ACCA ATX UK Syllabus A4. Corporation Tax - In the exam - Past Papers 1 / 1
You could see this question fully worked through if you join the classroom
You could see this question fully worked through if you join the classroom
Question 2a
Email from your manager
Please carry out the following work in preparation for the Opus Ltd meeting.
(a) Relieving the trading losses of Akia Ltd and Ribe Ltd
The objective of the group is to relieve all los.e as soon as possible.
Prepare calculations, together with supporting explanations, to show how the group's objective can best be achieved, clearly Identliying any losses to be carried forward as at 31 March 2014 and any further information which may need to be obtained.
There may be some interesting planning possibilities here, you should think carefully about the tax position of each company.
Question 2a
You have received an email from your manager with an attached schedule in connection with the Forti Ltd group of
companies. The schedule and the email are set out below.
Email from your manager
The Forti Ltd group
Forti Ltd has an issued share capital of 120,000 ordinary shares. It is owned by 12 shareholders, each of whom owns 10,000 ordinary shares.
All six of the companies are trading companies. Gordini Co is resident in and trades in the country of Arrowsia; it does not carry out any activities in the UK. The other five companies are all resident in the UK. There is no double tax treaty between Arrowsia and the UK.
The only changes to the group structure in recent years relate to the purchase and subsequent sale of Marussia Ltd as set out in note 2 to the attached schedule.
Ligier Ltd has no links to the Forti Ltd group other than its shareholding in Eagle Ltd.
The work I require you to do is set out below.
(a) Brawn Ltd – Review of the corporation tax computation
I attach a schedule detailing the corporation tax computation for Brawn Ltd for the year ended 31 March 2013.
This schedule has been prepared by an inexperienced tax assistant. I can confirm that the substantial shareholding exemption is not available and that the figures given for the indexed cost of Marussia Ltd in the schedule, the degrouping charge in note 2, and the tax adjusted trading losses referred to in notes 3 and 4 have all been calculated correctly.
Please review the computation and related notes in order to identify any errors and prepare a revised schedule showing calculations of the correct taxable total profits and the corporation tax liability. You should include notes explaining the errors you have identified and the changes you have made.
(b) Other corporate matters
(i) Brawn Ltd will only be a close company if Forti Ltd is a close company.
Set out the matters which need to be considered in order to determine whether or not Forti Ltd is a close company.
(ii) Set out the matters which need to be considered in connection with the sale of components to Gordini Co referred to in note 6 to the schedule.
(c) Value added tax (VAT) annual accounting scheme
The management of the Forti Ltd group have asked for advice on the VAT annual accounting scheme.
State the conditions which must be satisfied by any company wishing to operate the annual accounting scheme and explain the operation of the scheme.
Tax manager
Schedule prepared by a tax assistant
Brawn Ltd – Corporation tax computation for the year ended 31 March 2013
Notes | £ | £ | |
---|---|---|---|
Tax adjusted trading income | 1 | 250,100 | |
Sale of Marussia Ltd – Proceeds | 2 | 484,000 | |
Less: Indexed cost | (390,000) | ||
Annual exempt amount | (10,600) | ||
–––––––– | |||
83,400 | |||
–––––––– | |||
333,500 | |||
Less losses transferred from: | |||
Marussia Ltd (£60,000 x 5/12) | 3 | (25,000) | |
Eagle Ltd (£52,500 x 20%) | 4 | (10,500) | |
–––––––– | |||
Taxable total profits | 298,000 | ||
Corporation tax at 24% | 5 | 71,520 | |
–––––––– |
Notes
1. The treatment of the following items of expenditure needs to be checked
£ | ||
---|---|---|
The cost of establishing and obtaining HM Revenue and Customs’ | ||
approval of a company share option plan | 6,000 | Disallowed |
The cost of entertaining overseas customers | 4,000 | Disallowed |
Accrued management bonuses to be paid on 1 February 2014 | 7,000 | Allowed |
2. Marussia Ltd was purchased on 1 August 2012. On 1 November 2012, Brawn Ltd signed a contract to sell Marussia Ltd for £484,000, and the sale took place on 31 December 2012. Accordingly, the substantial shareholding exemption was not available. The sale of Marussia Ltd resulted in a degrouping charge of £21,500. This has been included as a chargeable gain in the corporation tax computation of Marussia Ltd.
3. Marussia Ltd made a tax adjusted trading loss of £60,000 in the year ended 31 March 2013.
4. Eagle Ltd made a tax adjusted trading loss of £52,500 in the year ended 31 March 2013 and did not pay a dividend.
5. Although there are five companies in the group, I have calculated corporation tax at the main rate because I think that Brawn Ltd is a close company.
6. During the year ended 31 March 2013, Brawn Ltd began selling components to Gordini Co. Are there any issues which need to be considered in respect of these sales in relation to Brawn Ltd’s corporation tax liability?
Required:
Carry out the work required as set out in the email from your manager. The following marks are available.
(a) Brawn Ltd – Review of the corporation tax computation.
Note: Ignore value added tax (VAT). (12 marks)