QUESTION 1

Fran has provided the following information:

MT Ltd made a net profit for the year ended 31 March 2021 of 55,000.

The following costs and income were included in this calculation of net profit in the statement of profit or loss:

Costs

Interest and costs of raising loans to buy
Computer equipment	3,000
Investment in the shares of Music Ltd	7,900
Total interest cost	10,900
Wages of research staff and materials eligible for enhanced R&D relief	110,000
General overheads not eligible for enhanced R&D relief	10,000
Total research costs in the profit or loss	120,000
MT Ltd is an SME for the purpose of R&D relief.
Repairs to machinery used in production of synthesisers	17,000
*Repairs to equipment bought by MT Ltd in the year ended 31 March 2021 (see note 2 below)	8,000
Total repair cost in the profit or loss	25,000
Specific trade receivable allowance	50,000
General trade receivable allowance	14,000
Trade receivable allowance cost	64,000
Depreciation	37,000
Legal fees (see note 5) Income Bank interest received	10,000 (2,845)
Profit on disposal of head office building	(60,000)

Notes: Other information

1. The profit for the year includes an amortisation charge for the Retro-Synth technology of 18,000. MT Ltd has elected to claim a 4% writing down allowance on the 180,000 cost of the intangible asset.

2. The brought forward balance on the main pool for capital allowances at 1 April 2020 is 7,000. MT Ltd bought computer equipment for 50,000. MT Ltd also bought some machines for 265,000. Before the equipment could be used, MT Ltd spent 8,000 on a repair. This cost has been included in repairs in the statement of profit or loss (see above*). The computer equipment and machines are not used for R&D purposes. MT Ltd did not make any disposals.

3. MT Ltd owns 75% of the shares in Music Ltd. Music Ltd made a trading profit for the year ended 31 March 2021 of 50,000. Music Ltd made a claim for AIA of 2,000.

4. The head office building was sold on 1 January 2021 for 245,000. Legal costs were 10,000 and are included in administrative expenses in the profit or loss. The building was purchased for 185,000 on 1 October 201

Required:

1. Calculate the trading loss, chargeable gain and the non trading loan relationship deficit for MT Ltd for the year ended 31 March 2021. Assume that MT Ltd makes all beneficial claims and elections.

2. Explain how MT Ltd can use any tax losses it has made in the year ended 31 March 2021. Include an explanation of the tax implications of MT Ltds shareholding in Music Ltd.