FA 2020 TAX RATES AND ALLOWANCES The following tax rates and allowances will be reproduced in the examination paper for Paper (TX-UK). In addition, other specific information necessary for candidates to answer individual questions will be given as part of the question. For example, in the case of corporate chargeable gains the relevant indexation factors for particular dates will be given. Income Tax Normal rates Dividend rates Basic rate 1 37,500 20% 7.5% Higher rate 37,501 150,000 40% 32.5% Additional rate 150,001 and over 45% 38.1% The savings income nil rate bands are 1,000 for a basic rate taxpayer and 500 for a higher rate taxpayer A starting rate of 0% applies to taxable savings income where it falls within the first 5,000 of taxable income The dividend income nil rate band is 2,000 Personal Allowance Personal Allowance 12,500 Transferable amount 1,250 Income limit 100,000 Residence status Days in UK Previously resident Not previously resident Less than 16 Automatically not resident Automatically not resident 16 to 45 Resident if 4 UK ties (or more) Automatically not resident 46 to 90 Resident if 3 UK ties (or more) Resident if 4 UK ties 91 to 120 Resident if 2 UK ties (or more) Resident if 3 UK ties (or more) 121 to 182 Resident if 1 UK tie (or more) Resident if 2 UK ties (or more) 183 or more Automatically resident Automatically resident Child benefit income tax charge Where income is between 50,000 and 60,000, the charge is 1% of the amount of child benefit received for every 100 of income over 50,000. Property Income 100% of property income finance costs are subject to basic rate restriction

Car Benefit Percentage The base level of CO2 emissions is 55 grams per kilometre. The percentage rates applying to petrol cars (and diesel cars meeting the RDE2 standard) with CO2 emissions up to this level are: 51 grams to 54 grams per kilometre 13% 55 grams per kilometre 14% A 0% percentage applies to electric-powered motor cars with zero CO2 emissions For hybrid-electric motor cars with CO2 emisssions between 1 and 50 grams per kilometre. the electric range of the car is relevant: Electric Range 130 miles or more 0% 70-129 miles 3% 40-69 miles 6% 30-39 miles 10% less than 30 miles 12% Car Fuel The base figure for calculating the car fuel benefit is 24,500 Individual savings accounts (ISAs) The overall investment limit is 20,000. Pension Contribution Limits The maximum contribution that can be made without evidence of earnings is 3,600. Annual allowance 40,000 Minimum allowance 4,000 Income limit 240,000 The maximum contribution that can qualify for tax relief without any earnings is 3,600. Authorised mileage allowances All cars up to 10,000 miles 45p over 10,000 miles 25p Cash basis Revenue limit 150,000 ACCA Taxation (TX-UK) (FA2020) Tax rates and allowances FA 2020 viiiCapital Allowances Plant and machinery Main pool 18% Special rate pool 6% Motor cars New cars with CO2 emissions up to 50 grams per kilometre 100% CO2 emissions between 51 and 110 grams per kilometre 18% CO2 emissions over 110 grams per kilometre 6% Annual investment allowance Rate of allowance 100% Expenditure limit 1,000,000 Commercial structures and buildings Straight-line allowance 3% Cap on income tax reliefs Unless otherwise restricted, reliefs are capped at the higher of 50,000 or 25% of income. Corporation Tax Rate of tax FY 2020 19% Rate of tax FY 2019 Rate of tax FY 2018 19% 19% Profit threshold 1,500,000 Value Added Tax Standard rate 20% Registration limit 85,000 Deregistration limit 83,000 Inheritance Tax: Tax Rates: Nil rate band 325,000 Residence nil rate band 175,000 Excess Death rate 40% Lifetime rate 20% Inheritance Tax: Taper relief Years before death Percentage reduction Over 3 but less than 4 years 20% Over 4 but less than 5 years 40% Over 5 but less than 6 years 60% Over 6 but less than 7 years 80% ACCA Taxation (TX-UK) (FA2020) ix Tax rates and allowances FA 2020 Rates of Interest Official rate of interest: 2.25% Rate of interest on underpaid tax: 2.75% Rate of interest on overpaid tax: 0.5% Capital Gains Tax - Individuals Annual Exempt Amount 12,300 Rates of tax Normal rates lower rate 10% higer rate 20% Residential Property rates lower rate 18% higher rate 28% Business Asset Disposal Relief lifetime limit 1,000,000 Rate of tax 10% Investors Relief 10,000,000 Rate of tax 10% National Insurance (not contracted out rates) Annual Class 1 Employee 1 - 9,500 @ 0% 9,501 50,000 @ 12% 50,001 and above @ 2% Class 1 Employer 1 - 8,788 @ 0% 8,789 and above @ 13.8% Employment allowance 4,000 Class 1A 13.8% Class 4 1 - 9,500 per year @ 0% 9,501 50,000 per year @ 9% 50,001 and above per year @ 2% 1. Calculations and workings need only be made to the nearest . 2. All apportionments should be made to the nearest month. 3. All workings should be shown in Section C Standard penalties for errors Taxpayer behaviour Maximum penalty Minimum penalty - unprompted disclosure Minimum penalty.

Deliberate and concealed 100% 30% 50% Deliberate but not concealed 70% 20% 35% Careless 30% 0% 15

QUESTION 1

Nana John is a self-employed as a hairdresser and lives in the UK. She has the following information available for the year ended 2019/20

Trading profit for the year ended 30 June 2019

Nana's statement of profit or loss for the year ended 30th June 2019 is as follows:

Note

Income 63,635

Expenses

Depreciation 2,635

Motor Vehicle 1 2,200

Professional fees 2 1,650

Property expenses 3 12,900

Purchases 4 4,700

Other expenses 5 16,550

(40,635)

Net profit 23,000

1. Nana John charges all the running expenses for her motor car to the business. During the year ended 30 June 2019 Nana drove a total of 8,000 miles of which 7,000 were for private journeys.

2. The figure for professional fees includes 1,260 for legal fees in connection with the grant of a new five year lease of parking spaces for customers' motor cars.

3 Nana lives in a flat that is situated above her hairdressing studio and one-third of the total property expenses of 12.900 relate to this flat.

4 During the year ended 30 June 2019 Nana took goods out of her hairdressing business for her personal use without paying for them and no entry has been made in the accounts to record this. The good cost 250 (an amount that has been deducted under purchases) and had a selling price of 450.

5 The figure of other expenses of 16,550 include 480 for a fine in respect of health and safety regulations and 160 for trade subscription of Guild of small hairdressers.

6 Nana John uses her private telephone to make business telephone calls. The total cost of the private telephone for the year ended 30 June 2019 was 1200 and 20% of this related to business telephone calls. The cost of the private telephone calls is not included in the statement of profit or loss expenses of 40,635.

7 Capital allowances for the year ended 30 June 2019 are 810.

Other information

8 During the tax year 2019/20 Nana John received interested of 310 from an individual saving accounts (ISA) and dividend of 1200 from quoted company shareholdings.

Required:

(a) Calculate Nana John's tax adjusted trading profit for the year ended 30 June 2019. Note that your computation should commence with the net profit figure of 23,000 and should list all of the items referred to in (1) to (8) indicating by the use of zero (0) any item that do not require adjustment.

(b) Calculate Nana John's income tax liability for the year 2019/20

(c) Critically discuss the implications of the IR35 for the director of private limited companies and HMRC