Motor cars, Vans and private fuel benefit

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Question 2a ii

Your manager has had a meeting with Florina and Kanzi who are clients of your firm. Florina’s father, Winston, also attended the meeting. The notes prepared following the meeting and an email from your manager setting out the work he requires you to do are set out below.

Meeting with Florina, Kanzi and Winston on 6 September 2017

Florina
Florina is a director of and shareholder in Flight Hip Ltd. She earns an annual salary of £50,000 and receives a dividend of £20,000 from the company every year. She received total taxable benefits of £25,000 from the company in the tax year 2016/17. Flight Hip Ltd is not a close company.

Florina’s benefits include a company car together with free petrol for both business and private use. The car’s benefit percentage by reference to its CO2 emissions is 26%. Florina drives 19,000 miles per year of which 2,000 miles are in the performance of her employment duties. The total cost of all of the petrol used by Florina in the tax year 2016/17 was £3,000.

Kanzi
Kanzi is an artist. His annual taxable trading income is approximately £14,000. Although Kanzi is not employed by Flight Hip Ltd, the company provides him with a car and free petrol. The car’s benefit percentage by reference to its CO2 emissions is 23%. Kanzi drives 5,000 miles per year; the total cost of the petrol used by Kanzi in the tax year 2016/17 was £800.

Email from your manager – dated 7 September 2017
Please carry out the following work.

(a)Florina and Kanzi
Provision of free petrol
 
By  comparing  the  income  tax  due  in  respect  of  the  petrol  with  the  value  of  the  petrol  received, determine  whether Florina and Kanzi would be better off if:
– Florina were to reimburse Flight Hip Ltd for the cost of the petrol used by her for private purposes; and/or
– Flight Hip Ltd were to stop providing Kanzi with free petrol.

Required: Carry out the work requested in the email from your manager.

The following marks are available:
(a) Florina and Kanzi.

Provision of free petrol 4 marks

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Question 4b extract

Methley Ltd:
– Is a UK resident trading company which is a close company

Chris:
– Is employed by Methley Ltd and owns 10% of its ordinary shares.
– Has been offered the sole use of a company motor car or, alternatively, a loan to enable him to purchase the
same motor car himself.
– Is a higher rate taxpayer

Chris – alternative 1 – company motor car:
– Methley Ltd would purchase the motor car on 1 October 2016 for £9,600, which is £800 less than the list price.
– The motor car would immediately be made available to Chris exclusively for his private use.
– The motor car has CO2 emissions of 108 grams per kilometre and is diesel powered.
– Chris would contribute £700 per year towards the private use of the motor car.
– Methley Ltd would give the motor car to Chris after three years, when its market value is expected to be £6,300

Required
Calculate Chris's Benefit in respect of the company motor car

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