Icaew-Bpt QB 2024
Icaew-Bpt QB 2024
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.
Single companies
29 LM Ltd 40 60 55 275
35 2B plc 72 60 67 303
47 MB plc 40 60 91 365
Controlled foreign companies 1a, 1b, 1i 11, 14, 15, 16, 18, 35, 45, 62 15
Disincorporation 1e 21 21
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
Gains groups 1e, 2a, 2d 11, 12, 13, 17, 23, 34, 45, 13
47, 57, 64
Investors’ relief 2a 46 5
Losses – changes in ownership 1e, 2a, 2d 44, 47, 50, 64, 66 10, 13
Losses – corporation tax single 1h, 2a, 2d 9, 13, 21, 29, 49, 65 9, 10
company
Management buyout 2c 44 22
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
Pension schemes 1p 3, 6, 41 2
Sale/purchase of shares or trade 1g, 1h, 2c 18, 19, 30, 32, 33, 50, 57, 59, 22
and assets 61, 63, 64, 66,
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
Transfer of a going concern 1g, 2c 1, 11, 18, 21, 26, 37, 38, 68 17
(TOGC)
VAT on property and capital 1a 1, 10, 11, 13, 18, 19, 23, 24, 17
goods scheme 26, 28, 38, 45, 48, 50, 57
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.
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.
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.
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.
£
Nine months ended 30 September 2023 (54,000)
Year ended 31 December 2022 12,500
Year ended 31 December 2021 26,000
Year ended 31 December 2020 22,000
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:
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.
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
Costs not included in the above calculation of projected taxable trading profit are:
Costs not included in the above calculation of projected taxable trading (loss)/profit are:
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 –
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
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
Exhibit 2: Email
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.
£‘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
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
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.
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.
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
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
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
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
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
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
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.
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
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
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.
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.
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
£’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.
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
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
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
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
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
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
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.
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.”
Structure 1 Structure 2
£’000 £’000
Upten plc contribution
Warehouse (Note) 5,000 5,000
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
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.
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.
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)
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.
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.
Background information
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.
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:
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.
£
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
• Employers’ pension contributions to non- • Private use of company car: Cost £29,000
contributory pension scheme 5% • Car benefit percentage 37%
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.
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
£
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.
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:
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
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
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:
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
£’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.
£’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
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.
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
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:
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
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
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:
LM Ltd n/a 45
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.
Exhibit 1: Fall Ltd – Tax results prepared by Bea Cee, Fall Ltd accountant
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
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.
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.
£m
100% shareholding 3.25
60% shareholding 1.75
50% shareholding 1.2
40% shareholding 0.8
30% shareholding 0.6
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
Note: All individual items of plant and equipment were bought for and have market values of less
than £6,000.
£’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
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.
Background information
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.
£
Elm plc 2,500,000
Labrador Ltd 325,000
Terrapin Ltd 10,000
Cat Ltd 1,200,000
Parrot Ltd 60,000
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