The City Limited : Income statement for the period ended 31 January 2023

Sales 7,770,000

Less: Cost of sales (5,268,00)

Gross Trading Profit 2,502,000

Other income:

Dividend income 108,000

Interest 17,000

Profit on sale 180,000

305,000

Operating costs:

Remuneration 850,000

Royalties 100,000

Miscellaneous expenses 1,165,000

Repairs and renewals 120,000

Loss on asset disposal 65,000

Depreciation 270,000

(2,570,000)

Finance costs

Interest (35,000)

Profit before tax 202,000

Notes:

1. The dividends relate to two separate dividends received:

• £90,000 dividend was from Lisbonnete Limited on 6 February 2022. Lisbonnete Limited was a wholly owned subsidiary of The City Limited until 10th March 2022 (see Note 8)

• £18,000 dividend on 1 January 2023 from Rule Limited an unconnected company.

2. Bank interest all receivable, on short-term deposits accrued during the nine months to 30 June 2022.

3. On 25 April 2022 The City received proceeds of £250,000 for the sale of a warehouse which had been used for trading purposes. The original warehouse cost £25,000 when it was first acquired in December 1978 and was valued at £55,000 in March 1982. The sale was due to the company downsizing and The City bought a smaller replacement warehouse in October 2021 for £200,000.

4. Remuneration includes directors' bonuses of £100,000, the amount being agreed in principle at a directors’ meeting in January 2023 and expected to be paid in July 2023.

5. Royalties are a charge for patent royalties, payable to other UK companies. Of the amount shown, £60,000 was due and was paid during this period; an amount of £40,000 due for payment on 25 January 2023, was actually paid on 12 February 2023. The licensed patents relate to a process that is integral to the company’s trade.

6. The directors have noted that they think that all the miscellaneous expenses should be allowable for tax purposes. It includes £15,000 for the costs of renting an executive box at the local horse racing track – the executive box is usually used to put on events involving clients, suppliers, and prospective clients – the catering and associated costs of these events was £18,000 during the year (in addition to the basic rental). The company also pays for the annual staff Christmas party – this cost (of £7,000) for around 70 staff and guests in total was also charged here.

7. Repairs and renewals include the costs of repairing the roof of a storage shed that was damaged during the year - £25,000 and replacing the old windows in the company’s factory unit with new double-glazed units - £40,000. The remainder of the expense comprises numerous small items, all under £250.

8. On 10 March 2022 The City sold its 100% investment in Lisbonnete Limited for £20,000. The expenses associated with the sale amounted to £5,000 and the original cost of the shares (in July 1992) was £80,000. Lisbonnete Limited was an active trading company throughout the period that it was owned by The City Limited.

9. In 1994 the company issued £50,000 of debentures to unconnected individuals to finance the purchase of the Lisbonnete shares; the debentures are yet to be repaid to investors. Debenture interest of 7.5% accrues evenly over the period and is normally paid on 31 July and 31 January each year. The 31 January 2023 payment was actually paid on 3 February 2023, due to a clerical error. All other interest is servicing loans taken out for trading purposes.

10. Mr. Norman owns 35% of The City Limited and is the Managing Director. The remaining 65% of the issued shares are owned by Matilda, Mr Norman’s wife, who is not a director and takes no active part in the management of The City Limited. Matilda owns 55% of the issued shares in another UK company, Black Swan Limited, which carries on a trade in an unrelated business.

11. The tax written down value at 1 October 2021 of The City’s two capital allowance pools were: Special Rate Pool £8,000, Main Pool £60,000.

12. The City Limited has tax losses brought forward at 1 October 2021 of: Non-trading loan relationship loss £19,000 Capital loss £30,000

13. In July 2024, The City Limited intends to purchase two newly registered petrol motor cars for use by Mr. Norman and his wife, Matilda. The two cars will be identical Mercedes cars, with manufacturer's list prices of £55,000 and CO2emissions of 92g/km Mr. Norman intends to undertake 12,000 business miles a year in his car with a total mileage of 18,000 miles. His wife is likely to drive 10,000 miles a year, none of which will relate to The City’s business.

2.3- Calculate the Corporation Tax payable by The City Limited and specify the dates the tax must be paid and CT600 return(s) must be filed with HMRC.