ACCA ATX ^UK Syllabus A4. Corporation Tax - Close companies - Past Papers ^{2 / 5}

Nocturne Ltd, a partially exempt company for the purposes of value added tax (VAT), requires advice on the corporation tax implications of providing an asset to one of its shareholders;

Nocturne Ltd:
– Is a UK resident trading company.
– Prepares accounts to 31 March annually and expects to pay corporation tax at the rate of 20%.
– Has four shareholders, each of whom owns 25% of the company’s ordinary share capital.
– Owns a laptop computer, which it purchased in October 2012 for £1,200, and which has a current market value of £150.
– Has purchased no other plant and machinery for several years and the tax written down value of its main pool at 31 March 2015 was £nil.

Provision of a laptop computer to one of Nocturne Ltd’s shareholders:
– Nocturne Ltd is considering two alternative ways of providing a laptop computer in the year ending 31 March 2016 for the personal use of one of its shareholders, Jed.
– Jed is neither a director nor an employee of Nocturne Ltd.
– Option1: Nocturne Ltd will buy a new laptop computer for £1,800 and give it immediately to Jed.
– Option 2: Nocturne Ltd will gift its existing laptop to Jed and will purchase a replacement for use in the company for £1,800.

Required:
(a) Explain, with the aid of supporting calculations, which of the two proposed methods of providing the laptop computer to Jed would result in the lower after-tax cost for Nocturne Ltd.

Note: You should ignore value added tax (VAT) for part (a) of this question. (7 marks)

Charlotte is the owner of Bamburg Ltd.

Charlotte:
– Is UK resident and UK domiciled.
– Owns 100% of the ordinary share capital of Bamburg Ltd.
– Earns an annual salary from Bamburg Ltd of £46,000 and has no other income.
– Has two ideas to generate additional cash in Bamburg Ltd.
– Wants to receive an additional £14,000 (after the payment of all personal taxes) from Bamburg Ltd on 30 June 2014.

Alternative methods of extracting an additional £14,000 from Bamburg Ltd:
– Bamburg Ltd to make an interest-free loan of £14,000 to Charlotte.

Required:
(ii) Explain the immediate tax implications for Bamburg Ltd and Charlotte of Bamburg Ltd making an interest-free loan of £14,000 to Charlotte. (5 marks)

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.

(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.

Tax manager

Required:
Carry out the work required as set out in the email from your manager. The following marks are available.

(b) Other corporate matters.
(i) Close companies; (5 marks)

Note: Ignore value added tax (VAT). (12 marks)