TXF6 UK

Question 2a query 3

You are a trainee Chartered Certified Accountant, and your firm has recently completed its audit of E-Commerce plc’s financial statements for the year ended 31 March 2014. The company runs an internet-based retail business.

E-Commerce plc prepared its own corporation tax computations for the year ended 31 March 2014, and your colleague has completed your firm’s tax audit of these figures. E-Commerce plc’s original corporation tax computation, along with references to your colleague’s queries, is as follows:

E-Commerce plc – Corporation tax computation for the year ended 31 March 2014

Query £
Operating profit 1 2,102,300
Deduction for lease premium 2 (14,400)
Capital allowances 3 (209,200)
Trading profit 1,878,700
Property business profit 4 156,700
Loan interest receivable 5 42,400
Taxable total profits
2,077,800
Corporation tax (2,077,800 at 23%) 477,894

Your colleague has raised some queries in regard to E-Commerce plc’s corporation tax computation. Apart from any corrections arising from your colleague’s queries, the corporation tax computation prepared by E-Commerce plc does not contain any errors.

Query 3 – Capital allowances
There are two issues here:
(1) E-Commerce plc purchased four motor cars during the year ended 31 March 2014, and all four motor cars have been included in the plant and machinery main pool. Details are as follows:

Cost
£
CO2 emission rate
Motor car [1] 20,300 122 grams per kilometre
Motor car [2] 24,900 114 grams per kilometre
Motor car [3] 62,100 245 grams per kilometre
Motor car [4] 19,800 87 grams per kilometre

(2) Four years ago, E-Commerce plc purchased computer equipment on which a short-life asset election has been made. For the year ended 31 March 2014, the writing down allowance claimed on this equipment was £1,512, calculated at the rate of 18%. However, the computer equipment was actually scrapped, with nil proceeds, on 10 December 2013.

Required:
Calculate the amendments required from your colleague's query regarding the capital allowances.

Start with the capital allowances figure given above and indicate by the use of zero (0) any items referred to in query 3 which do not require adjustment.

The following allowances are to be used in answering the questions:

Capital allowances: rates of allowance
Plant and machinery
Main pool 18%
Special rate pool 8%
Motor cars
New cars with CO2 emissions up to 95 grams per kilometre 100%
CO2 emissions between 96 and 130 grams per kilometre 18%
CO2 emissions over 130 grams per kilometre 8%
Annual investment allowance
Rate of allowance 100%
Expenditure limit £500,000
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