ACCA ATX ^UK Syllabus A1. Income tax - Other benefits - Past Papers ^{11 / 12}

Hyssop Ltd wishes to provide assistance with home to work travel costs for Corin, who is an employee.

Hyssop Ltd:
– Is a UK resident trading company.
– Prepares accounts to 31 December each year.
– Pays corporation tax at the small profits rate.
– Is registered for VAT.
– Leased a factory on 1 February 2015.

Corin:
– Is resident and domiciled in the UK.
– Is an employee of Hyssop Ltd, who works only at the company’s head office.
– Earns an annual salary of £55,000 from Hyssop Ltd and has no other source of income.

Hyssop Ltd – assistance with home to work travel costs:
– Hyssop Ltd is considering two alternatives to provide assistance with Corin’s home to work travel costs.

Alternative 1 – provision of a motorcycle:
– Hyssop Ltd will provide Corin with a leased motorcycle for travelling from home to work.
– Provision of the leased motorcycle, including fuel, will cost Hyssop Ltd £3,160 per annum. This will give rise to an annual taxable benefit of £3,160 for Corin.
– Corin will incur no additional travel or parking costs in respect of his home to work travel.

Alternative 2 – payment towards the cost of driving and provision of parking place:
– Hyssop Ltd will reimburse Corin for the cost of driving his own car to work up to an amount of £2,240 each year.
– Corin estimates that his annual cost for driving from home to work is £2,820
– Additionally, Hyssop Ltd will pay AB Parking Ltd £920 per year for a car parking space for Corin near the head office.

Required:
Note: You should ignore value added tax (VAT) for part (a).

(a) Explain, with the aid of calculations, which of the two alternatives for providing financial assistance for home to work travel is most cost efficient for: 
(i) Corin. (5 marks)

Hyssop Ltd wishes to provide assistance with home to work travel costs for Corin, who is an employee.

Hyssop Ltd:
– Is a UK resident trading company.
– Prepares accounts to 31 December each year.
– Pays corporation tax at the small profits rate.
– Is registered for VAT.
– Leased a factory on 1 February 2015.

Corin:
– Is resident and domiciled in the UK.
– Is an employee of Hyssop Ltd, who works only at the company’s head office.
– Earns an annual salary of £55,000 from Hyssop Ltd and has no other source of income.

Hyssop Ltd – assistance with home to work travel costs:
– Hyssop Ltd is considering two alternatives to provide assistance with Corin’s home to work travel costs.

Alternative 1 – provision of a motorcycle:
– Hyssop Ltd will provide Corin with a leased motorcycle for travelling from home to work.
– Provision of the leased motorcycle, including fuel, will cost Hyssop Ltd £3,160 per annum. This will give rise to an annual taxable benefit of £3,160 for Corin.
– Corin will incur no additional travel or parking costs in respect of his home to work travel.

Alternative 2 – payment towards the cost of driving and provision of parking place:
– Hyssop Ltd will reimburse Corin for the cost of driving his own car to work up to an amount of £2,240 each year.
– Corin estimates that his annual cost for driving from home to work is £2,820
– Additionally, Hyssop Ltd will pay AB Parking Ltd £920 per year for a car parking space for Corin near the head office.

Required:
Note: You should ignore value added tax (VAT) for part (a).

(a) Explain, with the aid of calculations, which of the two alternatives for providing financial assistance for home to work travel is most cost efficient for: 
(ii) Hyssop Ltd(3 marks)

Your firm has been asked to provide advice to Pita plc in respect of providing employees with financial assistance and encouraging them to work from home, the establishment of an enterprise management incentive scheme, and a redundancy package provided to an employee.

Pita plc:
– Is a UK resident company which trades in the UK and is quoted on the UK Stock Exchange.
– Has an issued share capital of 10,000,000 irredeemable £1 ordinary shares.
– Has gross assets of £24,000,000 and 180 employees.

Issues – Pita plc:
– Intends to provide assistance with employees and to encourage them to work from home.
– Intends to establish an enterprise management incentive (EMI) scheme for nine key employees.
– Has provided a redundancy package to Narn, an employee.

Encouraging working from home:
– Pita plc will pay employees an extra £3 per day when they work from home.
– The payments are intended to cover the additional household costs of working from home.

Required:
(a) Explain whether or not the encouragement to work from home will give rise to taxable employment income for the employees. (2.5 marks)

Spike requires advice on the loss relief available following the cessation of his business and on the tax implications
of share options and a relocation payment provided by his new employer.

Spike:
– Ceased to trade and sold his unincorporated business to an unrelated individual on 30 September 2012.
– Sold his house, ‘Sea View’, on 1 March 2013 for £125,000 more than he had paid for it.
– Began working for Set Ltd on 1 May 2013.
– Has no income or capital gains other than the amounts referred to in the information below.

Remuneration from Set Ltd:
– Spike is being paid a salary of £65,000 per year.
– On 1 May 2013, Spike was granted an option to purchase ordinary shares in Set Ltd.
– On 1 July 2013, Set Ltd will pay Spike a relocation payment of £33,500.

The relocation payment of £33,500:
– Spike sold ‘Sea View’, and purchased a new house, in order to live near the premises of Set Ltd.
– £22,000 of the payment is to compensate Spike for having to sell his house at short notice at a low price.
– £11,500 of the payment is in respect of the costs incurred by Spike in relation to moving house.

Required:
(b) (ii) Explain the income tax implications for Spike of the relocation payment. (2 marks)

Notes:
1. You should assume that the tax rates and allowances for the tax year 2012/13 apply to all tax years.
2. Ignore national insurance contributions throughout this question.