ACCA ATX ^UK Syllabus A1. Income tax - Partnerships and limited liability partnerships - Past Papers ^{8 / 8}

Rod has requested advice in relation to the potential income tax relief available in respect of his share of a trading loss of a partnership which he has recently joined.

Rod:
– Is resident and domiciled in the UK.
– Was employed for many years by Lumba plc, before taking early retirement on 30 June 2018.
– Joined the Thora Partnership on 1 December 2018.

The Thora Partnership:
– Has been carried on for many years by two partners, Abe and Bob.
– Prepares accounts to 30 November annually.
– Admitted Rod into the partnership on 1 December 2018.
– Is expected to make a tax-adjusted trading loss of £47,000 in the year ending 30 November 2019.

The Thora Partnership – profit/loss sharing arrangements:
– The partnership’s profit/loss sharing arrangements from 1 December 2018 are as follows:

Required:
(b) (i) Calculate Rod’s share of the tax-adjusted trading loss in the Thora Partnership for the tax years 2018/19 and 2019/20.

Note: Your answer to this part (b)(i) should clearly show the relevant basis periods. (6 marks)

Bex has recently left employment and entered into a business partnership with Amy. Bex requires advice in respect of a loan to the partnership, the calculation of her share of profits and the tax treatment of her redundancy payment.

Bex:
– Is resident and domiciled in the UK.
– Received an annual salary of £120,000 from her former employer, Cape Ltd.
– Was made redundant by Cape Ltd on 30 September 2015.
– Joined Amy, a sole trader, to form a partnership on 1 January 2016.
– Has no other source of income.

Amy and Bex partnership:
– Will prepare its first set of accounts for the 16-month period to 30 April 2017.
– Is expected to make a tax-adjusted profit of £255,000 (before deducting interest and capital allowances) for the period ending 30 April 2017.
– The tax written down value on its main pool at 1 January 2016 is £nil.
– Except for the computer referred to below, no further assets will be purchased by either Amy or Bex for use in the partnership in the period ending 30 April 2017.

Profit sharing arrangements:
– The partnership’s profit sharing agreement is as follows:

Required:
(ii) In respect of the period ending 30 April 2017, show the allocation between the partners of the taxable trading profit of the partnership. (4 marks)

Bex has recently left employment and entered into a business partnership with Amy. Bex requires advice in respect of a loan to the partnership, the calculation of her share of profits and the tax treatment of her redundancy payment.

Bex:
– Is resident and domiciled in the UK.
– Received an annual salary of £120,000 from her former employer, Cape Ltd.
– Was made redundant by Cape Ltd on 30 September 2015.
– Joined Amy, a sole trader, to form a partnership on 1 January 2016.
– Has no other source of income.

Amy and Bex partnership:
– Will prepare its first set of accounts for the 16-month period to 30 April 2017.
– Is expected to make a tax-adjusted profit of £255,000 (before deducting interest and capital allowances) for the period ending 30 April 2017.
– The tax written down value on its main pool at 1 January 2016 is £nil.
– Except for the computer referred to below, no further assets will be purchased by either Amy or Bex for use in the partnership in the period ending 30 April 2017.

Profit sharing arrangements:
– The partnership’s profit sharing agreement is as follows:

Bex – loans:
– In addition to her capital contribution, Bex will make a £20,000 loan to the partnership on 1 August 2016. The partnership will use this money wholly for business purposes.
– This loan will be financed by a £25,000 personal loan from Bex’s bank, taken out on the same date.
– The remaining £5,000 of the bank loan will be used to purchase a computer for use in the partnership. Bex will have 20% private use of this computer.
– Both the loan from Bex to the partnership and the personal bank loan to Bex will carry interest at the rate of 5% per annum.

Required:
(iii) Calculate Bex’s taxable trading income in respect of her share of the partnership profits for all relevant tax years.

Note: Your answer to (a)(iii) should clearly state the tax years and basis periods involved. (3 marks)