Question 4

Bethany began trading on 1 May 2016 and made up accounts for the year ending 30 April 2017. She then made up accounts annually thereafter. Her results have been as follows:

Period
1.5.16 - 30.4.17	21,000
1.5.17 - 30.4.18	24,000
1.5.18 - 30.4.19	27,000

On submission of the accounts to HMRC, the inspector of taxes dealing with Bethanys case asks for further breakdown of the expense accounts relating to entertaining, motor expenses, repairs and employee salary costs.

Calculate Bethanys assessments for the first four tax years indicating the overlap created and explain when relief will be obtained for this overlap. Explain to Bethany why the inspector is requesting further information. (maximum word count 200 words)

(10 marks)

Tax Rates and Allowances 2019/20 Income Tax Main Personal Allowances Personal allowance 12,500 Income limit for personal allowance (Note 1) Marriage allowance (Note 2) 100,000 1,250 Note 1: When income exceeds the limit a clawback applies reducing the personal allowance by 1 for every 2 above the limit.

Note 2: Spouses/civil partners are able to transfer 1,250 of their unused personal allowance to their partner if both are basic rate taxpayers.

Tax Rates and Taxable Bands Normal rate Dividend rate Basic rate 0 - 37,500 20% 7.5% Higher rate 37,501 - 150,000 40% 32.5% Additional rate Over 150,000 45% 38.1%

Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: Basic rate taxpayers 1,000 Higher rate taxpayers 500 Additional rate taxpayers Nil

Note 4: The first 2,000 of dividend income is taxed at 0% for all taxpayers.

Note 5: The first 7,500 of rental income from renting part of the taxpayers home is tax free if rent a room relief is claimed.

Pension Scheme Limits Annual allowance 40,000 Lifetime allowance 1,055,000 Maximum contribution than can qualify for tax relief without earnings 3,600

ISA Annual Subscription Limit Overall Individual savings Accounts limit 20,000 Lifetime ISA (18 to 40) 4,000 Help to buy ISA 1,000 (initial maximum investment) then 200 per month Relevant to Employees Authorised Mileage Allowances When an employee has business usage of their own car Up to 10,000 miles 45p Over 10,000 miles 25p Car Benefit Percentage 0 50 g/km 16% 51 75 g/km 19% 76 94 g/km 95g/km (the base level of emissions) 22% 23% Each additional 5 g/km above the base level +1% Diesel additional surcharge +4% Maximum rate 37%

Car Fuel Benefit The base figure for calculating car fuel benefits 24,100

Relevant to Traders Capital Allowances

Plant and Machinery Main pool 18% Special rate pool 6% Energy & water efficient equipment 100%

Motor Cars C02 emissions up to 50 grams per kilometre 100% C02 emissions over 50 grams up to 110 grams per kilometre 18% C02 emissions over 110 grams per kilometre 6%

Annual Investment allowance Rate of allowance Expenditure limit 100% 1,000,000 Capital Gains Tax

Annual exemption 12,000 Standard rate of tax (assets other than residential property) 10% Higher rate of tax (assets other than residential property) 20% Standard rate of tax on residential property 18% Higher rate of tax on residential property 28%

Entrepreneurs relief: For trading businesses and companies held for at least one year (minimum 5% employee shareholding) Lifetime limit of gains Rate of tax

Lease Premium Formulae Capital proportion is 2% (n-1) P

Chattels Formulae Gains restricted to 5/3(gross proceeds - 6,000) 10,000,000 10%

National Insurance (not contracted-out rates) Primary % Class 1 employees 0 - 8,632 per year Nil Above 8,632 50,000 per year 12.0 Above 50,000 per year 2.0 Secondary Class 1 employer 0 - 8,632 per year Nil Above 8,632 per year 13.8 Class 1A employer On benefits in kind 13.8

Sole traders Class 2 Paid weekly If earnings are above the small profits threshold of 6,365 pa 3pw

Class 4 0 - 8,632 per year Nil Above 8,632 - 50,000 per year 9.0 Above 50,000 per year 2.0

Rates of Interest

Official rate of interest for benefits in kind 2.50% Rate of interest on underpaid tax 3.25% Rate of interest on overpaid tax 0.50% Supplementary Instructions 1. You should assume that the tax rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future unless you are instructed otherwise. 2. Calculations and workings need only be made to the nearest . All apportionments should be made to the nearest

Search Aa-POE EEEE AT A.0.A. AaBbcc AaBbCel AaBbcc AaBbcc TCIMA Re... Heading 1 Normal T No Spac... Paragraph Styles Tax Rates and Allowances 2019/20 Income Tax Main Personal Allowances Personal allowance 12,500 Income limit for personal allowance (Note 1) 100,000 Marriage allowance (Note 2) 1,250 Note 1: When income exceeds the limit a clawback applies reducing the personal D allowance by 1 for every 2 above the limit. Note 2 Spouses/civil partners are able to transfer 1,250 of their unused personal allowance to their partner if both are basic rate taxpayers. Tax Rates and Taxable Bands Basic rate 0 - 37,500 Normal rate Dividend rate 20% 7.5% Higher rate 37,501 - 150,000 Over 150,000 40% 32.5% Additional rate 45% 38.1% Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: | Aa- A E EEEE AT O-A- AaBbcc AaBbcc AaBbcc AaBbcc A 1 CIMA Re. Heading 1 T Normal 1 No Spac... Paragraph Styles Note 3. A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: Basic rate taxpayers 1,000 Higher rate taxpayers 500 Additional rate taxpayers Nil Note 4. The first 2,000 of dividend income is taxed at 0% for all taxpayers. Note 5. The first 7,500 of rental income from renting part of the taxpayer's home is tax free if rent a room relief is claimed. Pension Scheme Limits Annual allowance Lifetime allowance Maximum contribution than can qualify for tax relief without earnings 40,000 1,055,000 3,600 PLEASE TURN OVER o - | Aa- PEEEEEAT D-A- AaBbCcDc AaBbCd AaBbcc AaBbcc A 1 CIMA Re. Heading 1 1 Normal 1 No Spac... He Paragraph Styles ISA Annual Subscription Limit Overall Individual savings Accounts limit Lifetime ISA (18 to 40) Help to buy ISA 1,000 (initial maximum investment) then 200 per month 20,000 4,000 Relevant to Employees Authorised Mileage Allowances When an employee has business usage of their own car Up to 10,000 miles Over 10.000 miles 45p 25p Car Benefit Percentage 0-50 g/km 51 - 75 g/km 76 - 94 g/km 95g/km (the base level of emissions) Each additional 5 g/km above the base level Diesel additional surcharge Maximum rate 16% 19% 22% 23% +1% +4% 37% Car Fuel Benefit The base figure for calculating car fuel benefits 24,100 Relevant to Traders A. A SEE AI D A AaBbCcDc AaBbCal AaBbcc AaBbCc A 1 CIMA Re. Heading 1 1 Normal 1 No Spac... He Paragraph Styles Relevant to Traders Capital Allowances Plant and Machinery Main pool Special rate pool Energy & water efficient equipment 18% 6% 100% Motor Cars CO2 emissions up to 50 grams per kilometre CO2 emissions over 50 grams up to 110 grams per kilometre CO2 emissions over 110 grams per kilometre Annual Investment allowance Rate of allowance Expenditure limit 100% 18% 6% 100% 1,000,000 PLEASE TURN OVER o Bi Aa- D.A. AaBbCcDc AaBbcc AaBbcc AaBb C TCIMA Re. Heading 1 I Normal 1 No Spac.. Styles Paragraph Capital Gains Tax Annual exemption Standard rate of tax (assets other than residential property) Higher rate of tax (assets other than residential property) Standard rate of tax on residential property Higher rate of tax on residential property 12,000 10% 20% 18% 28% Entrepreneurs' relief: For trading businesses and companies held for at least one year (minimum 5% employee shareholding) Lifetime limit of gains Rate of tax 10,000,000 10% Lease Premium Formulae Capital proportion is 2% (n-1) P Chattels Formulae Gains restricted to 5/3(gross proceeds - 6,000) National Insurance (not contracted-out rates) Primary Class 1 employees 0 - 8.632 per year Above 8,632 - 50,000 per year Above 50,000 per year Secondary % Nil 12.0 2.0 NA Mailings Review View Help Design Layout Search Aa- A E EEEE 21 D.A. E A. AaBbCcDc AaBbcc AaBbcc AaBbcc AaBb 1 CIMA Re. Heading 1 1 Normal No Spac... Heading Styles Paragraph Above 70,05Z Loooooper year Above 50,000 per year TZ.U 2.0 Secondary Class 1 employer 0 - 8,632 per year Above 8,632 per year Nil 13.8 Class 1A employer On benefits in kind 13.8 Sole traders Class 2 3pw Class 4 Paid weekly If earnings are above the small profits threshold of 6,365 pa 0 - 8,632 per year Above 8,632 - 50,000 per year Above 50,000 per year Nil 9.0 2.0 PLEASE TURN OVER om Review View Help Design Layout O Search Aa- A EE ALI 2.A. AaBbcc AaBbCd AaBbcc AaBbcc A TCIMA Re... Heading 1 1 Normal 1 No Spac... He Paragraph Styles Rates of Interest Official rate of interest for benefits in kind Rate of interest on underpaid tax Rate of interest on overpaid tax 2.50% 3.25% 0.50% Supplementary Instructions 1 You should assume that the tax rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future unless you are instructed otherwise, 2. Calculations and workings need only be made to the nearest . All apportionments should be made to the nearest Search Aa-POE EEEE AT A.0.A. AaBbcc AaBbCel AaBbcc AaBbcc TCIMA Re... Heading 1 Normal T No Spac... Paragraph Styles Tax Rates and Allowances 2019/20 Income Tax Main Personal Allowances Personal allowance 12,500 Income limit for personal allowance (Note 1) 100,000 Marriage allowance (Note 2) 1,250 Note 1: When income exceeds the limit a clawback applies reducing the personal D allowance by 1 for every 2 above the limit. Note 2 Spouses/civil partners are able to transfer 1,250 of their unused personal allowance to their partner if both are basic rate taxpayers. Tax Rates and Taxable Bands Basic rate 0 - 37,500 Normal rate Dividend rate 20% 7.5% Higher rate 37,501 - 150,000 Over 150,000 40% 32.5% Additional rate 45% 38.1% Note 3: A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: | Aa- A E EEEE AT O-A- AaBbcc AaBbcc AaBbcc AaBbcc A 1 CIMA Re. Heading 1 T Normal 1 No Spac... Paragraph Styles Note 3. A personal savings allowance applies at a 0% tax rate, applied after the personal allowance have been applied as follows: Basic rate taxpayers 1,000 Higher rate taxpayers 500 Additional rate taxpayers Nil Note 4. The first 2,000 of dividend income is taxed at 0% for all taxpayers. Note 5. The first 7,500 of rental income from renting part of the taxpayer's home is tax free if rent a room relief is claimed. Pension Scheme Limits Annual allowance Lifetime allowance Maximum contribution than can qualify for tax relief without earnings 40,000 1,055,000 3,600 PLEASE TURN OVER o - | Aa- PEEEEEAT D-A- AaBbCcDc AaBbCd AaBbcc AaBbcc A 1 CIMA Re. Heading 1 1 Normal 1 No Spac... He Paragraph Styles ISA Annual Subscription Limit Overall Individual savings Accounts limit Lifetime ISA (18 to 40) Help to buy ISA 1,000 (initial maximum investment) then 200 per month 20,000 4,000 Relevant to Employees Authorised Mileage Allowances When an employee has business usage of their own car Up to 10,000 miles Over 10.000 miles 45p 25p Car Benefit Percentage 0-50 g/km 51 - 75 g/km 76 - 94 g/km 95g/km (the base level of emissions) Each additional 5 g/km above the base level Diesel additional surcharge Maximum rate 16% 19% 22% 23% +1% +4% 37% Car Fuel Benefit The base figure for calculating car fuel benefits 24,100 Relevant to Traders A. A SEE AI D A AaBbCcDc AaBbCal AaBbcc AaBbCc A 1 CIMA Re. Heading 1 1 Normal 1 No Spac... He Paragraph Styles Relevant to Traders Capital Allowances Plant and Machinery Main pool Special rate pool Energy & water efficient equipment 18% 6% 100% Motor Cars CO2 emissions up to 50 grams per kilometre CO2 emissions over 50 grams up to 110 grams per kilometre CO2 emissions over 110 grams per kilometre Annual Investment allowance Rate of allowance Expenditure limit 100% 18% 6% 100% 1,000,000 PLEASE TURN OVER o Bi Aa- D.A. AaBbCcDc AaBbcc AaBbcc AaBb C TCIMA Re. Heading 1 I Normal 1 No Spac.. Styles Paragraph Capital Gains Tax Annual exemption Standard rate of tax (assets other than residential property) Higher rate of tax (assets other than residential property) Standard rate of tax on residential property Higher rate of tax on residential property 12,000 10% 20% 18% 28% Entrepreneurs' relief: For trading businesses and companies held for at least one year (minimum 5% employee shareholding) Lifetime limit of gains Rate of tax 10,000,000 10% Lease Premium Formulae Capital proportion is 2% (n-1) P Chattels Formulae Gains restricted to 5/3(gross proceeds - 6,000) National Insurance (not contracted-out rates) Primary Class 1 employees 0 - 8.632 per year Above 8,632 - 50,000 per year Above 50,000 per year Secondary % Nil 12.0 2.0 NA Mailings Review View Help Design Layout Search Aa- A E EEEE 21 D.A. E A. AaBbCcDc AaBbcc AaBbcc AaBbcc AaBb 1 CIMA Re. Heading 1 1 Normal No Spac... Heading Styles Paragraph Above 70,05Z Loooooper year Above 50,000 per year TZ.U 2.0 Secondary Class 1 employer 0 - 8,632 per year Above 8,632 per year Nil 13.8 Class 1A employer On benefits in kind 13.8 Sole traders Class 2 3pw Class 4 Paid weekly If earnings are above the small profits threshold of 6,365 pa 0 - 8,632 per year Above 8,632 - 50,000 per year Above 50,000 per year Nil 9.0 2.0 PLEASE TURN OVER om Review View Help Design Layout O Search Aa- A EE ALI 2.A. AaBbcc AaBbCd AaBbcc AaBbcc A TCIMA Re... Heading 1 1 Normal 1 No Spac... He Paragraph Styles Rates of Interest Official rate of interest for benefits in kind Rate of interest on underpaid tax Rate of interest on overpaid tax 2.50% 3.25% 0.50% Supplementary Instructions 1 You should assume that the tax rates and allowances for the tax year 2019/20 will continue to apply for the foreseeable future unless you are instructed otherwise, 2. Calculations and workings need only be made to the nearest . All apportionments should be made to the nearest