Académique Documents
Professionnel Documents
Culture Documents
Paper P6
Advanced Taxation
Revision Mock Examination
December 2015
Question Paper
2 w w w . s t ud yi nt e r a c t i ve . o r g
Tax rates and allowances given in P6 to be used for the
June 2015 and December 2015 exams
SUPPLEMENTARY INSTRUCTIONS
1. You should assume that the tax rates and allowances for the tax year
2014/15 and for the financial year to 31 March 2015 will continue to
apply for the foreseeable future unless you are instructed otherwise.
2. Calculations and workings need only be made to the nearest .
3. All apportionments should be made to the nearest month.
4. All workings should be shown.
Income tax
2014/15 Normal rates Dividend rates
% %
Basic rate 1 to 31,865 20 10
Higher rate 31,866 to 150,000 40 32.5
Additional rate 150,001 and above 45 37.5
A starting rate of 10% applies to savings income where it falls within the first
2,880 of taxable income.
Personal allowances
Born on or after 6 April 1948 10,000
Born between 6 April 1938 and 5 April 1948 10,500
Born before 6 April 1938 10,660
Income limit
Personal allowance 100,000
Personal allowance (born before 6 April 1948) 27,000
Capital allowances
Plant and machinery
Main pool 18%
Special rate pool 8%
Motor cars
CO2 emissions up to 95 grams per kilometre 100%
CO2 emissions between 96 and 130 grams per kilometre 18%
CO2 emissions over 130 grams per kilometre 8%
Annual investment allowance
First 500,000 of expenditure 100%
Enhanced capital allowances (ECA) 100%
Corporation tax
Financial year 2011 2012 2013 2014
Small profits rate 20% 20% 20% 20%
Main rate 26% 24% 23% 21%
Lower limit () 300,000 300,000 300,000 300,000
Upper limit () 1,500,000 1,500,000 1,500,000 1,500,000
Standard fraction 3/200 1/100 3/400 1/400
Marginal relief
(U A) N/A Standard fraction
4 w w w . s t ud yi nt e r a c t i ve . o r g
Value added tax
Registration limit 81,000
Deregistration limit 79,000
Standard rate 20%
Rates of interest
Official rate of interest 3.25%
Rate of late payment interest 3%
Rate of repayment interest 0.5%
Stamp Duty
Shares 0.5%
Entrepreneurs relief
Lifetime limit 10,000,000
Rate of tax 10%
6 w w w . s t ud yi nt e r a c t i ve . o r g
Section A BOTH questions are compulsory and MUST be
attempted
1 Your manager has had a meeting with Glen and Sunny, potential new clients,
who are both shareholders of Sparkle Ltd. The memorandum recording the
matters discussed, together with an email from your manager, is set out
below.
Memorandum
The profits and losses of the partnership will be shared 80% to Glen and
20% to Sunny, after allocating an annual salary of 15,000 to Sunny.
I want you to prepare a memorandum for the client file in respect of the
following:
(i) Capital allowances
A DETAILED explanation including a calculation of the capital
allowances of the Sparkle Ltd business for the final trading period
ending with the sale of its equipment for 5,000 on 31 March 2015.
(ii) Transfer of the business to Glen and Sunny
BRIEF explanations of:
- the advantage of running the business as a partnership instead
of a company.
- the availability or non-availability of disincorporation relief on the
transfer of Sparkle Ltds business to Glen and Sunny.
- The tax implications for Sparkle Ltd, if disincorporation relief is
not claimed, compared with the situation where it is claimed.
Your answer should include a calculation of the tax cost if
disincorporation relief is not claimed and the time limit for
making the necessary election.
8 w w w . s t ud yi nt e r a c t i ve . o r g
- The taxable trading profits and losses of the first two tax years
for Glen on the assumption they run their business as
partnership from 1 April 2015.
- An explanation of the possible ways that Glen can relieve his
share of the trading loss and on the assumption he relieves it as
early as possible calculate the tax he will save.
(iii) VAT
- In respect of the transfer of Sparkle Ltds business to Glen and
Sunny, a brief explanation of whether VAT be charged by
Sparkle Ltd on the sale of the assets.
(iv) Sunny
Please provide an explanation of:
- The manner in which any inheritance tax payable by Sunny on
his gift of the shares to the discretionary trust will be calculated
and the date on which the tax would be payable.
- The availability of capital gains tax gift relief in respect of the
transfer of the shares to the trustees of the discretionary trust
and the subsequent transfers of shares from the trustees to the
beneficiaries.
Tax Manager
Required:
(a) It is anticipated that Glen and Sunny will require some highly
sophisticated and specialised tax planning work in the future.
Prepare a summary of the information which would be required,
together with any action(s) which should be taken by the firm
before it agrees to become the tax advisers to Glen and Sunny.
(5 marks)
(b) Prepare the memorandum requested in the email from your
manager. The following marks are available.
(i) Capital allowances (3 marks)
(ii) Transfer of the business (17 marks)
(iii) The VAT implications (2 marks)
(iv) Sunny (5 marks)
Note: Ignore value added tax (VAT).
Professional marks will be awarded in part (b) for the overall
presentation of the memorandum, the provision of relevant
advice and the effectiveness with which the information is
communicated.
(3 marks)
(35 marks)
Trading profit
(before adjustments) 135,900 7,300 558,000
10 w w w . s t ud yi nt e r a c t i ve . o r g
(iii) Investment in Terrestrial Inc.
Solar Ltd intends to initially purchase 15% of the ordinary share
capital of Terrestrial Inc on 1 December 2015 but may increase this
investment in the future. Terrestrial Inc. is a profitable trading
company resident in the country of Halven, where the rate of
corporation tax is 12%. Please provide the following information:
The effect on the corporation tax liability of the group if this
investment is made. Remember to consider whether Terrestrial
Inc. will be considered as a controlled foreign company now or in
the future.
A brief note as to whether it may be sensible for Solar Ltd to
reduce the prices charged to Terrestrial Inc in order to reduce
the corporation tax paid in the UK.
Resident UK UK UK
Required:
Prepare the memorandum requested in the email from your manager.
The following marks are available.
(i) The budgeted results for the year ended 30 June 2015. (9 marks)
The relevant indexation factor:
January 2004 to April 2015 0.409
(ii) Purchase of Systems Ltd. (13 marks)
(iii) Investment in Terrestrial Inc (3 marks)
(25 marks)
12 w w w . s t ud yi nt e r a c t i ve . o r g
3 Tricia is the financial director and a shareholder of Anomaly Ltd she has been
in dispute with the other shareholders over plans to expand the companys
product portfolio. Tricia wants advice regarding the sale of her shares back to
the company. She also needs help with completing the VAT return once the
company becomes a partially exempt supplier.
Tricia has managed to get a new job and wants to know how much better off
she is going to be compared with her current job with Anomaly Ltd.
The following information has been obtained from client files and meetings
with the parties involved.
Anomaly Ltd:
An unquoted UK resident trading company currently producing products
which are all standard rated for VAT purposes.
Share capital consists of 100,000 ordinary shares issued at 385 per
share in July 2007.
None of the other shareholders has any connection with Tricia.
Within the next few months the other shareholders plan to expand their
operations overseas and introduce production of an exempt-rated
product for sale in the UK.
The VAT position of the company
A summary of the budgeted results of the quarter to 31 December 2015 are
included below.
Three months ending
31 December 2015
Input tax:
Attributable to taxable supplies 60,000
Attributable to exempt supplies 1,150
Non-attributable 1,600
_______
Total 62,750
_______
The purchase of own shares:
The company will purchase all of Tricias shares for 11 per share.
The transaction will take place at the end of 2015.
Tricia:
Purchased 6,000 shares in Anomaly Ltd for 4.20 per share on 1 June
2011.
Has no income in the tax year 2015/16 other than a salary of 9,500
from Anomaly Ltd.
Has chargeable gains in the tax year 2015/16 of 5,400.
Required:
(a) (i) Prepare detailed calculations to determine the most
beneficial tax treatment for the payment Tricia will receive
for her shares. (4 marks)
(ii) Identify the points that must be confirmed and any action
necessary in order for the capital treatment to apply to the
buy back of her shares. (3 marks)
(b) Advise the directors of Anomaly Ltd of the impact on their VAT
position of their proposed expansion plans; your answer should
include a calculation of the VAT payable in the quarter to 31
December 2015 based on their results. (6 marks)
(c) Determine the annual tax cost when Tricia starts working for
Accord Ltd, your answer should include an evaluation of how
much better off she will be compared with her current position
with Anomaly Ltd. Explain the income tax and capital gains tax
implications of receiving shares under a Schedule 2 share
incentive plan. (7 marks)
(20 marks)
14 w w w . s t ud yi nt e r a c t i ve . o r g
4 Polly and her daughter Molly require advice on several taxation matters. Polly
wants to know how much additional income tax she must pay in 2014/15 as a
result of the confusion about her residence position. Molly has recently
inherited some shares from her father and is either going to invest in a
personal pension scheme or shares in a start up company and wants to know
the most tax efficient investment.
From meetings held with the ladies and your files, you have obtained the
following information:
Polly
Born on 10 May 1952
Has one daughter Molly
Retired on 30 June 2013.
Is UK domiciled.
Has always lived in the UK but has always spent her vacations in
Kantana.
Her husband Brian died on 14 May 2013. They used to spend
approximately 100 days each year in Kantana as they have homes in
the UK and Kantana.
She decided to emigrate to Kantana on 1 August 2014 but intends to
visit her daughter Molly who lives in the UK for approximately two
months, June and July, each year.
Made an error on her tax return in 2014/15 - it was assumed she was
not UK resident in that year but it now appears that she was.
Pollys income each year
Receives annual UK pension income of 24,000, dividends from shares
in companies quoted on the UK stock exchange of 4,500 and interest
on a UK building society account of 3,200.
Lets her UK house to holiday makers whilst she is overseas, receiving
annual net income after deducting agents fees of 48,500.
Has a number of properties in Kantana which are let to holidaymakers.
She had rental income of 40,000 before deducting foreign tax, of which
3,000 was transferred to her UK bank account during 2014/15.
Molly
Born on 16 May 1972.
Has always lived in the UK and is UK resident and domiciled.
Employed in the UK on an annual salary of 125,000.
Inherited 375,000 shares in Micro plc from her father on 14 May 2013
when the shares were quoted at 1.84 - 1.96 and the highest and
lowest marked bargains were 1.80 and 1.92. The shares in Micro plc
were taken over by Macro plc on 1 December 2014. Molly received two
ordinary shares and one preference shares in Macro plc for each share
she owned in Micro plc worth 1.50 and 1 each respectively. The
takeover was for bona fide commercial reasons and not for tax
avoidance.
Required:
(a) Explain why Polly should be treated as UK resident in 2014/15.
(4 marks)
(b) Calculate the additional income tax Polly must pay in 2014/15 as
a result of correcting the error in relation to her residence
position.
You are not required to consider any interest or penalties which may
arise. (5 marks)
(c) Calculate the number of shares in Macro plc that Molly must sell
in order to generate after tax sales proceeds of 30,000.
(3 marks)
(d) What is the effect of the two alternative investments on Mollys
income tax liability in 2015/16, your answer should include an
explanation of a capital gains tax advantage of investing in the
SEIS shares rather than the personal pension scheme which
might affect the investment decision. (8 marks)
(20 marks)
16 w w w . s t ud yi nt e r a c t i ve . o r g
5 Gayle has been in business since 1 January 2002. On 31 December 2015
Gayle intends to transfer the business to either her brother Hamish or his
company, Haggis Ltd. Gayle has asked for some capital gains and inheritance
tax advice regarding the transfer, and Hamish has asked for some information
regarding potential relief for Haggis Ltd for expenditure on research and
goodwill. The following information has been gathered from the client files.
Business transfer
Option 1 would be for Gayle to gift the business to Hamish.
Option 2 would be for Haggis Ltd to purchase the business from Gayle
for the full market value of 266,000 at 31 December 2015.
The market value of the assets at 31 December 2015 are forecast as
follows:
Goodwill 90,000
Freehold property (1) 86,000
Freehold property (2) 48,000
Net current assets 42,000
_______
266,000
_______
The goodwill has a nil cost. Freehold property (1) was purchased on 1 January
2002 and cost 44,000. This property has always been used for business
purposes. Freehold property (2) was purchased on 15 September 2006 for
35,000 and has never been used by Gayle for business purposes.
Gayle
Annual taxable income 50,000.
Capital losses brought forward 8,000.
Hamish
Sole shareholder of Haggis Ltd, a large company for R&D purposes, with
no associated companies.
Intends starting a research project on 1 January 2016, with forecast
costs of 20,000.
Forecast profits for the year ended 31 December 2016 are 500,000.
This is calculated with no account being taken of the research costs.
Will adopt a policy of amortising goodwill over a 15 year expected life.
18 w w w . s t ud yi nt e r a c t i ve . o r g