Question 2b
Your manager has had a number of telephone conversations with Gomez, a potential new client. Gomez owns the whole of the ordinary share capital of Helm Ltd. Extracts from the memorandum prepared by your manager setting out the matters discussed and an email from your manager in connection with the Helm Ltd group are set out below.
Extracts from the memorandum
Helm Ltd
Year ending 31 March 2016
Purchase of Drill Ltd
Helm Ltd purchased the whole of the ordinary share capital of Drill Ltd on 1 April 2015. Drill Ltd has capital losses to carry forward as at 31 March 2015 of £74,000.
The business of Drill Ltd is to be expanded in the year ending 31 March 2016.
- Drill Ltd intends to borrow £1,350,000 in order to finance the purchase of a building and to provide additional working capital. Drill Ltd will be required to pay an arrangement fee of £35,000 in order to obtain this loan.
- The building will cost Drill Ltd £1,200,000. To begin with, this building will be larger than Drill Ltd requires. One quarter of the building will be rented out to a third party until Drill Ltd needs the additional space.
Email from your manager
Please carry out the following work in preparation for a meeting with Gomez.
(b) Drill Ltd
Explain how tax relief may be obtained in respect of the arrangement fee and the interest payable on the loan of £1,350,000 (you should be aware that Drill Ltd receives less than £50 of interest income each year).
Tax manager
Required: Carry out the work required as requested in the email from your manager.
The following marks are available:
(b) Drill Ltd. (5 marks)