Question 5

5.1

Albus began trading on 1 January 2019 preparing his first set of accounts for the twelve months to 31 December 2019.

Albus's draft profit and loss account for the year ended 31 December 2019 shows a trading profit of 123,955 after accounting for the following items.

	Notes
Interest income on business account		200
Lease rental	1	1,500
Legal fees	2	950
Depreciation		4,550
Car expenses (100% of costs incurred)	3	2,448
Repairs and redecoration		3,967
New furniture for office		1,000
Wife's salary	4	9,000
Write-off of obsolete stock		800
Advertising	5	6,788
Goods taken for own use worth 800, charged at cost		700
A speeding fine incurred by Albuss wife while making a delivery		60
Donation to Comic Relief made through gift aid	6	50

Notes

1 Albus rented a car with CO₂ emissions of 140g/km for the year.

2 The legal fees relate to legal advice taken to assist Albus in purchasing a small 6 year old workshop to operate out of in January 2019.

3 Albus accepts that the actual business use of his car is only 90%.

4 Albus's wife has worked in the business on average two days per week over the course of the year. However, similar staff employed by the business only earn 5,000 for two days per week.

5 Advertising includes 2,000 for corporate hospitality attended by business customers at a local sporting event. It also includes 400 relating to the purchase of 10 handbags bearing the company logo which were given to key clients.

6 Comic relief is a UK registered charity.

In addition Albus paid 500 for stock in November 2018 which was before he actually commenced trading. This 500 has not been included in his draft figures shown above.

Albus's bookkeeper has correctly calculated his capital allowances to be 3,455. However Albus forgot to mention the acquisition of his low emission car for 9,000 in August 2019. Albus estimates his business use at 90%. The car qualifies for the 100% FYA for capital allowances.

Requirements

1. Calculate Albus's tax adjusted trading profit for the year ended 31 December 2019. (16 marks)
2. Calculate the assessable trading profit for Albuss business for 2018/19 and 2019/20 and state the amount of any overlap profits arising. (5 marks)

5.2

Samuel, a shareholder and the managing director of Neptune Ltd, intends to change the way he draws profits from the company. Samuel's only income is from the company.

Current arrangements

Samuel receives a salary of 46,000 pa from the company and the use of a fully expensed company car (including the provision of diesel), with a list price of 16,080 and CO₂ emissions of 104g/km. In addition, Samuel is provided with a mobile telephone which is paid for by Neptune Ltd. The cost of private calls amounted to 210 in 2019/20. Samuel's laptop computer is owned by Neptune Ltd and cost 3,200 on 3 April 2015 when it was purchased and first provided to Samuel. Samuel uses the laptop almost exclusively for the purpose of his employment. His private use of the laptop is insignificant.

Neptune Ltd did not declare any dividends for the year ended 31 March 2020.

Future arrangements

To replace the current arrangements, Samuel will receive a salary of 5,200 pa and the company will pay dividends to Samuel of 45,000 per year. Samuel will not have a company car or mobile telephone but will instead receive a mileage allowance of 47p per mile for an estimated 11,000 business miles travelled in his own car.

Samuel estimates that he will spend 8,200 pa on the costs of providing his own car and his own mobile telephone. Samuel will not need to buy his own laptop.

Requirement

Calculate Samuel's income tax and national insurance liabilities and his net spendable income under both the current and future arrangements. You should make all calculations based on tax rates and allowances for 2019/20. (19 marks)

Total [40 marks]

Question 5 . 22 e 5.1 Albus began trading on 1 January 2019 preparing his first set of accounts for the twelve months to 31 December 2019. Albus's draft profit and loss account for the year ended 31 December 2019 shows a trading profit of 123,955 after accounting for the following items. Notes Interest income on business account 200 Lease rentale 1e 1,500 Legal fees 950 Depreciation 4,550 Car expenses (100% of costs incurred) 3e 2,448 Repairs and redecoration 3,9672 New furniture for office 1,000 Wife's salary 40 9,000 Write-off of obsolete stock 800 Advertising 52 6,788 Goods taken for own use worth 800, charged at cost 700 A speeding fine incurred by Albus's wife while making a 60 delivery Donation to Comic Relief made through gift aide 50 Notes Albus rented a car with CO2 emissions of 140g/km for the year. 2 The legal fees relate to legal advice taken to assist Albus in purchasing a small 6 year old workshop to operate out of in January 2019. 3 Albus accepts that the actual business use of his car is only 90%. 4 Albus's wife has worked in the business on average two days per week over the course of the year. However, similar staff employed by the business only earn 5,000 for two days per week. 5 Advertising includes 2,000 for corporate hospitality attended by business customers at a local sporting event. It also includes 400 relating to the purchase of 10 handbags bearing the company logo which were given to key clients. 6 Comic relief is a UK registered charity. In addition Albus paid 500 for stock in November 2018 which was before he actually commenced trading. This 500 has not been included in his draft figures shown above. Albus's bookkeeper has correctly calculated his capital allowances to be 3,455. However Albus forgot to mention the acquisition of his low emission car for 9,000 in August 2019. Albus estimates his business use at 90%. The car qualifies for the 100% FYA for capital allowances. 1 Requirements a) Calculate Albus's tax adjusted trading profit for the year ended 31 December 2019. (16 marks) b) Calculate the assessable trading profit for Albus's business for 2018/19 and 2019/20 and state the amount of any overlap profits arising. (5 marks) 5.2 Samuel, a shareholder and the managing director of Neptune Ltd, intends to change the way he draws profits from the company. Samuel's only income is from the company. Current arrangements Samuel receives a salary of 46,000 pa from the company and the use of a fully expensed company car (including the provision of diesel), with a list price of 16,080 and CO2 emissions of 104g/km. In addition, Samuel is provided with a mobile telephone which is paid for by Neptune Ltd. The cost of private calls amounted to 210 in 2019/20. Samuel's laptop computer is owned by Neptune Ltd and cost 3,200 on 3 April 2015 when it was purchased and first provided to Samuel. Samuel uses the laptop almost exclusively for the purpose of his employment. His private use of the laptop is insignificant Neptune Ltd did not declare any dividends for the year ended 31 March 2020. Future arrangements To replace the current arrangements, Samuel will receive a salary of 5,200 pa and the company will pay dividends to Samuel of 45,000 per year. Samuel will not have a company car or mobile telephone but will instead receive a mileage allowance of 47p per mile for an estimated 11,000 business miles travelled in his own car. Samuel estimates that he will spend 8,200 pa on the costs of providing his own car and his own mobile telephone. Samuel will not need to buy his own laptop. Requirement- Calculate Samuel's income tax and national insurance liabilities and his net spendable income under both the current and future arrangements. You should make all calculations based on tax rates and allowances for 2019/20. (19 marks) Total [40 marks] Question 5.14 Income taxe >Tax - adjusted trading profit Profit per accounts. Add back Disallowable expensese Deduct non trading income Pre-trading expenditure - stock Adjusted profit before capital allowances- Less capital allowances Tax-adjusted trading profit . Question 5.2 .Income from options Current Future- arrangemen arrangemen ts e ts .Cash receivede t t Salarye Mileage allowance - Dividends .Less: income tax liability national insurance - other costs Net spendable income WORKINGS (1). Current arrangements t t t 't 1. " t T. Employment income:- Salaryk Benefits t 1. T. t Less PA O- Taxable income C Income tax one @ 20% t T: @ 40% Income tax liability (2) National insurance- Current arrangements t (3) Future arrangements- T. t e Employment income: Salarye Mileage allowance - Dividends 1. t e - t Less PA 0+ Taxable income 1. II 2 Income tax one @ 0% 02 t t T. @ 7.5% @ 32.5% Income tax liability (4) National insurance Future arrangements e Question 5 . 22 e 5.1 Albus began trading on 1 January 2019 preparing his first set of accounts for the twelve months to 31 December 2019. Albus's draft profit and loss account for the year ended 31 December 2019 shows a trading profit of 123,955 after accounting for the following items. Notes Interest income on business account 200 Lease rentale 1e 1,500 Legal fees 950 Depreciation 4,550 Car expenses (100% of costs incurred) 3e 2,448 Repairs and redecoration 3,9672 New furniture for office 1,000 Wife's salary 40 9,000 Write-off of obsolete stock 800 Advertising 52 6,788 Goods taken for own use worth 800, charged at cost 700 A speeding fine incurred by Albus's wife while making a 60 delivery Donation to Comic Relief made through gift aide 50 Notes Albus rented a car with CO2 emissions of 140g/km for the year. 2 The legal fees relate to legal advice taken to assist Albus in purchasing a small 6 year old workshop to operate out of in January 2019. 3 Albus accepts that the actual business use of his car is only 90%. 4 Albus's wife has worked in the business on average two days per week over the course of the year. However, similar staff employed by the business only earn 5,000 for two days per week. 5 Advertising includes 2,000 for corporate hospitality attended by business customers at a local sporting event. It also includes 400 relating to the purchase of 10 handbags bearing the company logo which were given to key clients. 6 Comic relief is a UK registered charity. In addition Albus paid 500 for stock in November 2018 which was before he actually commenced trading. This 500 has not been included in his draft figures shown above. Albus's bookkeeper has correctly calculated his capital allowances to be 3,455. However Albus forgot to mention the acquisition of his low emission car for 9,000 in August 2019. Albus estimates his business use at 90%. The car qualifies for the 100% FYA for capital allowances. 1 Requirements a) Calculate Albus's tax adjusted trading profit for the year ended 31 December 2019. (16 marks) b) Calculate the assessable trading profit for Albus's business for 2018/19 and 2019/20 and state the amount of any overlap profits arising. (5 marks) 5.2 Samuel, a shareholder and the managing director of Neptune Ltd, intends to change the way he draws profits from the company. Samuel's only income is from the company. Current arrangements Samuel receives a salary of 46,000 pa from the company and the use of a fully expensed company car (including the provision of diesel), with a list price of 16,080 and CO2 emissions of 104g/km. In addition, Samuel is provided with a mobile telephone which is paid for by Neptune Ltd. The cost of private calls amounted to 210 in 2019/20. Samuel's laptop computer is owned by Neptune Ltd and cost 3,200 on 3 April 2015 when it was purchased and first provided to Samuel. Samuel uses the laptop almost exclusively for the purpose of his employment. His private use of the laptop is insignificant Neptune Ltd did not declare any dividends for the year ended 31 March 2020. Future arrangements To replace the current arrangements, Samuel will receive a salary of 5,200 pa and the company will pay dividends to Samuel of 45,000 per year. Samuel will not have a company car or mobile telephone but will instead receive a mileage allowance of 47p per mile for an estimated 11,000 business miles travelled in his own car. Samuel estimates that he will spend 8,200 pa on the costs of providing his own car and his own mobile telephone. Samuel will not need to buy his own laptop. Requirement- Calculate Samuel's income tax and national insurance liabilities and his net spendable income under both the current and future arrangements. You should make all calculations based on tax rates and allowances for 2019/20. (19 marks) Total [40 marks] Question 5.14 Income taxe >Tax - adjusted trading profit Profit per accounts. Add back Disallowable expensese Deduct non trading income Pre-trading expenditure - stock Adjusted profit before capital allowances- Less capital allowances Tax-adjusted trading profit . Question 5.2 .Income from options Current Future- arrangemen arrangemen ts e ts .Cash receivede t t Salarye Mileage allowance - Dividends .Less: income tax liability national insurance - other costs Net spendable income WORKINGS (1). Current arrangements t t t 't 1. " t T. Employment income:- Salaryk Benefits t 1. T. t Less PA O- Taxable income C Income tax one @ 20% t T: @ 40% Income tax liability (2) National insurance- Current arrangements t (3) Future arrangements- T. t e Employment income: Salarye Mileage allowance - Dividends 1. t e - t Less PA 0+ Taxable income 1. II 2 Income tax one @ 0% 02 t t T. @ 7.5% @ 32.5% Income tax liability (4) National insurance Future arrangements e