TXF6 UK
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Section C: Q31

Specimen exam

Q31 Section C

The following scenario relates to two requirements.

You should assume that today’s date is 1 March 2019.

Sarah is currently self-employed. If she continues to trade on a self-employed basis, her total income tax liability and national insurance contributions (NIC) for the tax year 2019-20 will be £12,631.

However, Sarah is considering incorporating her business on 6 April 2019.

The forecast taxable total profits of the new limited company for the year ended 5 April 2020 will be £50,000 (before taking account of any director’s remuneration).

Sarah will pay herself gross director’s remuneration of £30,000 and dividends of £10,000.

The balance of profits will remain undrawn within the new company.

(a) Determine whether or not there will be an overall saving of tax and national insurance contributions (NIC) for the year ended 5 April 2020 if Sarah incorporates her business on 6 April 2019.

Notes:
1. You are expected to calculate the income tax payable by Sarah, the class 1 NIC payable by Sarah and the new limited company, and the corporation tax liability of the new limited company for the year ended 5 April 2020.

2. The new limited company will not be entitled to the NIC annual employment allowance.

3. You should assume that the rates of corporation tax remain unchanged.
(8 marks)