Natalie Rodgers is 29 years old and is self-employed fashion designer: she owns and manages a business that provides bespoke fashion design, manufacturing and consultancy services to professional and semi-professional sports clubs in the United Kingdom (UK), Canada and Australia.

The business is called Active Sporting Solutions. Natalie has owned and managed Active Sporting Solutions for many years and the business has always been profitable. Active Sporting Solutions operates from two sites: a design and consultancy studio in Durham (UK) and a manufacturing facility in Middlesbrough (UK). Natalie is a sole trader: the business is not a limited company.

Natalie is married to Leanne Rodgers. Leanne is 29 years old and had a taxable income of 63,590 in the tax year 2020/21. Natalie and Leanne married in 2019 and were both UK resident for income tax purposes throughout the tax year 2020/21.

Financial statements for Active Sporting Solutions are prepared to 31 March. The tax written down values (twdv) at 1 April 2020 for the company were as follows:

	()
Main pool	142,660
Special rate pool	21,860

Active Sporting Solutions does not claim the Structures and Buildings Allowance.

During the tax year 2020/21, Active Sporting Solutions acquired the following items of plant and machinery:

Date	Item	()
9 April 2020	Equipment (a)	17,010
1 October 2020	Car (CO2 emissions 155g/km)	17,900
1 December 2020	Thermal insulation (b)	14,500
31 January 2021	Energy saving equipment	13,420
12 February 2021	Car (CO2 emissions 125g/km) (c)	28,200
15 February 2021	Van	21,700

Notes

1. The equipment acquired on 9 April 2020 was used by Active Sporting Solutions for the delivery of bespoke fashion design, manufacturing and consultancy services.

2. The thermal insulation acquired on 1 December 2020 was installed at Active Sporting Solutions manufacturing facility at Middlesbrough.

3. The car acquired on 12 February 2021 was used by Natalie for both business and private purposes only. Natalie estimates (and HMRC agree) that the proportion of private use of this car will be 60%.

During the tax year 2020/21, proceeds from the disposal of items of plant and machinery were:

Date	Item	()
1 February 2021	Car (CO2 emissions 205g/km) (d)	19,400
3 April 2021	Equipment	11,600

Notes

4. This car was used by Natalie for both business and private purposes. The twdv of this car is the balance on special rate pool as at 1 April 2020. Natalie estimates (and HMRC agree) that the proportion of private use of this car during the tax year 2020/21 was 55%. This car was acquired for 28,000.

Net profit per the financial statements for the year ended 31 March 2021 was 325,980. This figure was stated after the addition and deduction, respectively, of the following items of income and expenditure:

Item	()
Depreciation	58,200
Employee salaries (a)	336,000
Accountancy fees (b)	13,700
Bank interest receivable	4,920
School fees (c)	15,240
Fines and penalties (d)	2,720
Provisions for irrecoverable debts (e)	5,220
Entertainment (f)	11,000

Notes

1. Employee salaries

Employee salaries include amounts paid to employ Natalies brother, Daniel Rodgers, as a designer. The business paid Daniel a salary of 46,000 during the tax year 2020/21. Similar roles at other bespoke fashion design, manufacturing and consultancy service businesses attract an average salary of 39,000.

2. Accountancy fees

Active Sporting Solutions paid 12,500 for accountancy fees arising from the maintenance of accounting records and preparation of financial statements. 1,200 relates to accountancy fees incurred due to an HMRC investigation into Active Sporting Solutionss VAT returns for 2020/21.

3. School fees

Natalies son, Christopher Rodgers, attends a local independent school. Active Sporting Solutions pays the annual cost of Christophers school fees.

4. Fines and penalties

Active Sporting Solutions failed to meet a deadline for the submission of a VAT return in 2020/21: a penalty of 2,600 was incurred as a result of this breach. One of the businesss employees) incurred a parking fine of 120 whilst undertaking work-related duties.

5. Provisions for irrecoverable debts

2,000 relates to an increase in Active Sporting Solutionss general provision for doubtful debts. 3,220 relates to specific provisions for irrecoverable debts.

6. Entertainment

2,000 relates to entertaining of employees; 3,500 relates to entertaining of potential customers. 5,500 relates to entertaining of suppliers.

The following information is also relevant for the tax year 2020/21:

1. During the tax year 2020/21, Natalie received income in the form of interest on a fixed interest savings account of 700. This amount was received on 1 January 2021. Natalie is considering withdrawing her deposit in this fixed interest savings account and investing in some National Savings Premium Bonds.

2. Natalie won a prize of 10,000 in a local lottery. The prize was received by Natalie on 1 December 2020.

3. An investment portfolio of shares and bonds in UK companies provided Natalie with income of 12,010 during the tax year 2020/21. 6,010 of this relates to income in the form of dividends; 6,000 relates to income in the form of interest income from corporate bonds. The corporate bonds are held in a corporate bonds fund.

4. During the tax year 2020/21, Natalie made contributions of 21,000 to a personal pension scheme. Natalie donated 2,400 of her income to charity using the Gift Aid scheme.

5. Natalie paid income tax payments on account (i.e. advance payments of income tax) for the tax year 2020/21 of 132,420.

Natalie is committed to meeting the needs of Active Sporting Solutions clients and to maximising profits from the business. She thinks that the business is eligible to apply the simplified rules for the calculation of tax adjusted trading profits and would like you to do so, if possible, to calculate tax adjusted trading profits for 2020/21.

Required:

1. Calculate tax adjusted trading profits for Active Sporting Solutions for the tax year 2020/21. (29 marks)

2. Calculate income tax payable or repayable for Natalie Rodgers for the tax year ended 5 April 2021. Items that are non-taxable/exempt from UK income tax should be clearly indicated by the use of zero or noted as exempt where appropriate. (43 marks)

3. Advise Natalie on the characteristics of the simplified rules for the calculation of tax adjusted trading profits. Your advice should include a statement as to whether these rules can be applied in the calculation of tax adjusted trading profits for Active Sporting Solutions for the tax year 2020/21. (23 marks)

4. Critically discuss the income tax effects of Natalies plan to invest in National Savings Premium Bonds. (5 marks)