ACCA ATX ^UK Syllabus A4. Corporation Tax - 75% gains group - Past Papers ^{2 / 2}

Your manager has sent you an email, with two attachments, concerning the Eet Ltd group. The attachments consist of extracts from the group’s files and a schedule of information from the group finance director. The email details the work your manager requires you to do. The three documents are set out below.

Attachment 1: Eet Ltd group – extracts from the group’s files

All seven companies are UK resident trading companies.

Fip Ltd was incorporated and began trading on 1 December 2018. There have been no other changes to the ownership of the group for many years.

Attachment 2: Schedule of information from the group finance director – dated 3 December 2018

Budgeted results for the year ending 31 March 2019 (as at 3 December 2018)

Notes:
1. On 2 December 2018, Han Ltd sold the Po building. This sale resulted in a capital loss of £80,000. This loss is not reflected in the figures above.

2. Rollover relief will not be claimed in respect of any of the group companies’ chargeable gains.

Loj Co
Eet Ltd is planning to purchase 60% of the ordinary share capital of Loj Co in April 2019.
Loj Co has been a wholly-owned subsidiary of Typ Co since 1 January 2008. Both Loj Co and Typ Co are, and will continue to be, resident in the country of Shalia.

Jek Ltd – sale of the Mar building
Jek Ltd purchased the Mar building on 1 June 2012 for £450,000 plus value added tax (VAT) of £90,000. In the year ended 31 March 2013, and in all subsequent years, 72% of this building was used to make taxable supplies and 28% was used to make exempt supplies. The capital goods scheme applies to the Mar building.

Jek Ltd will sell the Mar building during the year ending 31 March 2020 for £700,000.

Email from your manager – dated 4 December 2018

Please carry out the following work in respect of the Eet Ltd group:

(a) Relief for the capital loss of Han Ltd
– Identify, with supporting explanations, those companies to which the capital loss on the sale of the Po building could be transferred, such that the group’s cash flow position would be improved.

Note: All of the companies in the group, apart from Fip Ltd, are required to pay corporation tax in quarterly instalments. This will be true regardless of how the capital loss on the sale of the Po building is relieved.

– On the assumption that the whole of the capital loss is transferred to Jek Ltd, calculate the quarterly payment of corporation tax due on 14 January 2019 from that company. Please carry out this calculation in £’000s.

Note: On each instalment payment date, each group company pays the amount of corporation tax necessary in order to ensure that it has paid the correct total amount of tax based on the latest budgeted figures.

– Explain the potential advantage to the Eet Ltd group of entering into group payment arrangements for corporation tax.

Tax manager

Required:
Prepare the notes as requested in the email from your manager. The following marks are available:
(a) Relief for the capital loss of Han Ltd. (11 marks)

Your manager has sent you a memorandum in relation to the Harrow Tan Ltd group. An extract from the memorandum and a schedule of group information prepared by Corella, the group finance director, are set out below.

Memorandum from your manager – dated 7 September 2017
Background

- All five group companies are UK resident trading companies which prepare accounts to 31 December each year.

Please prepare notes for us to use in a meeting with Corella, which EXPLAIN the following matters:

Schedule of group information – from Corella, the group finance director
(ii)Group relief – year ending 31 December 2017
– By  reference  to  the  information  in  part  B  of  Corella’s  schedule,  the  maximum  amount  of  Seckel  Ltd’s  trading loss which can be surrendered to each of the other companies in the Harrow Tan Ltd group.

B: Budgeted results for the year ending 31 December 2017

Notes:
1. Disposal of shares in Rocha Ltd.
2. Uta Far Ltd sold a building used in its business on 1 May 2017 for £1,800,000. This resulted in a chargeable gain of £85,000.

Required: Prepare the meeting notes as requested by your manager. 
The following marks are available:

(ii) Group relief – year ending 31 December 2017.               (6 marks)

Achiote Ltd:
– Owns 100% of the ordinary shares in Borage Ltd and 80% of the ordinary shares in Caraway Inc.
– Achiote Ltd and Borage Ltd are resident in the UK. Caraway Inc is resident in the country of Nuxabar.
– All three companies are trading companies and prepare accounts to 31 March annually.

Achiote Ltd – sale of equipment to, and proposed sale of shares in, Caraway Inc:
– Achiote Ltd acquired its 80% shareholding in Caraway Inc on 1 January 2017 for £258,000.
– Achiote Ltd is now proposing to sell an 8% shareholding in Caraway Inc to an unconnected company on 1 October 2017 for £66,000.
– An item of equipment owned by Achiote Ltd and used in its trade was sold to Caraway Inc on 1 March 2017 for its market value of £21,000.
– The item of equipment had cost Achiote Ltd £32,000 in May 2016.

Required:
(c) Advise Achiote Ltd of the chargeable gains implications arising from (1) the sale of the item of equipment to Caraway Inc; and (2) its proposed sale of the shares in Caraway Inc. (5 marks)

Liza requires detailed advice on rollover relief, capital allowances and group registration for the purposes of value added tax (VAT).

Liza’s business interests:
– Liza’s business interests, which have not changed for many years, are set out below.

– All six companies are UK resident trading companies with a 31 March year end.
– All of the minority holdings are owned by individuals, none of whom is connected with Liza or with each other.

A building (‘Building I’) sold by Bar Ltd:
– Bar Ltd sold Building I on 31 May 2013 for £860,000.
– Bar Ltd had purchased the building on 1 June 2007 for £315,000 plus legal fees of £9,000.
– On 5 June 2007, Bar Ltd had carried out work on the building’s roof at a cost of £38,000 in order to make the building fit for use.
– On 1 July 2012, Bar Ltd spent £14,000 repainting the building.
– Bar Ltd used Building I for trading purposes apart from the period from 1 January 2009 to 30 June 2010.
– It is intended that the chargeable gain on the sale will be rolled over to the extent that this is possible.

A replacement building (‘Building II’) purchased by Bar Ltd:
– Bar Ltd purchased Building II, new and unused, for £720,000 on 1 May 2013.
– Bar Ltd uses two thirds of this building for trading purposes; the remaining one-third is rented out.

The trading activities of the Bar Ltd and Hoop Ltd groups of companies:
– The number of transactions between the Bar Ltd group and the Hoop Ltd group is increasing.
– Vault Ltd makes zero rated supplies; all of the other five companies make standard rated supplies.

Required:
(a) (ii) In relation to claiming rollover relief in respect of the disposal of Building I, explain which of the companies in the Bar Ltd and Hoop Ltd groups are, and are not, able to purchase qualifying replacement assets, and state the period within which such assets must be acquired; (4 marks)