Nocturne Ltd, a partially exempt company for the purposes of value added tax (VAT), requires advice on the corporation tax implications of providing an asset to one of its shareholders;

Nocturne Ltd:
– Is a UK resident trading company.
– Prepares accounts to 31 March annually and expects to pay corporation tax at the rate of 20%.
– Has four shareholders, each of whom owns 25% of the company’s ordinary share capital.
– Owns a laptop computer, which it purchased in October 2012 for £1,200, and which has a current market value of £150.
– Has purchased no other plant and machinery for several years and the tax written down value of its main pool at 31 March 2015 was £nil.

Provision of a laptop computer to one of Nocturne Ltd’s shareholders:
– Nocturne Ltd is considering two alternative ways of providing a laptop computer in the year ending 31 March 2016 for the personal use of one of its shareholders, Jed.
– Jed is neither a director nor an employee of Nocturne Ltd.
– Option1: Nocturne Ltd will buy a new laptop computer for £1,800 and give it immediately to Jed.
– Option 2: Nocturne Ltd will gift its existing laptop to Jed and will purchase a replacement for use in the company for £1,800.

Required:
(a) Explain, with the aid of supporting calculations, which of the two proposed methods of providing the laptop computer to Jed would result in the lower after-tax cost for Nocturne Ltd.

Note: You should ignore value added tax (VAT) for part (a) of this question. (7 marks)