltd in June 2020 when it was worth £1
million. It had cost Principia Ltd £550,000 in January 1998.

The plant and machinery had a tax written down value of £80,000 at 1 April 2024.
13 Expandit plc (December 2015)

You are an ICAEW Chartered Accountant, working in practice. Your manager, Richard Ellis, has asked
for your assistance in preparation for a meeting with one of your firm’s tax clients, Expandit plc.
Expandit plc is a UK registered company, trading as a furniture manufacturer. Expandit plc has a draft
tax adjusted trading profit for the year ending 31 December 2023 of £3.8 million. The company has
experienced rapid growth in recent years and now employs over 500 staff in the UK alone. Expandit
plc is VAT registered and its annual period for VAT ends on 31 December.
The financial controller of Expandit plc, Martin Morley, has asked for your assistance in calculating the
projected corporation tax payable by Expandit plc for the year ending 31 December 2023. Five
issues have been identified by Martin Morley, which have not been taken into account in calculating
the tax adjusted trading profits of Expandit plc (Exhibit 1).
Martin Morley has recently attended a professional update course on VAT and as a result he has
emailed you a number of questions concerning the VAT position of Expandit plc (Exhibit 2).
Requirements
13.1 Calculate the corporation tax payable by Expandit plc for the year ending 31 December 2023.
Provide explanations on how each of the five issues in Exhibit 1 should be treated for
corporation tax purposes and whether any beneficial claims, elections or reliefs can be used to
reduce the corporation tax payable.
13.2 Prepare a file note to document all of the tax and ethical issues you would need to consider in
replying to Martin’s email in Exhibit 2.
Total: 35 marks
Exhibit 1: Outstanding issues

The following five issues are to be taken into account in the corporation tax computation of Expandit
plc for the year ending 31 December 2023:
(1) On 1 June 2023 Expandit plc bought 90% of the shares of a UK registered trading company,
Foldit Ltd. Foldit Ltd also has a 31 December year end and had brought forward trading losses
of £150,000 at 1 January 2023. It is estimated that Foldit Ltd will make trading losses of £360,000
during the year ending 31 December 2023. Foldit Ltd prints and sells newspapers and journals.
Expandit plc is looking at ways to return the Foldit Ltd business to profitability.
(2) On 31 May 2023, Expandit plc sold its 75% shareholding in Holdit Ltd, a UK registered trading
company. The gain realised on sale was £1.45 million. Expandit plc had owned the shares in
Holdit Ltd since 1 January 2012.
Expandit plc had transferred its old office building to Holdit Ltd in January 2018, when the
building was worth £200,000. The old office building had cost Expandit plc £95,000 in March
2005. The indexation allowance from March 2005 to December 2017 was £43,700. The old office
building had a market value of £220,000 on 31 May 2023. Holdit Ltd makes up accounts to 31
December.
(3) On 1 May 2023 Expandit plc set up a permanent establishment in the non-EEA country of
Beregenia. Profits of the Beregenian permanent establishment for the period to 31 December
2023 are estimated to be £140,000 and these profits will be subject to 40% tax in Beregenia.
None of the profits will be remitted to the UK.
(4) On 1 April 2023, Expandit plc bought an 80% shareholding in Grabbit Inc, a trading company
incorporated in the country of Faraway. Grabbit Inc is managed and controlled in Faraway.
Grabbit Inc has trading profits of £1 million for the year ending 31 December 2023 and
corporation tax will be payable on these profits in Faraway at the rate of 30%.
Expandit plc made a loan of £500,000 to Grabbit Inc on 1 April 2023, at a market interest rate of
5% pa. Grabbit Inc paid interest of £18,750 on 31 December 2023 and tax of 15% was withheld
in Faraway.

Grabbit Inc paid a dividend of £200,000 to Expandit plc on 31 December 2023. This dividend
was subject to 5% withholding tax in Faraway.
(5) During the year ending 31 December 2023, Expandit plc sold furniture to Grabbit Inc for
£500,000. The normal retail price for these goods is £300,000.
Expandit plc does not own shares in any other companies.
Exhibit 2: Email from Martin Morley
To: Tax Adviser

From: Martin Morley
Date: June 2024
Subject: VAT and Expandit plc and group companies
I recently attended a VAT update course provided by the local ICAEW branch. It was really
informative and gave me a number of ideas on how VAT can be minimised for Expandit plc and
the companies in the Expandit plc group.
Can you help me understand the following?
(1) Why do we not have a VAT group? The course made it clear that VAT groups are often
advantageous. I want to understand why Expandit plc does not form a VAT group with one or
more of the other companies in the group.
(2) I now realise that we may have made a mistake on Expandit plc’s previous year’s VAT return.
On 1 December 2020 we brought a new office building into use. The building cost us
£500,000 and was purchased directly from the developer. We did not opt to tax the building.
The capacity of the building proved too much for us and so we rented out half of the building
to an unconnected company on 1 January 2022. This company are still renting half the
building today.
I am quite happy that we should declare the impact of this mistake to HMRC for future VAT
accounting periods, but, as the amount of tax at stake is minimal, could we ignore the error
for prior VAT accounting periods, just to keep things simple?
Let me know your views.
Martin

Overseas aspects of corporation tax
14 Elexi plc (March 2016)
You are an assistant in the technical advisory department of HJJ, a firm of ICAEW Chartered
Accountants.
Elexi plc is a quoted UK tax resident company with 760 employees and annual revenue of £41
million. Elexi plc manufactures audio equipment for the music industry. HJJ provides corporate tax
advice to Elexi plc and personal tax advice to the directors including Peter May, a director who has
recently joined the Elexi plc board.
You receive the following email from Tonya Jones, the financial controller at Elexi plc:
To: Assistant
From: Tonya Jones
Date: 4 March 2024
Subject: Technical tax queries
Please provide tax advice for the following two issues:
Issue 1: Elexi plc – Acquisition of Delby Ltd
On 1 May 2022 Elexi plc acquired the entire ordinary share capital of Delby Ltd, an audio
technology business, by means of a ‘paper for paper’ share exchange. Following the acquisition,
HJJ now also acts as tax advisers to Delby Ltd and to Peter May, the former majority shareholder
of Delby Ltd. Peter is tax resident in the UK and domiciled in England.
Peter’s grandfather gave Peter 11,000 of the 20,000 ordinary shares in Delby Ltd on 31 March
2017. On that date Peter became the managing director having worked for Delby Ltd for 10 years.
Peter’s 11,000 shares in Delby Ltd had a market value of £900,000 on 31 March 2017. His
grandfather continued to hold the remaining 9,000 shares.
On 1 May 2022, Peter and his grandfather accepted an offer from Elexi plc for all of their shares in
Delby Ltd. The agreed consideration was 15 shares in Elexi plc in exchange for each Delby Ltd
share. The share price of each Elexi plc share on 1 May 2022 was £10. Elexi plc has 15 million
ordinary £1 shares in issue after the takeover of Delby Ltd.
I have explained to Peter that there will be a tax liability arising as a result of the share for share
transaction but I do not know how to calculate this. The Elexi plc share price is increasing and
Peter is considering selling his shares in July 2024 to finance the purchase of a new house.
Peter’s grandfather, who was tax resident in the UK and domiciled in England, has recently died.
Peter sent me a letter from the executor of his grandfather’s estate. The executor needs to know
whether Peter still holds the shares in Delby Ltd which were given to him on 31 March 2017. Peter
is unsure how to reply to the executor and wants to understand the tax implications for him arising
from his grandfather’s gift of the Delby Ltd shares and the subsequent ‘paper for paper’ share
exchange. The executor is not asking for calculations on this matter.
Issue 2: Elexi plc – Overseas transactions
Elexi plc’s taxable trading profits for the year ended 31 December 2023 were £4.2 million before
any adjustments arising from the following transactions:
Acquisition of Crea Inc
In July 2023, Elexi plc bought a 100% shareholding in Crea Inc, a company resident in Erewhon,
an overseas tax jurisdiction with a 19% rate of corporation tax. Crea Inc is a customer of Elexi plc.
After acquiring the shares in Crea Inc and as a result of a group internal pricing agreement, Elexi
plc reduced the selling price of goods to Crea Inc by 25%. This resulted in Elexi plc’s taxable
profits being reduced by £1.5 million to £4.2 million in the year ended 31 December 2023.
Crea Inc paid a dividend of £1.62 million (after the deduction of 10% withholding tax) to Elexi plc
in September 2023 which is not included in Elexi plc’s taxable profits.
Manufacturing branch in Utopia
ICAEW 2024 Overseas aspects of corporation tax 27

In February 2023, Elexi plc set up a manufacturing branch, which is a permanent establishment, in
the country of Utopia. It has 500 employees and operates from a rented factory in Utopia. All plant
and machinery used in the manufacturing process is held on operating leases. A taxable profit of
£1.2 million was made by the branch in the period ended 31 December 2023 and Utopian tax on
the branch’s profits was paid at 29.6%. If the branch proves successful, Elexi plc intends to set up
similar branches in other countries.
Requirements
14.1 Explain and calculate the capital gains tax implications for Peter of the ‘paper for paper’
acquisition by Elexi plc of his shares in Delby Ltd (Issue 1). Recommend any appropriate claims
or elections and set out any additional information you would need in order to make a
recommendation.
14.2 Advise Peter of any further tax implications for him arising from his grandfather’s gift of the
Delby Ltd shares and the subsequent ‘paper for paper’ share exchange (Issue 1) and his
grandfather’s death.
14.3 Explain the implications for Elexi plc’s taxable trading profits for the year ended 31 December
2023 of the overseas transactions (Issue 2). Identify and explain any relevant tax claims or
elections and make appropriate recommendations. Calculate revised taxable trading profits
for Elexi plc for the year ended 31 December 2023 including any adjustments you
recommend.
Total: 25 marks
15 Fragmarb plc (March 2016)

You work as a tax adviser for a firm of ICAEW Chartered Accountants. Fragmarb plc is a client of your
firm. The marketing director of Fragmarb plc is also a personal tax client of your firm. Your manager is
preparing for a meeting with the Fragmarb plc board of directors and has asked for your assistance.
Your manager has provided you with some background information.
Fragmarb plc is a UK incorporated company which makes high-quality kitchen cupboards and
worktops which it sells to businesses and individual customers globally. For the year ended 31 March
2024, Fragmarb plc has draft tax adjusted trading profits of £2.6 million. The following two issues
have not yet been taken into account in the calculation of the tax adjusted trading profits and need
to be addressed with the board of directors:
(1) In 2006, Fragmarb plc set up a permanent establishment (PE) in Faraway, a non-EU country. The
PE has made substantial profits in recent years. On 1 April 2023, the trade of the PE was
transferred to a company, Toka SARL, which is resident in Faraway. The transfer was made in
exchange for the issue of 80,000 £1 ordinary shares (an 80% shareholding) in Toka SARL valued
at £2.5 million, which was equal to the market value of the trade and assets transferred. The
remaining 20% of the shares in Toka SARL are held by unconnected individuals resident in
Faraway. Details of the assets transferred to Toka SARL are outlined in Exhibit 1. On 1 January
2024, Fragmarb plc sold 24,000 of the shares in Toka SARL for £800,000. At that date the market
value of Fragmarb plc’s remaining holding was £1.96 million. The rate of corporation tax in
Faraway is 17%.
(2) Fragmarb plc has held 20% of the shares in Mokle Ltd, a UK trading company, since 1 March
2010. The cost of the shares was £325,000. On 1 July 2023, Mokle Ltd was taken over by
Wemble plc. In exchange for its shares in Mokle Ltd, Fragmarb plc received shares in Wemble
plc with a market value of £600,000, resulting in a 12% shareholding in Wemble plc. The
indexation allowance from the date of purchase of the shares in Mokle Ltd, to December 2017
was £84,526.
Transactions with Gobo Inc
Fragmarb plc has one other wholly-owned subsidiary, Gobo Inc which is a large company, resident in
the non-EU country of Glubeck. During the year ended 31 March 2024, Gobo Inc bought goods from
an unconnected company in Glubeck to sell to UK customers via Fragmarb plc, however, the
contracts for sale are between Gobo Inc and each customer. Fragmarb plc provides an after-sales
service and marketing services to these customers. Gobo Inc generated income of £14 million and

profits of £4 million from sales to these UK customers on which tax of £750,000 was paid in Glubeck
for the year ended 31 March 2024.
Your manager has also received an email from the marketing director of Fragmarb plc, asking for
advice in relation to a secondment overseas at Toka SARL (Exhibit 3).
Requirements
15.1 Calculate the corporation tax payable by Fragmarb plc after making adjustments to the draft
tax adjusted trading profits for the two issues identified. You should include an explanation of
the tax treatment of each issue and consider any beneficial claims, elections or reliefs.
In answering this part of the question do not consider the transactions with Gobo Inc.
15.2 Explain how the transactions with Gobo Inc are likely to be treated for tax purposes and
whether Gobo Inc will be liable to pay any UK tax. You should consider any relevant anti-
avoidance legislation.
15.3 Draft a response to the email from Fragmarb plc’s marketing director (Exhibit 3).
Total: 40 marks
Exhibit 1: Details of assets transferred to Toka SARL by the PE on 1 April 2023
Indexation factor
from date of
Date of purchase to Market value
Asset purchase December 2017 Cost on 1 April 2023
£ £
Factory (Note) January 2006 0.438 150,000 600,000
Warehouse January 2008 0.326 450,000 400,000
Fixed plant and
machinery May 2014 0.087 100,000 150,000
Goodwill January 2006 0.438 – 1,000,000
Trading stock N/A N/A 100,000 350,000
All of the assets transferred are located in Faraway

Note: Toka SARL sold the factory to an unconnected third party on 31 December 2023 for £800,000.
Exhibit 2: Email from marketing director
To: Manager
From: Marketing Director
Date: 6 September 2024
Subject: Secondment to Toka SARL
Hi,
As you are aware, I have worked for Fragmarb plc in the UK for the past 20 years and I have been
offered the opportunity of a secondment to work at Toka SARL in Faraway for a period of 18
months. I have never travelled abroad before having been born in the UK and lived here all of my
life.
I will either leave the UK on 31 December 2024 and start work at Toka SARL on 1 January 2025 or I
could delay leaving the UK to 31 July 2025 and start work at Toka SARL on 1 August 2025 instead.
My current annual salary in the UK is £125,000. When I am on secondment working in Faraway, my
salary will be paid by Toka SARL into a bank account which I will open with a bank in Faraway. My
salary will be £135,000 pa when on secondment.
Please explain briefly if I am liable to pay UK tax when working for Toka SARL and advise me if
there will be any difference in my UK tax liability, depending upon when I start the secondment.
Marketing Director

16 Tea Group (March 2017)
You are an ICAEW Chartered Accountant, working as a corporate tax specialist, within the finance
department of the Tea Group of companies. The recently appointed Chief Executive Officer (CEO) of
the Tea Group is planning changes to the group to take place in September 2024. You have been
asked to provide advice about the tax implications of the CEO’s plans.
The Tea Group of companies consists of Tea plc and three wholly-owned, subsidiary companies:
Tea plc UK registered holding company
Tree Ltd UK registered manufacturing company
Trunk OOD Barvanian registered wholesale company
Leaf Ltd UK registered retail company
All of the group companies have a 31 March year end. Tree Ltd produces Forest Tea, a traditional
English tea, in a factory in the north of England, using tea leaves imported from international
suppliers.
Trunk OOD buys the finished tea from Tree Ltd and acts as wholesale distributor of Forest Tea to both
Leaf Ltd (the retail arm of the Tea group) and other unrelated third-party retailers. Trunk OOD is
registered in the overseas country of Barvania, but its central management and control and its trade
are both currently in the UK.
Leaf Ltd sells Forest Tea in its chain of UK-based Tea Shops.
Each company pays 100% of its profits to Tea plc each year, in the form of both management charges
for group services and dividends. Tea plc provides human resource, finance and administration
functions to the group.
Proposed changes to the group
The recently appointed CEO of the Tea Group plans to make changes to increase group profitability.
He believes that profits could be increased by relocating the management of some of the subsidiary
companies to overseas jurisdictions. As a result, he is proposing:
• relocation of the effective management of Tree Ltd to the non-EEA country of Estaban; the trade
of Tree Ltd would continue to operate within the UK; and
• relocation of the central management and control and the trade of Trunk OOD to Barvania.
Further information about the proposed changes is set out in Exhibit 1.
In addition, the CEO has provided you with details of his proposals for future pricing structures for
the transfer of goods and services between group companies, from September 2024 onwards
(Exhibit 2).
Requirements
16.1 Prepare a report for the CEO using the information in Exhibit 1, which:
(a) Sets out the tax implications and the tax costs of the relocation of:
• the management of Tree Ltd overseas; and
• the management and the trade of Trunk OOD overseas.
(b) Briefly identify and outline the impact of anti-avoidance legislation, which may be
applicable to the relocation of the management of Trunk OOD to Barvania, given that the
rate of corporation tax in Barvania is currently 10%.
16.2 Identify the issues arising from the information in Exhibit 2 and explain your response to these
ethical and tax issues.
Total: 40 marks

Exhibit 1: Further information about the proposed changes to the group
Tree Ltd
Tree Ltd is incorporated in the UK. The effective management of the company will relocate to the
non-EEA country of Estaban from 1 September 2024, although the trade will continue to operate in
the UK. The relocation of the management will be deemed to have happened because:
• all future board meetings will take place in Estaban;
• two of the four directors will be resident in Estaban; and
• the company will have its head office in Estaban.
Estaban and the UK have a double tax treaty, which allows Estaban resident companies to be treated
as non-resident in the UK.
Tree Ltd will have the following assets at 31 August 2024:
Cost plus indexation

allowance up to December Estimated market value at
Asset 2017 31 August 2024
£
UK factory used in the trade 750,000 £2,000,000
UK office building 100,000 £750,000
Estaban investment property (Note
1) 20,000 $2,375,000
Headquarters of the company in
Estaban (Note 1) 100,000 $1,250,000
Fixed plant and machinery used in
the trade 500,000 £400,000
Goodwill of the trade 0 £1,500,000
Notes
1 All figures are quoted in pounds sterling (£), apart from the market values of the properties in
Estaban, which are quoted in Estaban dollars (E$). The spot rate for Estaban dollars on 31 August
2024 is estimated to be E$2.5 to £1.
2 All buildings are more than three years old and no elections have been made to opt to tax any of
the buildings.
All of these assets will be retained by Tree Ltd, apart from the UK office building, which will be sold
for its market value on 31 August 2024 to a third party.
The CEO is also considering moving the tax residence of the parent company, Tea plc from the UK to
Estaban in the future.
Trunk OOD
Trunk OOD is incorporated in Barvania. The company will relocate the central management and
control and the trade of the company to Barvania, from the UK, on 1 September 2024. Barvania is not
an excluded territory for the purposes of the controlled foreign company anti-avoidance legislation.
There is no commercial reason for situating the wholesale business in Barvania. Trunk OOD normally
has taxable profits in excess of £2 million pa. Trunk OOD’s only non-current asset is internally-
generated goodwill of the trade valued at £250,000 at 31 August 2024.
Exhibit 2: Memo
To: Tea Group finance staff

From: The CEO
Subject: Tea Group transfer prices
I have decided for commercial reasons that we should make the following changes to the transfer
prices charged between companies in the Tea group from 1 September 2024:

Change in transfer price Financial effect pa
Sales of product from Decrease the transfer price Decrease profits in Tree Ltd by £1
Tree Ltd to Trunk OOD charged by 50%. million;
Increase profits in Trunk OOD by £1
million.
Sales of product from Increase the transfer price Increase profits in Trunk OOD by £1
Trunk OOD to Leaf Ltd by 50%. million;
Decrease profits in Leaf Ltd by £1
million.
Management charges The management charge Increase profits in Trunk OOD by

from Tea plc to group from Tea plc to Trunk OOD £500,000;
companies will be reduced by Decrease management income in Tea
£500,000 pa plc by £500,000.
After sending this memo, the CEO called you into his office for a private conversation. During this
conversation, he said:
“I know that the transfer pricing changes I am suggesting could be contested by the transfer pricing
anti-avoidance legislation, which would make these changes ineffective for tax purposes.
However, I am also aware that we self-assess our UK corporation tax liabilities.
I will be asking you to submit the UK corporation tax computations for our group companies, taxed in
the UK, using the new transfer prices to calculate group taxable profits, with effect from 1 September
2024.
This should reduce our UK corporation tax bill by £625,000.
If I increase the group after tax profits by at least £500,000 in my first year, I will receive a substantial
bonus.
I will ensure that if we hit the £500,000 target, you will also receive a substantial bonus.”

Changing business structures
17 Upten plc (June 2015)
Assume it is June 2024. You are Tina Yarn and you have just started a new job as financial controller
at Upten plc which manufactures clothes and household goods in the UK. Upten plc has one wholly-
owned subsidiary, Woren Ltd, which imports electrical goods for sale to retailers in the UK. Upten plc
and Woren Ltd both have a 30 September year end. The gross assets of the Upten group are £10
million and the group has 100 employees in the UK.
You report to the Upten plc finance director who has asked you to help with his preparation for the
next board meeting and has given you the following briefing:
“The Upten plc board is planning to discuss the following two matters at the next board meeting.
To motivate senior managers at Upten plc, the board is introducing a share option scheme. The
board want to ensure that tax reliefs are maximised for key employees and therefore the scheme will
be a tax-advantaged share option scheme. An email will be sent to the employees explaining the
scheme and will include a worked example demonstrating the tax benefit of accepting the options. I
have provided you with the proposed details of the scheme (Exhibit 1).
Upten plc will expand its operations to include retailing its products in the UK. I have set out in the
attached note details of a proposed joint venture to implement this expansion (Exhibit 2). The joint
venture will be achieved by incorporating a company, DLP Ltd.
Please draft briefing notes for me in which you:
• recommend the most appropriate share option scheme for Upten plc (Exhibit 1). Assuming an
employee sells the shares on 31 July 2026, calculate the after-tax cash receivable for one
employee under the share option scheme; and
• explain the tax implications for Upten plc, Woren Ltd and DLP Ltd of each alternative ownership
structure for the joint venture in DLP Ltd (Exhibit 2). Include calculations of the projected taxable
profits or losses for each company for the year ending 30 September 2025, assuming that any
losses will be used as early as possible.”
Requirement
Draft the briefing notes as instructed by the finance director.
Note: Ignore indexation allowance.
Total: 30 marks
Exhibit 1: Proposed share option scheme

On 1 July 2024, 10 managers will be granted an option over 40,000 shares each at the market price
of the shares at that date which is expected to be £2.50 per share. The options will be exercised on
31 July 2026 when the market value is expected to have increased to £6 per share.
Exhibit 2: Joint venture in DLP Ltd

On 1 October 2024, Upten plc will start retailing its products in the UK as a joint venture with either
Wohnung GmbH, a German homeware retailer, or Home Ltd, a UK homeware retailer. The joint
venture will be achieved by incorporating a company, DLP Ltd with one of the following alternative
ownership structures:
Structure 1: Upten plc will own 75% and Wohnung GmbH will own 25% of the ordinary shares in DLP
Ltd.
Structure 2: Upten plc will own 65% and Home Ltd will own 35% of the ordinary shares in DLP Ltd.
Consideration for the shares in DLP Ltd will be as follows:
Structure 1 Structure 2
£’000 £’000
Upten plc contribution
Warehouse (Note) 5,000 5,000
ICAEW 2024 Changing business structures 33

Structure 1 Structure 2
£’000 £’000
Cash 4,000 2,800
Wohnung GmbH – cash 3,000 –

Home Ltd – cash – 4,200
12,000 12,000
Note: Upten plc owns a warehouse in London, which was used as a distribution centre. Upten plc
recently centralised its distribution network and the warehouse will not be used in the future by
Upten plc. This warehouse will be transferred to DLP Ltd on 1 October 2024 at its market value of £5
million and, after conversion to a retail unit, will be used by DLP Ltd for its retail trade.
The warehouse was originally purchased by Upten plc’s subsidiary Woren Ltd in January 2020 for £4
million and was transferred to Upten plc on 1 October 2021. The market value at the date of transfer
was £4 million. A claim to rollover a chargeable gain of £300,000 on a business asset sold by Woren
Ltd in March 2019 had been made against the cost of the warehouse.
Projected taxable trading profits and losses for the year ending 30 September 2025
Upten plc Woren Ltd DLP Ltd

£’000 £’000 £’000
Trading profit/(loss) 1,500 4,500 (3,400)
At 1 October 2024, Woren Ltd is expected to have tax trading losses brought forward of £1.1 million
and capital losses brought forward of £550,000. Upten plc has no tax losses brought forward at 1
October 2024. DLP Ltd is expected to make trading profits in the year ending 30 September 2026.
18 Montgomery Ltd (September 2015)

You are an ICAEW Chartered Accountant, recently appointed to the finance department of
Montgomery Ltd, to provide in-house tax advice.
Montgomery Ltd is a UK registered company, set up by two individual shareholders in 2018, to retail
clothing. The company has been successful, with taxable trading profits in the year ended 31 March
2024 of £800,000 and in excess of 300 employees. Montgomery Ltd is now expanding its business
into manufacturing goods for sale in its own retail outlets.
In April 2024, Montgomery Ltd set up a new, wholly owned subsidiary, Fever Ltd. On 1 July 2024,
Fever Ltd acquired the trade and assets of Romulus Ltd; an unconnected, UK-based, T-shirt
manufacturer. The details of this acquisition are set out in Exhibit 1.
Due to high operational costs in the UK, Montgomery Ltd is also planning to manufacture goods
overseas, in countries with lower operational costs. As the first stage in this plan, Montgomery Ltd is
setting up a jeans manufacturing business in the country of Asiatica, which will start trading on 1
January 2025. The details of the proposed operation in Asiatica are set out in Exhibit 2.
Requirements
18.1 Explain and quantify the tax consequences for Montgomery Ltd and Fever Ltd, of the
acquisition of the trade and assets of Romulus Ltd on 1 July 2024 (Exhibit 1).
18.2 Explain the tax implications of the alternative business structures proposed for the factory in
Asiatica (Exhibit 2).
Note: Ignore diverted profits tax.
Total: 40 marks

Exhibit 1: The acquisition of the trade and assets of Romulus Ltd by Fever Ltd on 1 July 2024
Relevant information about each company is as follows.
Romulus Ltd
• VAT registered, with a VAT return year ending on 31 March.
• Capital losses brought forward as at 30 June 2024: £155,000.
• Trading losses brought forward as at 30 June 2024: £245,000.
• Tax written down value of the main pool at 30 June 2024: £25,000.
• Market values of the assets of Romulus Ltd on 30 June 2024:
– plant and machinery in the main pool for capital allowance purposes £75,000
– property used in the trade £300,000 (Note)
– net current assets £25,000
– no intellectual property owned, except goodwill
Note: The property comprises the T-shirt factory which was purchased new from the developer, on
28 February 2018 for the VAT exclusive price of £275,000 and has been used 100% for the purposes
of T-shirt manufacturing by Romulus Ltd. Romulus Ltd has not exercised the option to tax the
property.
Fever Ltd
• Started trading on 1 July 2024.
• Paid £600,000 for the trade and assets of Romulus Ltd on 1 July 2024.
• Registered for VAT on 1 July 2024, with a VAT return year ending on 31 March.
• The assets transferred include the property which comprises the T-shirt factory. The factory has
three floors and Fever Ltd uses two of the floors for manufacturing and rents the third floor out to
young fashion designers, running small businesses, which are not registered for VAT.
• Fever Ltd has not yet decided whether to exercise the option to tax in connection with the
property.
Exhibit 2: Jeans manufacturing business in the country of Asiatica

Montgomery Ltd is setting up a jeans manufacturing business in Asiatica, which will start trading on 1
January 2025.
Labour and material costs in Asiatica are low and corporation tax on company profits is 5%. Asiatica is
not an excluded territory for the purposes of the controlled foreign company legislation. The
calculation of taxable profits is similar under both the Asiatica and UK tax systems.
The low rate of corporation tax in Asiatica is very attractive to Montgomery Ltd, although the
management skills of the local work force in Asiatica are not yet fully developed. It is therefore
anticipated that the Asiatica management team will require significant support from the UK-based
Montgomery Ltd management team. All goods manufactured in Asiatica will be sold to Montgomery
Ltd.
The factory is expected to make taxable profits, as calculated for both UK and Asiatica tax purposes,
as follows:
3-month period ending 31 March 2025 £200,000

12-month period ending 31 March 2026 £1,000,000
Anticipated profit margins are high at around 45% and profits are expected to continue to increase in
future accounting periods.
The factory can either be set up as a separate Asiatica-registered subsidiary company or as a
permanent establishment in Asiatica. An understanding of the tax consequences of the two
alternative business structures is important to assist Montgomery Ltd in making the decision about
which business structure to adopt.

19 ZD Holdings plc (March 2016)
You are Sam Fisher, an ICAEW Chartered Accountant, and you work in the corporate development
department of YG. YG has been engaged by ZD Holdings plc to provide tax advice in relation to the
sale of its subsidiary, Homewize Ltd. The subsidiary is to be sold to Anacim Ltd, a private equity
company. ZD Holdings plc is a UK tax resident company. In 2008, ZD Holdings plc had bought 100%
of the shares in Homewize Ltd for £5 million. Homewize Ltd operates a chain of stores selling home
products and has no subsidiaries.
Bernie Styl, an ICAEW Chartered Accountant, is the manager at YG responsible for the ZD Holdings
plc client work. You receive the following email from Bernie:
To: Sam Fisher

From: Bernie Styl
Date: 4 March 2024
Subject: Sale of Homewize Ltd
Homewize Ltd currently has no finance director and its finance department lacks tax expertise. ZD
Holdings plc has asked YG to review Homewize Ltd’s corporation tax position. A finance assistant
at Homewize Ltd has provided information regarding Homewize Ltd’s projected tax results for the
year ending 31 March 2024, together with three outstanding issues (Exhibit 1).
I attended a meeting last week with the CEO from ZD Holdings plc and a member of the deal
team representing Anacim Ltd the purchaser of Homewize Ltd. I have provided meeting notes
which set out two alternative methods proposed by Anacim Ltd for the sale of Homewize Ltd’s
business (Exhibit 2). I need you to prepare some briefing notes which provide:
• an explanation of the corporate tax and VAT implications of the three outstanding issues
(Exhibit 1);
• a revised calculation of Homewize Ltd’s tax-adjusted trading loss for the year ending 31 March
2024 and a recommendation of how Homewize Ltd could use this loss (Ignore the proposed
sale of Homewize Ltd for this part); and
• an evaluation of the tax implications for ZD Holdings plc, Homewize Ltd and Anacim Ltd of the
two alternative methods for the sale of the Homewize Ltd business (Exhibit 2).
Just before you start work, you receive the following telephone call from the CEO of ZD Holdings
plc:
“At the meeting last week, your colleague Bernie Styl was verbally aggressive and gave a negative
picture of Homewize Ltd in front of the member of the deal team representing Anacim Ltd, the
purchaser of the Homewize Ltd business. If this behaviour is repeated at the next meeting, I will
ensure that YG is not appointed again by ZD Holdings plc on any future assignments.”
Requirements
19.1 Prepare the briefing notes requested by Bernie Styl; and
19.2 Evaluate the ethical issues for you and for YG arising from the telephone call from the CEO of
ZD Holdings plc. Determine and describe the actions you should take.
Note: Ignore the indexation allowance.
Total: 35 marks
Exhibit 1: Homewize Ltd’s draft projected tax results for the year ending 31 March 2024 and
outstanding issues – prepared by a finance assistant
£m
Loss for the year per the statement of profit or loss (90)
Add depreciation and other disallowable expenses 31
Less capital allowances (17)
Tax-adjusted trading loss (76)

The tax-adjusted trading loss above does not include any adjustments for tax purposes in respect of
the following outstanding issues:
Issue 1
On 1 April 2023 Homewize Ltd sold its freehold stores to a property company, for a gross amount of
£73 million. The property company leased the stores back to Homewize Ltd under a 10-year
leaseback scheme.
The terms of the leaseback are annual rentals of £4 million payable in advance. The transaction costs
in respect of the sale of the stores were £1.2 million. The right-of-use asset was accounted for by
Homewize Ltd under IFRS16 capitalising all these costs. The total interest and depreciation in respect
of this asset charged to the statement of profit or loss for the year is £5.2 million. This £5.2 million is
included as a cost in the projected loss of £90 million for the year ending 31 March 2024 per the
statement of profit or loss. Depreciation on this asset of £1.5 million has been added back in the
calculation of draft tax-adjusted trading loss of £76 million.
Homewize Ltd and the property company have not opted to tax the freehold stores. The stores were
newly constructed for Homewize Ltd at a total cost of £50 million excluding VAT and became
available for use in April 2007. An accounting profit on disposal of £35.2 million has been included in
the statement of profit or loss for the year ending 31 March 2024 in relation to the stores. No
adjustment for this has been made in the above projected calculation of the tax-adjusted trading loss
for the year ending 31 March 2024.
Issue 2
Homewize Ltd has an obligation to repay a loan of $1 million on 30 June 2024. The loan, taken out
on 1 May 2023, was used to purchase new plant and equipment for many of the company’s stores.
Relevant exchange rates are given below. The loan was recorded in the financial statements using the
exchange rate at 1 May 2023. The financial controller is not sure how to deal with foreign exchange
issues, so no adjustment has been made in March 2024.
Exchange rates:
1 May 2023 $1.30 = £1
31 March 2024 (expected) $1.37 = £1
30 June 2024 (expected) $1.25 = £1
Issue 3
Homewize Ltd has £17 million of trading losses brought forward at 1 April 2023. The company has
no capital losses.
Exhibit 2: Notes from a meeting between Bernie Styl (YG manager), the CEO of ZD Holdings plc
and a member of the deal team representing Anacim Ltd
The methods for the sale of the Homewize Ltd business are either:
• the sale of Homewize Ltd’s shares to Anacim Ltd for £13.75 million; or
• a hive-down involving the transfer of the trade and certain assets of Homewize Ltd to a newly-
incorporated company, NewCo Ltd, followed by the sale of NewCo Ltd shares to Anacim Ltd for
£11 million. The assets transferred would exclude the office building (see below).
The proposed sale date is 1 April 2024.
Office building
Homewize Ltd now owns only one property; an office building in London. The office building was
newly constructed for Homewize Ltd’s administration department on 1 April 2016. The building cost
£2.85 million, including VAT, at the rate of 20%, of £0.475 million, which Homewize Ltd recovered in
full. Homewize Ltd has always used the whole building entirely for business purposes. The building
has a current market value of £2.75 million which is not expected to change before 1 April 2024.
If Anacim Ltd acquires the building as part of an acquisition of Homewize Ltd’s shares, it estimates
that 40% of the floor space would be surplus to its requirements and it would let this space to a
financial services company. The financial services company is exempt for VAT purposes and therefore
Homewize Ltd does not intend to ‘opt to tax’ the office building as there is no possibility of the
financial services company recovering VAT.

If Anacim Ltd uses a hive-down to acquire Homewize Ltd’s business, it would exclude the office
building from the agreement. Homewize Ltd would retain ownership and let out the property.

20 Marmalade Ltd
You are an ICAEW Chartered Accountant working in the tax department of Brown and Co, ICAEW
Chartered Accountants. Marmalade Ltd and two of its directors and shareholders are tax clients of
your firm.
Marmalade Ltd was originally incorporated many years ago by two friends, Asha and Lucy, to
manufacture traditional English marmalade (a preserve made from oranges), for sale to
supermarkets. Asha and Lucy are both UK resident for tax purposes.
At incorporation, Asha and Lucy each subscribed for 50% of the company’s original 66,000 £1
ordinary shares, at par. In 2006, Marmalade Ltd issued 33,000 new, £1 ordinary shares to Cooper Ltd,
in exchange for an investment in the company of £100,000. Asha, Lucy and Cooper Ltd each owned
one third of the company’s total share capital.
Asha and Lucy continued to work for the company full-time. Marmalade Ltd has been successful and
its marmalade is now a well-known product, sold in all major supermarkets in the UK.
Lack of agreement over potential expansion of the product range
Lucy would like to exploit the company’s successful branding and expand the company’s product
range into manufacturing jams and other types of preserves. However, Asha does not agree with this
strategy. Recent board meetings have been unpleasant and inconclusive.
As a result, Asha has decided to sell her shares in the company and leave Lucy to expand the
business. Cooper Ltd has also decided that now would be the right time for the company to realise
its investment in Marmalade Ltd. Shares in Marmalade Ltd have a current valuation of £50 each,
which has been agreed with HMRC’s Shares and Assets Valuation team.
Marmalade Ltd has been successful and has distributable reserves of £2 million. Marmalade Ltd is
prepared to repurchase shares from the current shareholders but £2 million is the maximum the
company is prepared to use to repurchase shares. Any shares repurchased by Marmalade Ltd will be
cancelled.
Marmalade Ltd will repurchase all of the shares owned by Cooper Ltd on 1 August 2024 and it will
then use what remains of the £2 million of distributable reserves to repurchase some of Asha’s
shareholding on 2 August 2024.
The remainder of Asha’s shareholding will be purchased by Lucy. In order to do so Lucy will need to
raise a personal loan from her bank. Her bank is happy to lend her up to £1.5 million to buy the
shares from Asha, at an annual interest rate of 8%.
Asha is an additional rate taxpayer for income tax purposes, having taxable income of around
£130,000 each tax year. Asha has never realised any capital gains. Cooper Ltd is a UK registered,
trading company.
Tax-saving scheme
The current directors of Marmalade Ltd have been approached by an external consultancy firm
specialising in tax-saving schemes. You have received an email from Lucy, asking for your
professional opinion on the tax-saving scheme on offer.
To: Tax Adviser (Brown and Co)

From: Lucy (Marmalade Ltd)
Subject: Tax-saving scheme
The board has been approached by a firm of tax consultants, who claim that they can reduce the
company’s UK corporation tax bill by more than 75%.
In simple terms, the scheme they offer seems to work as follows:
• Marmalade Ltd sets up an overseas subsidiary company, resident in the tax haven of
Unterbourg, which has a corporation tax rate of 1%.
• The Unterbourg-resident subsidiary company then borrows money from a bank in Unterbourg
at an annual interest rate of 1%.
ICAEW 2024 June 2016 exam questions 39

• The Unterbourg resident subsidiary company lends this money to Marmalade Ltd and charges
interest at an annual rate of 20%.
The amount of money borrowed is determined by the amount of profit in Marmalade Ltd and the
amount of profit to be ‘re-allocated’ to the subsidiary in Unterbourg. The tax consultants say that
the scheme is entirely legal, and exploits a loophole in the law. It does this by inserting steps into
the transaction which will ensure that no UK anti-avoidance legislation, such as the transfer pricing
or controlled foreign company regimes, will apply to this transaction. The full details of how the
scheme works will not be made available to us until we sign up for the scheme.
The tax consultants will charge a fee, calculated as 10% of the corporation tax saving we achieve.
This all seems too good to be true. Please provide some initial advice about the ethical and legal
consequences of participating in this scheme.
Requirements
20.1 Prepare notes to be used at a meeting with Asha and Lucy. These notes should:
(a) Advise on the tax consequences of the repurchase of shares by Marmalade Ltd for both
Cooper Ltd and Asha. Include calculations and explanations to support your advice.
(b) Determine the amount of the personal loan Lucy needs to take out in order to finance the
purchase of the remainder of Asha’s shares and explain the tax consequences to Lucy of
this loan.
(c) Based on your answer to part 1 (a) and (b) above, and taking account of any tax reliefs
available, calculate and explain the tax payable by Asha on the disposal of her shares in
Marmalade Ltd to Lucy.
20.2 Prepare a reply to Lucy’s email, providing initial advice about the ethical and legal
consequences of the tax saving scheme.
Total: 40 marks
21 Kamran Siddiqi
You are an ICAEW Chartered Accountant, working in practice as a taxation adviser within a firm of
ICAEW Chartered Accountants.
Kamran Siddiqi is a new client of your firm. He attended a meeting at your office yesterday to discuss
the tax implications of a change he intends to make to the structure of his business.
Kamran owns a restaurant, which he originally ran as a sole trader when the restaurant was opened in
2003. On 1 August 2015, Kamran incorporated the business as Siddiqi Restaurant Ltd. Siddiqi
Restaurant Ltd (SRL) has an accounting year end of 31 December.
In order to simplify his business administration, Kamran intends to revert back to running the
restaurant as a sole trader on 31 July 2024.
In order to incorporate the business, Kamran purchased Siddiqi Restaurant Ltd ‘off the shelf’. The
share capital of the company consists of 200 £1 ordinary shares. Kamran is the sole shareholder and
has always been employed as a director of the company.
On incorporation of the business, the only chargeable assets were the goodwill and the freehold
restaurant property. Kamran gifted the goodwill of the business to the company, but retained
ownership of the freehold restaurant property himself. No gift relief was claimed on the disposal of
the goodwill as the gain was covered by Kamran’s annual exempt amount.
Kamran has provided you with details of the most recent trading results of the company and the
costs and market values of the company’s assets (Exhibit).
On 31 July 2024, a liquidator will be appointed and the total assets of Siddiqi Restaurant Ltd will then
be transferred back to Kamran.
You have agreed to provide calculations and explanations to Kamran to enable him to understand
the taxation implications of these transactions.

Requirements
Prepare notes for your files to document the tax advice you are going to give Kamran on the
following matters:
21.1 Calculate the taxable total profit for Siddiqi Restaurant Ltd for the period ending 31 July 2024,
explaining how you have treated the outstanding items numbered (1) and (2) in the Exhibit.
You should consider any available claims, elections or reliefs and make recommendations on
whether these should be claimed.
21.2 Calculate the total amount available for distribution by the company to Kamran as at 31 July
2024.
21.3 Explain the tax treatment of any distribution made to Kamran on 31 July 2024 and calculate
the tax cost to Kamran of the distribution, assuming any beneficial reliefs are claimed.
21.4 Explain the VAT consequences for Siddiqi Restaurant Ltd and Kamran of the transfer of the
trade and assets of the restaurant business from the company to Kamran.
Total: 30 marks
Exhibit:
Recent actual and estimated results of Siddiqi Restaurant Ltd
• Year ended 31 December 2023
The corporation tax computation for the year ended 31 December 2023 has been prepared and
shows taxable trading profits of £45,000.
• Period ending 31 July 2024
The draft taxable trading loss for this period is projected to be £115,000. This figure is before
taking account of the items numbered (1) and (2) below.
Issues yet to be dealt with in calculating the taxable trading profits/(losses) of the period ending 31
July 2024
(1) Capital allowances for the final period of trading have yet to be calculated. No new items of
plant and machinery were purchased in the final period. All items of plant and machinery will be
sold to Kamran on 31 July 2024 at the estimated total market value of £65,000. The tax written
down value of these items at 1 January 2024 was £50,000. None of these items cost more than
£6,000. The super-deduction was not claimed on any additions.
(2) The company’s assets have been/are expected to be valued as follows:
Market value on Market value on

Cost 1 August 2015 31 July 2024
£ £ £
Goodwill 0 10,000 105,000
Other net assets 5,500 52,000 95,000
Total 5,500 97,000 200,000
22 John
Assume it is June 2024. You are an ICAEW Chartered Accountant working in general tax practice for
a firm of ICAEW Chartered Accountants.
Your firm’s client, John, has been working in the IT department of Thanet University, for the past five
years, on a salary of £70,000 pa. After a re-organisation of the university, John was made redundant
on 31 March 2024. Details of the termination package he received on redundancy are set out in
Exhibit 1.
Because his skills are in demand, he has received a job offer and his new employer has given him the
opportunity to decide between two alternative employment packages. The details of the
employment packages on offer are set out in Exhibit 2. His new job will start on 1 July 2024.
ICAEW 2024 June 2016 exam questions 41

John does not need to use the cash from his termination package for daily living costs and if he
combines the cash from his termination package with some of his savings he will have £25,000 cash
to invest in 2025/26. He has wanted to invest in shares for some time and he is attracted by the tax
incentives attached to venture capital share schemes but wants to be aware of the risks to his capital.
Requirements
22.1 Identify and explain the income tax and employees’ national insurance contribution treatment
of each part of John’s termination package (Exhibit 1).
22.2 Advise John which employment package he should choose (Exhibit 2). Assume he will choose
the option that provides him with the highest amount of net (ie, after tax) spendable income on
an annual basis.
22.3 Identify the venture capital share schemes John could invest in and evaluate the tax relief he
would receive from each possible investment and the relative risks of the investments
available.
Total: 25 marks
Exhibit 1: Termination package

Employment ceased on 31 March 2024, and John was not able to work his three-month notice
period. He did not receive his normal monthly pay for this.
On 31 March 2024 John was paid:
£
Statutory redundancy pay 3,256
IT equipment (at market value) 5,000
Note: All senior staff made redundant in the last five years have kept their IT
equipment on redundancy.
Contribution to his employers’ occupational pension scheme 10,000
Non-contractual goodwill payment 20,500
Exhibit 2: Details of the two alternative employment packages offered with John’s new job
Employment package one Employment package two
• Salary £75,000 pa • Salary £60,000 pa
• Employers’ pension contributions to non- • Private use of company car: Cost £29,000
contributory pension scheme 5% • Car benefit percentage 37%
• Non-tax advantaged share options:

– Grant and exercise of 3,000 share options pa
– Exercise price £Nil
– Estimated market value on exercise and
disposal £2 each
John hopes to sell any shares he receives under the share option scheme in employment package
two for their market value, immediately on exercise. The shares are in a private company and are not
listed on a stock exchange.
If he takes employment package one, he will lease his own car at a cost of £5,700 per annum. Under
the terms of employment package two, as he is provided with a company car, these costs would not
be incurred.

23 Ant plc
You are an ICAEW Chartered Accountant, and you have recently started a new job as an in-house
corporate tax specialist, in the finance department of the Ant plc group. You have replaced the
group’s previous corporate tax specialist who left the group on 1 November 2023.
Ant plc is a UK resident, investment company. The companies in the Ant plc group are as follows:
Company % of ordinary shares Country of Trading activity

owned by Ant plc at 1 residence
October 2022
Bat Ltd 100 UK Retailer of car parts
Cod Ltd 80 UK Wholesaler of car parts
Dog Ltd 40 (Note 2) UK Manufacturer of specialist engines
Elk GmbH 100 Gerbera Manufacturer of engine components
Notes
1 All companies are registered for VAT in their own jurisdiction.
2 The remaining 60% of the ordinary share capital of Dog Ltd is owned by Monkey Ltd, a UK
resident company. Ant plc and Monkey Ltd set up Dog Ltd as a joint venture and Dog Ltd started
trading on 1 October 2022.
Exhibit 1 is a list of transactions carried out by Ant plc and its group companies, in the year ended 30
September 2023. The finance director has asked you to determine the tax implications of these
transactions. The shareholdings shown above have not been adjusted to reflect these transactions.
On starting work in the finance department you reviewed the corporation tax returns and
computations of all group companies for the year ended 30 September 2022. You have identified
substantial errors in Ant plc’s corporation tax return submitted to HMRC for the year ended 30
September 2022. These errors mean that Ant plc has underpaid corporation tax of £1.2 million for
that year.
The finance director, who is also the Senior Accounting Officer (SAO) of Ant plc, has asked you to
advise him about the actions that should be taken now that the errors have been discovered and the
implications of these errors for Ant plc and for him as SAO of the company.
Requirements
23.1 Prepare a report for the finance director of the Ant plc group explaining the tax treatment of
each transaction listed in Exhibit 1.
In considering each transaction, you should mitigate the tax liabilities of group companies as
far as possible and include calculations, where appropriate, to support your explanations.
23.2 Advise the finance director of the implications, for both Ant plc and for himself as SAO of Ant
plc, of finding errors in Ant plc’s corporation tax return for the year ended 30 September 2022,
and the actions that should be taken as a result.
Total: 40 marks
Exhibit: Ant plc group – year ended 30 September 2023

The tax implications of the following transactions have yet to be determined.
Ant plc
On 1 March 2023 Ant plc sold 20% of its shares in Elk GmbH for £500,000 (see Elk GmbH below).
ICAEW 2024 December 2016 exam questions 43

In January 2023, Ant plc sold a trademark to an unconnected company for £750,000. The trademark
had originally been acquired in January 2017 for £250,000. Ant plc had elected immediately on
purchase to receive a WDA of 4% pa on the trademark.
Six months previously, Ant had purchased intellectual property rights to a car parts distribution
system at a cost of £644,000.
Cod Ltd
In May 2023 Cod Ltd sold its warehouse to an unconnected company for £1 million. The warehouse
had been purchased new, from the developer, in February 2015 for £700,000, inclusive of VAT. At
that time stamp duty land tax on a property of that cost was a flat rate of 4% of the full consideration.
The option to tax the building was not exercised and the building was used 100% for trading
purposes throughout the period of ownership.
A new warehouse was purchased in May 2023 for £1.5 million, inclusive of VAT, from the developer.
As the warehouse is expected to have spare capacity for the first five years, Cod Ltd has rented one
third of the warehouse to an unconnected party for rent of £250,000 pa. The tenant uses the
warehouse for its business which makes zero rated supplies.
Cod Ltd is yet to decide whether to opt to tax the new warehouse.
Dog Ltd
Dog Ltd has a tax-adjusted trading loss for the year ended 30 September 2023 of £450,395.
Since April 2023, substantial expenditure has been incurred on qualifying research and development
(R&D), developing new engine technology. Dog Ltd is a large company for R&D purposes.
The R&D expenditure incurred in the year ended 30 September 2023 was as follows:
£
Salaries paid to research staff (incl. PAYE/NIC of £82,600) 250,000
Power and light 162,500
412,500
In addition to the revenue expenditure above, £750,000 was spent on constructing test laboratory
buildings for use by the R&D staff. In arriving at the tax-adjusted loss of £450,395 the only deduction
made in respect of R&D expenditure was the expense of £412,500.
Dog Ltd has no other source of income in year ended 30 September 2023.
Elk GmbH
The shares in Elk GmbH were acquired as a result of Ant plc’s incorporation of a permanent
establishment (PE).
Ant plc originally set up a PE in the non-EU country of Gerbera in 2012. In March 2017, Ant plc
incorporated the PE as Elk GmbH. One million shares were issued to Ant plc, in exchange for the
assets of the PE, which were then worth £1 million. The indexed cost of the shares from March 2017
to December 2017 is £1,065,000.
On incorporation, chargeable gains of £550,595 were deferred.
24 Jolene and Kenton (amended)

Note: This question is amended since the original produced by the examiners. The aim is to give
more practice of property business questions.
Assume it is January 2024. You are an ICAEW Chartered Accountant, working in practice, as a tax
adviser.
Your clients, Jolene and Kenton, started in partnership on 1 April 2021. Prior to this, neither Jolene
nor Kenton had any taxable income or gains, having set up their partnership shortly after finishing
university. You act as tax adviser to the partnership and also to the individual partners.
Jolene invested a large inheritance and Kenton a distribution from his family discretionary trust into
the partnership. They used the monies to purchase a number of buy-to-let (BTL) residential
properties. They have gradually increased the portfolio in their BTL business by borrowing additional

funds secured on the properties. They now own 15 BTL residential properties. Both Jolene and
Kenton work actively in the business, managing the properties and sourcing new ones. They each
take income of approximately £20,000 out of the business.
Results of the partnership to 31 March 2024 are as follows:
Year to 31 March: 2022 2023 2024

(estimated)
£ £ £
Property income, before finance costs 75,000 105,000 146,000
Finance costs (5,000) (8,000) (9,000)
Jolene and Kenton have equal shares of both income profits and losses and capital profits and
losses.
The partners have heard that many property investors have been incorporating their businesses and
wonder whether this would be a good option for them. If so they will incorporate their BTL business
on 31 March 2024. They are unsure whether they would take their income in the form of dividends or
salary.
As Jolene and Kenton have no other source of income, they wish to start diversifying and having
another property strategy to run alongside the BTL properties.
They have identified two alternative strategies:
Alternative 1: They will ‘flip’ residential properties ie, buy properties, refurbish them and then sell
them on, hoping to have made a reasonable profit.
Alternative 2: They will purchase new and used commercial premises and let them out to tenants.
Jolene and Kenton are unsure whether it would be best to follow this alternative strategy in the form
of a partnership or as a company. They would also like you to consider what would happen with this
new part of the business if they were to sell it or pass it on to family members in the future.
Requirements
24.1 Explain the tax consequences of incorporating the BTL business on 31 March 2024. Based on
the results for year ended 31 March 2024, advise Jolene and Kenton whether incorporation
would have reduced their ongoing tax liabilities if they had incorporated on 31 March 2023,
and withdrawn a net (after-tax) amount of £20,000 each from the company either as a salary or
a dividend.
You should use calculations to justify your advice and recommendations, where appropriate.
24.2 Explain the tax consequences of Jolene and Kenton’s alternative strategies for diversifying
their property business.
Total: 35 marks
25 Royston Clark
Assume it is January 2024. You are an ICAEW Chartered Accountant in practice. Royston Clark, aged
55, is a client of your firm. He has a successful company, Clark Ltd, which he incorporated in 1990 by
issuing 100,000 shares at their nominal value of £1 each. Clark Ltd buys and sells shares and other
tradeable commodities.
The current ownership of ordinary shares in Clark Ltd is as follows:
Percentage of issued ordinary

Shareholder shares owned
%
Royston Clark 20
Margaret Clark (Royston’s wife) 10
Claire Clark Discretionary Trust 20

Percentage of issued ordinary
Shareholder shares owned
%
Other, unconnected, individual shareholders 50
Royston has been diagnosed with a terminal illness. He expects to live between four and eight years
from today’s date. He has asked your firm to help him plan his affairs to minimise the tax liabilities
which could arise as a result of his death.
His illness means that he will be unable to work in his current role as Chairman of Clark Ltd. He
intends to retire in the near future.
His mobility will reduce as the illness progresses, so he needs to live in a property specially adapted
for his needs. Royston and Margaret intend to adapt the current family home to enable Royston to
remain at home throughout his illness.
Royston and Margaret have two children:
• Claire, aged 30; and
• Brian, aged 35.
Brian has three children, aged 10, 12 and 14 from his first marriage. Brian married his second wife in
November 2020.
Royston has provided you with:
• a list of all the lifetime gifts he has made to date (Exhibit 1); and
• a list of all his assets and liabilities and their current market values and original costs (Exhibit 2).
Royston wants to ensure that he gives his assets to his immediate family (wife, children and
grandchildren). He is willing to make either lifetime or death gifts, so that he can minimise the overall
tax liability arising on the gifts.
Requirements
Prepare a report for the client which:
25.1 Quantifies the taxes that may already be payable or become payable on death based upon the
lifetime gifts already made by Royston; and
25.2 Recommends the assets which Royston should consider gifting during his lifetime to minimise
any tax liabilities arising.
Note: You should provide explanations and calculations to support your answer.
Total: 25 marks
Exhibit 1: Lifetime Gifts made by Royston Clark
Date Asset Donee Market value

at date of gift
8 May 2019 Gift of 10% of the shares Margaret, Royston’s wife £200,000
in Clark Ltd
12 August 2021 Gift of 20% of the shares Claire Clark Discretionary £400,000
in Clark Ltd Trust
21 November 2021 Cash Brian Clark on the occasion £400,000

of his second marriage

Exhibit 2: Royston Clark
Estimated market
value at
Asset/liability 31 December 2023
£
Family car – Range Rover 35,000
Vintage car – Rolls Royce Silver Shadow 100,000
Family home – owned jointly with his wife Margaret as joint tenants 1,500,000
Joint mortgage secured on the family home (200,000)
Holiday home in Wales 700,000
Vintage watch 150,000
Antique furniture 300,000
Shares in Morrell Ltd (Note 1) 550,000
20,000 shares in Clark Ltd (Note 2) 600,000
Cash 1,500,000
5,235,000
Notes
1 Morrell Ltd was incorporated by a friend of Royston’s. Royston subscribed £400,000 for a 20%
stake in the company on 1 June 2022. This investment qualified as an Enterprise Investment
Scheme investment and income tax relief was given in the tax year of investment.
2 Shares in Clark Ltd have the following values agreed with HMRC:
Estimated value per

share December Value per share August
Holding 2023 2021
£ £
75% or more 60 50
More than 50% but less than 75% 50 40
Exactly 50% 45 35
More than 25% but less than 50% 35 25
Less than 25% 30 20

26 Taul plc
You are a trainee ICAEW Chartered Accountant and you work in the finance department of Taul plc, a
UK tax resident company, which employs 350 people in the UK. Taul plc is an unlisted company
owned by a US parent company. Taul plc operates shops selling beauty products and makes
standard-rated supplies. Taul plc has a number of wholly-owned subsidiaries, which trade in different
industries in the UK. Taul plc plans to list on the Alternative Investment Market (AIM) of the London
Stock Exchange in the near future.
Your manager is Taul plc’s finance director, Pat Swift, who gives you the following briefing:
Taul plc is negotiating to buy the business of HG Ltd. HG Ltd trades as an optician business in the
UK. The entire share capital of HG Ltd is owned by Val Howey who works full-time for the
company.
I have provided you with some background information together with a summary projected
statement of financial position for HG Ltd at 31 March 2024 (Exhibit 1), and two alternative
methods for Taul plc to buy HG Ltd’s business (Exhibit 2). Assume that the proposed acquisition
date is 31 March 2024.
Taul plc wants to avoid a restriction of interest deduction under the corporate interest restriction
rules. Taul plc and its subsidiaries do not have any unused interest allowance from earlier
accounting periods. For the year ended 31 March 2024 the group has the following results:
£m
Aggregate net tax-interest expense 47
Aggregate tax-EBITDA 158
Fixed ratio debt cap (ANGIE) 103
Taul plc has enough cash to buy HG Ltd’s shares but would need to borrow £2 million from a bank
at a rate of 10% pa if it buys HG Ltd’s trade and assets.
Because of Val’s reputation as an optician, Taul plc would like to employ her after buying HG Ltd’s
business. Taul plc has proposed a remuneration package for Val (Exhibit 3). I will be meeting Val
next week to discuss the purchase of the business further and need to understand the tax
implications for Val, HG Ltd and for Taul plc. Please prepare notes for me which provide:
(1) an explanation of the tax implications for Val and HG Ltd of the two alternative methods of
buying HG Ltd’s business
(2) calculations and an explanation of the impact of the two alternative methods of buying HG
Ltd’s business on Taul plc’s ability to receive tax deductions for interest in the UK
(3) a brief evaluation of other tax-related factors which Taul plc should consider when evaluating
the alternative methods of buying HG Ltd’s business. Calculations are not required
(4) an explanation of the tax implications for Val and for Taul plc of the share option (Exhibit 3).
Assume that the option is exercised on 4 April 2025 when Taul plc’s share price will be £4.50
Requirement
Prepare the notes requested by Pat Swift, finance director.
Total: 40 marks
Exhibit 1: Background and summary projected statement of financial position for HG Ltd at 31
March 2024
Val Howey started the HG business in 2003 when she incorporated HG Ltd with £100,000 of share
capital. HG Ltd operates a chain of optician shops in the UK. HG Ltd has expanded its business by
buying the trade and assets of other optician businesses in the UK. It makes a mixture of standard-
rated, zero-rated and exempt supplies. HG Ltd has forecast a tax trading loss of £1.2 million for the
ICAEW 2024 March 2017 exam questions 49

year ending 31 March 2024 before any adjustments for the sale of the business. HG Ltd has made
taxable profits in each of the last three years.
Projected summary statement of financial position for HG Ltd at 31 March 2024:
£’000
Intangible asset: trademarks 6,300
Equipment (Note) 2,200
Inventory 2,500
Cash and receivables 1,000
12,000
Share capital and reserves 3,000
Non-current liabilities: bank loans 8,000
Current liabilities 1,000
12,000
Note: The tax written down value of the equipment is £2 million and comprises computer and optical
examination equipment. The average cost of a single piece of equipment is £60,000.
Exhibit 2: Two alternative methods of buying the business of HG Ltd

Method 1
Taul plc will buy the entire share capital of HG Ltd for a consideration of £5 million in the form of:
£’000
Ordinary shares in Taul plc representing a 3% shareholding 4,000
Cash 1,000
5,000
The shares will be newly issued by Taul plc to Val Howey on 31 March 2024. The payment of £1
million cash will be deferred until 1 April 2025 and is contingent on the HG business meeting
performance targets set by Taul plc.
Method 2
Taul plc will buy the trade and assets of HG Ltd for £13 million in cash. The purchase will include the
following assets of HG Ltd:
£’000
Trademarks 9,700
Equipment 1,500
Inventory 1,800
13,000
Under both methods, trade would continue without interruption.
Exhibit 3: Proposed remuneration package for Val for the year ending 5 April 2025
Val will be employed by Taul plc from 6 April 2024 on a salary of £200,000 pa. Val will be granted an
option in April 2024 to acquire 80,000 shares in Taul plc at £2.50 each. The scheme is not a tax-
advantaged scheme. The current market value of Taul plc’s shares is £3.75. This has been agreed with
HMRC Shares and Assets Valuations team. The option can be exercised before 5 April 2025 provided
that Val continues to work for Taul plc.

27 Marie Gao
Assume that the date today is 1 December 2024. You are an ICAEW Chartered Accountant and you
work as a tax assistant for a firm of ICAEW Chartered Accountants. Marie Gao is a new tax client of
your firm. Marie has previously always prepared her own self-assessment tax return but has asked
your firm for help with her 2023/24 self-assessment tax return. She has sent you an email (Exhibit)
with information concerning her tax affairs for 2023/24 and the property and shares in Lemion plc
which she inherited from her mother who died in February 2023. Marie is a sole trader operating a
business in the UK called Go-Gym which operates fitness gyms. Marie is married to Jon Gao. Marie
and Jon were both born in Ozland.
Marie came to live in the UK in January 2015 and set up the Go-Gym business. Marie has been a UK
tax resident since 2014/15. She has told you that Jon lives in Ozland where he has an import
business. Marie spends three months each year visiting Jon in Ozland.
Earlier today, you researched Ozland tax rates on the internet and found that in Ozland trading
income is taxed at 20%, capital gains are not taxable and that there is a withholding tax of 25% on
interest income.
As you were searching the internet, you came across a news story published on an Ozland news
website. The news story reported that Jon Gao, Marie’s husband, had allegedly evaded Ozland taxes.
Details of his tax affairs had been leaked by an employee of a firm of tax advisers operating in a tax
haven where Jon had allegedly hidden income by investing in offshore businesses. The news website
reported that Jon was now living permanently in the UK with his wife Marie and that the Ozland tax
authorities were investigating his business and tax affairs.
Requirements
27.1 Calculate the income tax and capital gains tax payable by Marie in 2023/24 and explain any
relevant claims, elections or reliefs available. Make appropriate recommendations on whether
these should be made.
27.2 Advise Marie on how the transfer of her shares in Lemion plc to a trust for her children’s
education can be done tax-efficiently to minimise any capital gains and inheritance tax
liabilities.
27.3 Evaluate any professional and ethical issues for you and your firm arising from the news story
published on the Ozland news website. Set out the actions that you and your firm should take.
Total: 30 marks
Exhibit: Email from Marie Gao to tax assistant

Income and gains
During 2023/24, I continued to operate my UK business as a sole trader and also sold some shares in
UK quoted companies, which I bought five years ago.
My UK income and gains were as follows:
2023/24
£
Trading profits for Go-Gym – year ended 29 February 2024 138,500
Expected trading profits for the year ended 28 February 2025 150,000
Rental income from house inherited from my mother – see below 20,000
Gains on disposal of UK quoted shares 15,000
I have a trading loss of £60,000 from my Go-Gym business brought forward from the tax year
2022/23. I have overlap profits brought forward of £5,000 from commencement of my trade.
Apart from the gains on disposal of UK quoted shares, I made no other UK capital disposals in
2023/24.
Last tax year (2022/23), I sold a property in Devon in England which I had bought in 2014 and used
as my holiday home. This property had never been rented to tenants and was not a furnished holiday

let. The value of the property had fallen because it was damaged by floods. I made a tax loss on its
sale of £5,760.
Inheritance from my mother
My mother, who came to live in the UK in 2011, died on 27 February 2023. In her will, she left me her
house in England. I have never lived in the house. The house has been rented to tenants since 6 April
2023 for an annual net rental income of £20,000 pa. I also inherited some shares in Lemion plc, a UK
quoted company. These shares represented a 1% shareholding in Lemion plc.
My mother’s estate has now been settled and all UK taxes paid in full. I would like to transfer the
shares I inherited in Lemion plc to a trust for my children’s education. The shares had a probate value
of £200,000 at the time of my mother’s death but they have now increased in value to £225,000. I am
not sure whether to transfer the shares to the trust in the current tax year 2024/25 or wait until the
next tax year 2025/26.
Income and assets in Ozland
In July 2023, I became a partner in my husband Jon’s import business in Ozland. My share of the
profits from this business for the tax year 2023/24 is £200,000. In 2023/24, I remitted only £25,000 of
this to my UK bank account as Jon told me he needed the money to be kept in Ozland to make
investments. I have £175,000 in a savings account in Ozland on which I received net interest of
£9,000 in the tax year 2023/24.
In December 2023, Jon sold our house in Ozland. I had a 50% ownership share in the property
although I stayed there for only three months of the year. Jon lived there for most of the year. The
total chargeable gain on the sale of the house was £75,000, and the proceeds were retained in
Ozland.
28 Lyre Ltd
Assume that the date today is 1 May 2024. You work for HED, a firm of ICAEW Chartered
Accountants. Lyre Ltd is a tax client of your firm. HED also acts for the directors and shareholders of
Lyre Ltd in respect of their personal tax affairs. You are provided with the following information on
Lyre Ltd and its shareholders.
Background information for Lyre Ltd
Lyre Ltd is a UK tax resident company operating in the publishing business. The company was set up
by Diane Bens and her brother Sam on 1 April 2013. The share capital consists of 100,000 £1 shares
and is owned as follows:
Name Number of shares held Description

Diane Bens 35,000 Director
Sam Bens 30,000 Director
Mark Carn 5,000 Director
Ann Bens 10,000 –
John Smith 2,500 Employee
Printoff Ltd 17,500 –
100,000
Mel Granger, the newly appointed financial controller at Lyre Ltd, has sent you the following note:
Note to HED: Request for advice
“I have recently joined Lyre Ltd. My predecessor has prepared a draft corporation tax computation
for the year ended 31 March 2024. I need your help in explaining the tax implications of the
following three issues in relation to Lyre Ltd’s tax situation:
(1) Sale and lease back transaction
Lyre Ltd sold its warehouse to BB Bank on 1 August 2023 for £750,000 and immediately leased
back the warehouse under a seven-year sale and operating leaseback agreement. The

warehouse had been purchased new from the developer in April 2018 for £350,000 excluding
VAT and used in Lyre Ltd’s trade.
Under the terms of the lease Lyre Ltd will pay annual rentals of £66,250 pa. The leasehold has
been correctly capitalised by Lyre Ltd as a right-of-use asset, and depreciation and interest
charge of £51,000 have been included in the income statement. There is a note on the file to say
that there is ‘no option to tax’ on the warehouse.
My predecessor calculated correctly that there is a chargeable gain of £375,000 and included
this in the draft corporation tax computation for the year ended 31 March 2024. The correct SDLT
payments have been made. Depreciation of £20,000 in respect of the right of use asset has
been added back.
We are considering making two capital purchases in the years ended 31 March 2025 and 2026.
We are planning to purchase a printing press which will need to be fixed in place for £500,000 in
December 2024. To plan for future expansion of the business we intend to purchase a new office
block for £400,000 in June 2025 although, we expect it will be too large for our purposes at the
outset so intend to let one of the four floors to a tenant. We don’t need advice on these
purchases currently but don’t know if they will impact our 2024 position.
(2) Company flat
Lyre Ltd owns a flat in London which until 1 May 2023 was available to all employees who were
required to attend meetings in London and to stay overnight. On 1 May 2023, Ann Bens, who is
the mother of Diane and Sam Bens, moved into the flat because her house in Oxford had been
damaged in a fire. The flat has an annual value of £62,000 and Lyre Ltd pays all the heat and light
and maintenance costs which were £7,500 for the period from 1 May 2023 to 31 March 2024.
Lyre Ltd also agreed to pay the council tax and to pay a cleaning company to clean the flat each
week. The council tax and cleaning costs for the year to 31 March 2024 were £12,000. Ann
believes that she should have no tax liability arising from her living in the flat. She told me that
she already pays tax at 40% on her income and does not want to pay any more.
(3) Loans
The following director and employee loans are included in the statement of financial position at
31 March 2024:
108,000 Lyre Ltd made an interest-free loan of £150,000 to Diane Bens on 1 May 2022 to
help her to move house. The notional tax arising on the loan was paid on the
normal corporation tax payment date. Diane repaid £42,000 of the loan on 1 May
20123. I have been told by Diane, who is the Lyre Ltd managing director, that the
board voted to write off this loan in mid-April 2024.
5,450 Lyre Ltd made a loan to Sam Bens on 1 May 2023. This balance was outstanding at
31 March 2024. The loan is interest-free.
11,000 On 1 April 2023 Lyre Ltd made a loan to John Smith to buy a car. Interest of 3% pa
is charged on the loan.”
Requirement
Prepare notes for a meeting with Mel Granger, explaining and quantifying the tax implications arising
from the above three issues, where relevant, for:
• Lyre Ltd
• Ann Bens
• Diane Bens
• Sam Bens
• John Smith
Note: The official rate of interest is 2.25%.
Total: 30 marks

29 LM Ltd
You are an ICAEW Chartered Accountant and you work in the finance department of LM Ltd. LM Ltd
operates as a hotel business in the UK and made a taxable total profit for the year ended 31 March
2024 of £1.4 million. LM Ltd owns many subsidiaries and has a 45% investment in the shares in Fall
Ltd. Fall Ltd operates a theme park in the north of England.
Your manager Genevieve Fury, the finance director at LM Ltd, has left you the following briefing note
on LM Ltd and its investment in Fall Ltd:
Briefing note from David Fury
As finance director of LM Ltd, I represent LM Ltd as a director on the Fall Ltd board. I do not own
any shares in Fall Ltd.
The shareholders and other directors of Fall Ltd are as follows:
Name Director % shareholding
LM Ltd n/a 45
Ken Haw CEO/finance 24
Jan Brown Operations n/a
RXX Inc – tax resident in Utopia n/a 31
Fall Ltd has issued share capital of 500,000 £1 ordinary shares. The shareholders subscribed for
the shares at par in 2005.
Because I was on holiday, I did not go to the Fall Ltd board meeting last week. Ken Haw sent me
the minutes of that meeting. These minutes show that the directors proposed to close Fall Ltd and
that a resolution will be presented to the shareholders to commence winding up of Fall Ltd under
a members’ voluntary liquidation. The reason for the closure is poor trading results caused by bad
weather. The directors intend to appoint a liquidator as soon as trade ceases.
Two alternative dates for cessation of trade were discussed: 30 September 2024 or 31 October
2024. Bea Cee, the Fall Ltd accountant, sent me Fall Ltd’s tax results for the year ended 31 March
2024 and the previous three years and also its forecast tax results to 31 October 2024 (Exhibit 1).
Ken sent me some information about the forecast amounts of Fall Ltd’s assets and estimated
disposal proceeds (Exhibit 2). The LM Ltd board has asked for a report about Fall Ltd’s tax position
and proposed closure.
Overheard conversation
Last night you were in a restaurant and overheard a conversation between Bea Cee, Fall Ltd’s
accountant, and her partner. You made a note of this conversation.
Bea was complaining to her partner about the stress she was suffering in her job at Fall Ltd. In her
conversation, she said that in August 2024, Fall Ltd paid £75,000 to a visitor to the theme park. The
visitor had taken a video of a theme park worker who was asleep when he should have been
operating Fall Ltd’s major attraction called ‘WhiteRide’. The visitor threatened to put the video on
social media and the amount of £75,000 was paid to the visitor in exchange for a promise not to
publish the video. The worker was clearly in breach of health and safety rules and Ken dismissed him.
Ken told Bea Cee to ‘hide’ the payment of £75,000 in sundry expenses because if the payment was
discovered by the media, the bad publicity could lead to claims against Fall Ltd.
Requirements
29.1 Prepare a draft report for the LM Ltd board of directors, which:
(a) explains, without calculations, the key tax implications to consider in determining the date
that Fall Ltd should cease to trade (Exhibit 2). Recommend the most tax efficient date of
cessation of trade for Fall Ltd.
ICAEW 2024 September 2017 exam questions 55

(b) explains the tax implications with calculations for Fall Ltd and LM Ltd if the liquidation of
Fall Ltd takes place on 31 October 2024. Assuming a distribution is made to shareholders
after the liquidation of Fall Ltd, estimate the cash receivable by LM Ltd and by Ken Haw.
29.2 Identify and explain the ethical implications for you and for LM Ltd arising from the overheard
conversation. Set out the actions that you should take.
Total: 40 marks
Exhibit 1: Fall Ltd – Tax results prepared by Bea Cee, Fall Ltd accountant
Fall Ltd: Tax results

Years ended 31 March 2021 2022 2023 2024
£’000 £’000 £’000 £’000
Tax adjusted trading profit/(loss) 608 315 385 (810)
Property income 42 34 39 47
Tax rate 19% 19% 19% 19%
7 months to
Fall Ltd: Forecast results Notes 31 October 2024
£’000
Tax adjusted trading loss before any adjustments for plant
and machinery and brand name 1 (626)
Property income 2 36
25% less marginal
Tax rate relief
Notes
1 At 1 April 2024 the tax written down value for the main pool for capital allowances was £920,000.
At 1 April 2024 the tax written down value of the brand name ‘WhiteRide’ was £352,800.
2 Property income relates to the profit from rents received from holiday homes on land owned by
Fall Ltd.
3 If Fall Ltd ceases to trade on 30 September 2024, the tax adjusted trading loss will be £600,000
before any adjustments for plant and machinery and the brand name.
Exhibit 2: Fall Ltd – Forecast amounts and estimated disposal proceeds – prepared by Ken Haw,
CEO
The board has proposed two alternative dates for the cessation of Fall Ltd’s trade: 30 September
2024 or 31 October 2024.
I believe that the preferred date is 30 September 2024 as we can save the cost of employing staff for
an extra month.
I have set out below the amounts that will be shown in the statement of financial position for Fall Ltd
at cessation. Please assume that the amounts are the same regardless of whether Fall Ltd ceases to
trade on 30 September 2024 or 31 October 2024.
Forecast amounts
Financial position before cessation Notes £’000
Holiday homes and land 1 3,900
Other assets – plant and machinery 2 2,080
Brand name ‘WhiteRide’ 3 273
Bank loan 4 (516)
Cash at bank 280

Forecast amounts
Financial position before cessation Notes £’000
Net current liabilities (300)
Notes
1 On 10 October 2024 Fall Ltd will sell the holiday homes and land and estimates that it will receive
cash of £4,160,000. A chargeable gain will arise on the sale of the holiday homes and land after
indexation of £523,000.
2 Other assets are non-chargeable for chargeable gains purposes. Capital allowances have been
claimed on these assets as part of the main pool. When the trade ceases Fall Ltd will sell these
assets and receive £1,040,000.
3 Fall Ltd operates a ride using the brand name ‘WhiteRide’. It bought the brand name on 1 April
2020 for £420,000. Fall Ltd elected to claim a 4% pa straight line writing down allowance. Fall Ltd
will sell this brand for £280,000 on 20 September 2024.
4 The bank loan is secured by a fixed charge over land owned by Fall Ltd.
30 Aldo, Zeta and Greg

Aldo and Zeta were married in 1990. They each own 50% of the 100,000 £1 issued share capital of
Luca Ltd which they subscribed for at par on incorporation in 2005. Luca Ltd operates takeaway
shops selling pizzas. Aldo and Zeta have one son, Greg, who is employed in the business. Aldo, Zeta
and Greg are the directors of Luca Ltd.
Aldo and Zeta were divorced last year but continued to work together in the business. However, they
have now found that working together is too difficult and Zeta would like to resign as a director and
dispose of her shares in Luca Ltd.
You are an ICAEW Chartered Accountant working in practice as a tax adviser. Your firm acts for Luca
Ltd and its three directors, Aldo, Zeta and Greg. The directors have sent you details of three
proposed methods for the disposal of Zeta’s shares. They have agreed that you are initially to act for
them and for Luca Ltd in this matter. However, Zeta will take independent advice at a later stage.
Disposal of Zeta’s shares
The directors have agreed with HMRC Shares and Assets Valuations that the shares in Luca Ltd will
have a market value of £8 per share on 1 October 2024 which is the proposed date of the disposal of
Zeta’s shares. They have set out three alternative methods for the disposal:
Method 1: Bella plc, an unconnected company, will purchase Zeta’s shares for £8 per share.
Method 2: Greg will purchase Zeta’s shares for £6 per share.
Method 3: Luca Ltd will repurchase some of Zeta’s shares on 1 October 2024 and the remainder of
her shares on 1 October 2025. Luca Ltd will pay £8 per share on both dates.
At the next board meeting on 20 September 2024 a dividend of £450,000 will be proposed to be
paid on 30 September 2024. This will leave Luca Ltd with distributable reserves at 30 September
2024 of £120,000.
Luca Ltd’s legal adviser has stated that Luca Ltd must be able to make a payment out of capital to buy
Zeta’s shares. The legal adviser has informed the directors that Luca Ltd will not have enough
distributable reserves or other reserves to buy all of Zeta’s shares on 1 October 2024.
Zeta leaves you the following telephone message.
“I have been diagnosed with a serious illness. I think it may be simpler if, instead of selling my shares
in Luca Ltd, I make an outright gift of them to Greg. He will inherit them anyway when I die. I will,
however, need to receive the dividends from the shares. I have spoken briefly to Greg and he agreed
that he would be happy to own the shares but to pass the right to receive the dividends to me if I
need the income.”
Requirements
30.1 Draft an email to the directors which includes:

(a) An explanation of the tax implications for Aldo, Zeta, Greg and Luca Ltd for each of the
three methods of selling Zeta’s shares, considering any beneficial claims, elections or
reliefs.
(b) A summary comparing Zeta’s tax liability, effective tax rate and after-tax cash receivable for
each method. Include the key points Aldo, Zeta and Greg should consider in deciding
which method to choose.
30.2 In a separate note, explain the tax implications for Zeta of an outright gift of her shares in Luca
Ltd to Greg.
Total: 54 marks
31 Gig plc
You work for ERD, a firm of ICAEW Chartered Accountants. Gig plc, a tax client of your firm, is a UK
tax-resident company which owns subsidiaries in the UK and other countries. Gig plc researches and
develops electronic technology. The CEO of Gig plc has sent you the following note:
Note to ERD
Issue 1 – Tax adjusted profit for the year ended 30 June 2024
The finance director is on maternity leave and her team has prepared a draft corporation tax
computation for the year ended 30 June 2024. The tax adjusted trading profit for the year ended 30
June 2024 is as follows:
£m
Profit before tax 48
Add depreciation and other disallowable expenses 61
Less capital allowances (64)
Tax-adjusted trading profit 45
The tax-adjusted trading profit above does not include any adjustments for tax purposes in respect
of the following three outstanding matters:
(1) Research and development (R&D)
In July 2023, Gig plc commenced a qualifying R&D project to develop a new product which is a
major technological advance. Gig plc purchased research laboratory equipment for £2.2 million in
April 2024. The following amounts were deducted as research costs in the statement of profit or loss:
£m
Staff costs 3.4
Consumable materials 1.1
Externally provided workers (Note) 0.8
Note: The externally-provided workers are from an unconnected company. HMRC has agreed that
Gig plc qualifies as a large company for R&D relief.
(2) Ruritanian customer
The currency in Ruritania is the Ruritanian dollar (R$). Gig plc is owed money by a customer in
Ruritania for a sale made in March 2024 for consideration of R$3 million, at a time when the
exchange rate was R$1.39:£1. The receivables are recorded in the financial statements using the
exchange rate at the date of sale. The balance remains unpaid at 30 June 2024 when the exchange
rate is R$1.33:£1.
(3) Sale of intangible asset
On 1 July 2023 Gig plc sold an intangible asset for £21 million which it had purchased on 1 July
2020 for £14 million. Gig plc was amortising the asset over seven years. A profit of £13 million is
included in the profit before tax for the sale of the asset.

On 1 September 2023, Gig plc bought intellectual property rights for £17 million.
Issue 2 – Cost saving proposal
The IT department has 15 employees and a manager, Frances Hobb. Sometimes the department is
busy, but at other times, the employees have little to do. At the next board meeting, Gig plc’s board
of directors will discuss the commercial implications of closing the department and issuing new
contracts on a self-employed basis to some of the staff.
Details of the proposal
All the IT employees including Frances will be made redundant, having worked their notice periods
and will be offered the following redundancy packages:
• Frances Hobb will receive statutory redundancy of £12,000 and an ex-gratia payment of
£100,000. Frances has been employed by Gig plc for 17 years.
• The other employees will each receive statutory redundancy of £12,000. The employees will also
each receive an ex gratia payment of £15,000.
• Frances and six of the other former employees will each be offered a contract for services on a
self-employed basis. Extra IT consultants will be recruited also on a self-employed basis as
required.
Requirements
Prepare a report for the CEO which includes the following:
31.1 An explanation of the tax implications for Gig plc of each of the three outstanding matters in
Issue 1. Your answer should identify any beneficial reliefs, claims and elections.
31.2 A calculation of the revised taxable profit and the corporation tax payable for Gig plc for the
year ended 30 June 2024.
31.3 A calculation of the tax implications of the redundancy payments for Gig plc, the IT employees
and Frances Hobb.
31.4 An evaluation of the tax implications and risks for Gig plc of the proposal to issue Frances and
six of her team with contracts on a self-employed basis.
Total: 30 marks

32 Philip and Estelle
Assume it is January 2024. You are an ICAEW Chartered Accountant employed in the tax department
of a firm of ICAEW Chartered Accountants. Your firm’s clients Philip and Estelle Thompson have
requested some tax advice in relation to their plans for retirement.
Philip and Estelle have been married for many years and are both UK resident and UK-domiciled.
Thompson Ltd was incorporated by Philip and Estelle in March 1990 when they subscribed, at par,
for 50,000 £1 ordinary shares each (100,000 shares in total) in the company.
Thompson Ltd is a successful company in the retail sector. The company has generated surplus cash,
some of which was used to purchase a portfolio of residential properties, which the company rents
out. In the most recent accounting period ended 30 September 2023, 37% of net profit was from
residential property letting income.
Although Philip and Estelle still own 100% of the shares in Thompson Ltd and work as full-time
company directors, their roles are now mainly administrative. Alan and Sandra, (Philip and Estelle’s
children) have taken over the management of the company together with Francis (the company’s
managing director, who is not related to the Thompson family).
Philip and Estelle would like to retire from the company in the near future. They have emailed you,
outlining their plans for retirement (Exhibit 1). In preparation for this, valuations of shares in
Thompson Ltd as at 31 December 2023 were calculated (Exhibit 2). You were also sent information
by Thompson Ltd about the values of the company’s tangible net assets on 31 December 2023
(Exhibit 3).
Philip and Estelle are higher rate taxpayers and each has capital losses brought forward of £10,000,
from an unsuccessful property investment they made many years ago.
Alan works full-time at Thompson Ltd for a salary of £55,000 pa. Sandra works part-time at the
company for 21 hours a week and she earns £25,000 pa.
Philip and Estelle have requested a meeting with you to discuss the tax consequences of their
retirement plans.
Requirements
32.1 In preparation for the meeting with Philip and Estelle Thompson:
Set out the current and future taxation implications of Philip and Estelle’s retirement plans, as
explained in Exhibit 1. Identify any further information you would need in order to make a full
recommendation to Philip and Estelle.
32.2 Recommend and justify the most tax efficient course of action from the alternatives suggested
by Philip and Estelle.
Total: 40 marks
Exhibit 1: Email received from Philip and Estelle Thompson
To: Tax Adviser

From: Philip and Estelle Thompson
Date: 2 January 2024
Subject: Retirement plans
As you know, we intend to retire from Thompson Ltd in February 2024. Although we still work full-
time for the company, our children, Alan (aged 35) and Sandra (aged 32) together with Francis,
the managing director, are already running the company on a day-to-day basis and can manage
without us. We are not getting any younger and would like to enjoy some well-earned time off. We
plan to:
(1) Sell 40% of the total shares in Thompson Ltd (20% from each of us) to Francis. Francis has just
inherited a large sum of money following the death of his father and has offered us £800,000
for the 40% stake in the company.

(2) Gift the remaining 60% of the company’s shares (30% from each of us) either:
– to Alan and Sandra directly, in equal shares (so 30% of the company each); or
– to a trust, under the terms of which Alan and Sandra would be amongst the beneficiaries.
We know very little about the types of trusts available, the differences between them
in terms of tax consequences, and the advantages or disadvantages of using a trust
for this purpose. Any advice you could give would be helpful
(3) We would also like to consider if there are any tax advantages in distributing the current cash
balance in the company of £300,000 prior to the share sale and gift. The cash balance was
being held for the purchase of more residential property and is surplus to the working capital
requirements of the company.
Can we arrange a meeting next week, to discuss the tax consequences of the three issues above?
We would also like your advice about the most tax efficient course of action to take.
It would also be useful if you could let us know at that meeting if there is any further information
you need in order to finalise your advice.
Best wishes
Philip and Estelle
Exhibit 2: Valuation of Thompson Ltd shares

A valuation of Thompson Ltd shares was carried out in December 2023, which values the shares as
follows:
£m
100% shareholding 3.25
Exhibit 3: Information provided by Thompson Ltd

Thompson Ltd’s tangible net assets are made up as follows:
Carrying Amount
31 December 2023 Market Value
£ £
Property plant and equipment:
Plant and equipment 24,500 24,500
Retail premises 50,000 250,000
Residential investment
properties 225,000 750,000
Cash 300,000 300,000
Total of other assets less
liabilities 21,400 21,400
Net assets 620,900 1,345,900
Note: All individual items of plant and equipment were bought for and have market values of less
than £6,000.

33 TabletTech Ltd
You are an ICAEW Chartered Accountant, employed as a tax specialist at TabletTech Ltd (TT Ltd). The
company manufactures and sells accessories for tablet computers.
The directors of TT Ltd identified a potential company to purchase: PhoneCharger Ltd (PC Ltd),
which manufactures and sells phone chargers compatible with popular mobile phones.
PC Ltd was incorporated by Alice Crane in 2010, when she subscribed £2 million for 2 million
ordinary shares of £1 each. She still owns 100% of the share capital of PC Ltd and continues to work
full-time for the company.
The latest balance sheet of PC Ltd is attached (Exhibit). All assets on the balance sheet are shown at a
carrying amount of historic cost less accumulated depreciation, apart from the property, which is
shown at market value. The property was purchased on incorporation in 2010 for £2.4 million. The
indexed cost of the property to December 2017 is £3.12 million. In addition, the business has
significant non-purchased goodwill, which has been created since incorporation. The company has
always been profitable.
Alice stated that she expects to receive net cash, after tax, for the sale of PC Ltd of £20 million. As
part of the deal to sell her company Alice has also asked that at least £5 million of any purchase
consideration is paid into a bank account held by a nominee in the Cayman Islands (a tax haven).
The directors of TT Ltd have asked for your advice about how to structure the purchase of the
business of PC Ltd. The purchase can be either:
• 100% of the shares in PC Ltd; or
• 100% of the company’s trade and assets.
If TT Ltd buys the assets of PC Ltd, PC Ltd will cease to trade and will then be liquidated.
Alice is a higher rate taxpayer and uses her capital gains tax annual exempt amount each tax year
against gains she makes on her investments. The transactions are expected to take place in August
2024 and the asset values are expected to be the same as at the balance sheet date.
Requirements
Prepare extracts for inclusion in a report to the board of directors of TT Ltd. The extracts should:
33.1 Identify the amount of consideration that would need to be paid to Alice Crane, so that she
received cash of £20 million, net of tax, under each of the alternative methods of purchasing
PC Ltd.
33.2 Determine which method of purchase would be the most tax efficient for TT Ltd.
33.3 Identify and explain the implications for you, as an ICAEW Chartered Accountant, of Alice
Crane’s request that £5 million of purchase consideration should be paid to a nominee
account in the Cayman Islands.
Total: 35 marks
Exhibit: PhoneCharger Ltd – balance sheet as at 30 September 2023
£’000 £’000
Non-current assets
Property 3,600
Plant and equipment 1,000
4,600
Current assets
Stock 6,800
Trade debtors 6,600
13,400
Less creditors: amounts falling due within one year

£’000 £’000
Trade creditors (1,800)
Net current assets 11,600
Net assets 16,200
Capital and reserves
Called up share capital 2,000
Revaluation reserve 1,200
Profit and loss account 13,000
16,200
34 Elm plc
Assume it is June 2024. You work for a firm of ICAEW Chartered Accountants and are asked to assist
your manager in preparation for a meeting with Lewis Gordon, the finance director of Elm plc, a UK
quoted company.
You have been provided with some background information on the structure of the Elm plc group
and details of outstanding issues to be considered in order to prepare corporation tax computations
for the group companies for the year ended 31 March 2024.
The Elm plc group companies all have a 31 March year end.
On 31 March 2024, the group structure was as follows. Elm plc owned:
• 75% of the ordinary share capital of Terrapin Ltd
• 51% of the ordinary share capital of Labrador Ltd
• 76% of the shares in Walker SARL, which is registered in Ruritania, an overseas country
Terrapin Ltd also owns 75% of the share capital of Cat Ltd. Terrapin Ltd’s 75% shareholding in Cat Ltd
was acquired on 31 January 2024 for £4 million. Cat Ltd had brought forward capital losses of
£550,000 at the date of acquisition.
Outstanding issues
Lewis Gordon asked for your firm’s advice on the tax treatment of the following issues which need to
be resolved in order to complete the corporation tax computations of the Elm plc group companies
for the year ended 31 March 2024:
(1) In 2007, Elm plc set up a permanent establishment (PE) in the country of Ruritania. The PE has
made substantial profits in recent years. On 1 April 2023, the trade of the PE was transferred to a
company, Walker SARL, which is resident in Ruritania. The transfer was made in exchange for
300,000 £1 ordinary shares (an 100% shareholding) in Walker SARL valued at £3.2 million, which
was equal to the market value of the trade and assets transferred. Details of the assets
transferred to Walker SARL are in the Exhibit. On 1 January 2024, Elm plc sold 72,000 of the
shares in Walker SARL for £1.35 million. At that date the market value of Elm plc’s remaining
holding was £2.1 million. The rate of corporation tax in Ruritania is 18%.
(2) On 7 May 2023, Labrador Ltd issued 75,000 shares to a third party, reducing Elm plc’s holding
from 75% to 51%. In January 2020 Elm plc transferred part of its trade to Labrador Ltd, including
an office block which was transferred at its historical cost of £1,400,000 when its market value
was £2,400,000. The office block had originally been acquired in May 2006. The indexation
factor from May 2006 to December 2017 is 0.407.
(3) On 26 September 2023, Elm plc sold its 100% shareholding in Parrot Ltd to an unconnected
third party in exchange for cash of £12 million. The shares were acquired in April 2007 for £14
million. Parrot Ltd owns an investment property that makes up more than 50% of its net assets
and accounts for at least 30% of its income.

(4) In October 2023 Elm plc and Terrapin Ltd both sold their shareholdings in Basset Ltd, a trading
company, which was originally set up as an industry-wide joint venture. 8% of the shares were
held by Elm plc and 8% by Terrapin Ltd. Each company paid £40,000 for its shareholding in 2008
and received sale proceeds of £125,000. The indexation allowance for each company is
£12,540.
(5) In addition to any gains or losses arising from the above transactions, Terrapin Ltd realised a
chargeable gain of £140,000 on 4 October 2023 from the sale of land.
Your files show that, before any adjustment for the items noted above, the taxable total profits of
companies taxable in the UK for the year ended 31 March 2024 were:
£
Elm plc 2,500,000
Labrador Ltd 325,000
Terrapin Ltd 10,000
Cat Ltd 1,200,000
Parrot Ltd 60,000
In addition, Terrapin Ltd had brought forward capital losses of £36,000.

The group has no other losses, of any kind, other than those mentioned or resulting from the
transactions above.
Requirement
Prepare detailed notes for your manager, to be used at a meeting with Lewis Gordon, outlining the
tax implications of each of the outstanding issues.
Notes
1 Where appropriate, include calculations in your notes.
2 You are not required to calculate the corporation tax liability for any group company
Total: 25 marks
Exhibit: Details of assets transferred to Walker SARL by the Ruritanian PE on 1 April 2023
Indexation
factor from date
Date of of purchase to Market value
Asset purchase December 2017 Cost on 1 April 2023
£ £
Factory (Note) January 2007 0.379 250,000 700,000
Warehouse January 2009 0.324 550,000 500,000
Fixed plant and machinery May 2015 0.076 200,000 250,000
Goodwill January 2007 0.379 – 1,250,000
Trading stock N/A N/A 200,000 500,000
All of the assets transferred are located in Ruritania.

Note: Walker SARL sold the factory to an unconnected third party on 31 December 2023 for
£900,000.


Icaew-Bpt QB 2024

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Icaew-Bpt QB 2024

Uploaded by

Copyright:

Available Formats

The Institute of Chartered Accountants in England and Wales

Title Time Page

Individuals – owner managed businesses

1 Philippa Hassan (March 2015) 35 52.5 1 141

2 Delia, Chris and Ella (March 2016) 40 60 2 146

3 Stollen Ltd (June 2017) 30 45 5 153

4 Joe Gregory (September 2018) 40 60 5 157

Individuals – capital taxes

5 Boxit Ltd (June 2014) 35 52.5 9 163

6 Derek Woodhouse (September 2016) 35 52.5 10 167

Overseas aspects of personal taxation

7 Bill Mickelson (June 2015) 30 45 13 173

8 Gooch Food (June 2014) 25 37.5 14 178

9 Valese plc (June 2015) 40 60 17 185

10 Gold Ltd (September 2018) 25 37.5 18 191

Groups and consortia

11 Splite Ltd 40 60 21 195

12 Principia Ltd 40 60 23 199

13 Expandit plc (December 2015) 35 52.5 25 203

Overseas aspects of corporation tax

14 Elexi plc (March 2016) 25 37.5 27 209

15 Fragmarb plc (March 2016) 40 60 28 212

16 Tea Group (March 2017) 40 60 30 217

Changing business structures

17 Upten plc (June 2015) 30 45 33 221

18 Montgomery Ltd (September 2015) 40 60 34 224

19 ZD Holdings plc (March 2016) 35 52.5 36 229

June 2016 exam questions

ICAEW 2024 Contents iii

20 Marmalade Ltd 40 60 39 235

21 Kamran Siddiqi 30 45 40 239

22 John 25 37.5 41 242

December 2016 exam questions

23 Ant plc 40 60 43 247

24 Jolene and Kenton (amended) 35 52.5 44 251

25 Royston Clark 25 37.5 45 256

March 2017 exam questions

26 Taul plc 40 60 49 261

27 Marie Gao 30 45 51 266

28 Lyre Ltd 30 45 52 270

September 2017 exam questions

30 Aldo, Zeta and Greg 54 45 57 281

31 Gig plc 30 45 58 286

December 2017 exam questions

32 Philip and Estelle 40 60 61 291

33 TabletTech Ltd 35 52.5 63 295

34 Elm plc 25 37.5 64 298

March 2018 exam questions

36 Recruit plc 25 37.5 69 308

37 Frank and Hari 30 45 70 311

June 2018 exam questions

38 Swell Gallery 40 60 73 317

39 Albion Ltd 35 52.5 75 322

40 Dolphin Ltd 25 37.5 76 327

September 2019 exam questions

41 Tumble Toys Ltd 40 60 79 333

42 Aughton plc 35 52.5 81 339

43 Mark Prescott 25 37.5 83 344

iv Business Planning: Taxation ICAEW 2024

December 2019 exam questions

44 Draco Ltd 40 60 85 349

45 The Potter Group 30 45 87 353