Three parts! Please!

Part A

Jane has owned all the shares in Rafael Ltd (Rafael), a company that provides medical equipment to hospitals since incorporation on 10 July 2009. The company prepares its accounts to 31 October each year. The following information is available:

Trading profit

The tax adjusted trading profit is 1,153,000. This has been calculated before considering capital allowances.

Capital expenditure

The tax written down value of the main pool as at the 1 November 2018 was 37,000 and 15,000 for the special rate pool.

2 December 2018: Machinery bought for 423,000.

12 January 2019: Executive car bought for the new Sales Director 35,000, emissions 173g/km (agreed private use 50%).

8 August 2019: Installing new lifts into the building for 690,000

19 September 2019: Selling a van for proceeds of 2,500 (less than original cost).

Loan interest receivable

Loan interest receivable of 24,000 was recognised in the accounts.

Dividends received

On 1 March 2019, Rafael received a dividend of 24,000 from Michael plc, an unconnected UK company.

Disposal of building

Rafael sold a building used in trade for 875,000 in July 2019. The building was purchased at a cost of 460,000 in November 2012.

Additional information

i) RPI December 2017: 278.1, RPI November 2012: 245.6

Required:

Calculate Rafael Ltds corporation tax liability for the year ended 31 October 2019.

PART B

After completing the tax return for the year ended 31 October 2019, you have established that Rafael has moved into a loss-making position for the year ended 31 October 2020. With an estimated loss of 89,000. Jane has deemed this to be a difficult year due to the current pandemic and predicts a profit of 23,000 for the year ended 31 October 2021.

Required

Write an email to Jane explaining the loss options that are available to Rafael Ltd and conclude on which option(s) would be best to use and in what order.

(Word count limit: 240 words)

PART C

Jane is considering a number of options to expand her business in the near future:

Option 1 Buy a competitor company

Jane would acquire a 100% shareholding in Petra Ltd (Petra), a company that produces the medical equipment Rafael Ltd supplies to hospitals.

Option 2 Bringing manufacturing in house

Investing in research and development to manufacture medical equipment in house and sell on to hospitals.

Required

Discuss the tax implications of Rafael Ltd either:

• acquiring 100% of the shares in Petra Ltd; or
• bringing research and development in-house (assume Rafael Ltd is small/medium for R&D purposes).