Naratives Flashcards
b) Gordon sold the shares in Woodley plc on 9 September 2022 electronically. Calculate and explain the stamp taxes position of this transaction.
Any shares that are sold electronically would be subject to what is known as Stamp Duty Reserve Tax (SDRT) which applies only to paperless share transactions (electronically) and the rate is 0.5% on the proceeds of shares sold.
we would then be expected to calculate the transaction
Draft a letter to Gordon explaining the conditions that would need to be satisfied for Business asset disposal relief to be available on the disposal of the shareholding and how the relief would operate if the disposal was eligible for Business asset disposal relief.
in order for Gordon to be able to qualify for business asset disposal relief (BADR) he must have been an officer or employee of the company, as well as the asset must have been in possession for more than two years. any gains that are qualified for BADR are then liable to 10% and there is a £1,000,000 on the gains on which BADR can be given during the taxpayer’s lifetimes, as well as this it is worth noting that if the shares were owned in an unlisted company then the shares must have been issued after 17 March 2016 and have been held for 3 years. as well as this the investor can not be an employee or officer of the company whilst holding the shares
Explain how Land and Buildings Transaction Tax would apply to the purchase of the holiday house.
The land and buildings tax is a tax that only applies to Scotland and is an indirect tax that is chargeable on the purchase of land and property as well as the grant or assignation of the leases. This tax is liable by the buyer and is paid on the VAT-inclusive price and we then round down to the nearest pound. this must be filled to Revenue Scotland before 30 days and this must be done before the registration is handed over.
if this property is either:
- Gift
- Residential lease
- transaction in connection with a divorce or will
then it is not liable to pay this tax.
Depending on whether the property is a dwelling or a non-residential property will depend on the tax band that they are liable to pay, there is also relief if they are a first-time buyer. there is also an LBTT additional dwelling charge that is chargeable at 6%
b) Identify any 51% related group companies of Zetland Ltd and explain how having related companies may impact on when Zetland Ltd is required to pay any corporation tax due.
A company can be 51% related if either one is a 51% subsidiary of the other or if both are 51% subsidiaries of the same third company. the benefit of being a group company is that you can arrange to pay corporation tax as a group and therefore pay your tax in instalments. this allows for simplified admin and a reduction in interest charges by retrospectively allocating the payments made against the tax liabilities of the group in the most beneficial way
Critically discuss Adam Smith’s Canons of Taxation as criteria to evaluate an effective modern tax system.
In 1776 adam smith in The Wealth of Nations created 4 pillars of taxation that he believed were essential in ensuring that a country’s tax system can be efficient.
The first pillar of taxation is EFFICIENCY. This pillar looks at the process in which the tax should be collected and determined. there should also be good foundations in place in order to support those with self-assessment and also enforcement to stop those from not paying taxes - Talk about the 42bn unpaid HMRC debt, Pac says that for every £1 HMRC spends on recovering the debt they get £18
the next pillar is CERTAINTY. there needs to be certainty in what the taxpayers are needing to pay and there should be a set level of tax and a definitive date on which this tax is due. as well as the government should be able to clearly forecast the comings year’s tax income in order to properly plan for tax events - Talk about the greek debt crisis with uncollected taxes, also talk about the french revolution where of over 400% between regions
The next pillar is CONVENIENCE. this pillar is all about ensuring that the tax system does not impact the economic activities of the society. if the tax is too high then people will have less money to spend and therefore businesses will lose income resulting in reductions in profits and therefore a loss of jobs which ultimately will result in a decrease in taxes. this distortion is called the tax wedge and we should implement the Laffer curve when trying to determine the optimal tax rate
Finally, we have EQUITABLE. The tax system can not always be fair and the general view is negative towards tax however it should be equitable enough to incentives pay it. we can have both horizontal fairness and vertical fairness which looks at treating people in similar situations in the same manner and looking a people in unequal situations unequally i.e more taxes. - American revolution, boston tea party as the UK government only put taxes on their own tea which is obvs unfair
***Note - in the 21st century it is worth noting that we should consider FLEXIBILITY as a possible additional pillar. In order to keep up with the modern tax system it must be able to adjust to digital economies, new business models and the increase in border trading
Assuming that the disposal of shares in Sutton plc is to be made before 5 April 2023, evaluate how the capital gains tax liability on the disposal of shares could be minimised and quantify the maximum possible tax saving.
this case he could have held off on selling his shares so that he could have utilised his personal allowance better, as well as this he could transfer the shares to his partner for no gain or loss who would be able to utilise some of her unused basic rate band at 10% and her personal allowance
f) The couple’s daughter, Alice (22 years old) has always lived with them in the family home in Cults. She has recently started her first permanent job as a trainee in an accountancy firm and has decided that it is now time to buy her own flat. She recently had an offer on a flat of £225,000 accepted.
This is a tax that is only payable in Scotland and is an Indirect tax that is paid on the total of the transaction of the property (including VAT). As she is a first time buyer she will get taxed at lower bands. she will need to pay this to Revenue Scotland within 30 days of the purchase and this must be paid before the agreement of the house can be transfered
Amaar has decided to buy a luxury retirement flat at a cost of £380,000 which he will use as his main residence. Explain how this would impact Amaar’s potential inheritance tax liability.
Each person is given an allowance of £175,000 on any private residency, this allowance like all of the other allowances is able to be transferred. in this question, the residency allowance had not been used by either party and therefore there was a total allowance on £350,000 available and therefore they would only need to pay tax on £30,000
Explain when corporation tax payments would have been payable if Beech Ltd had been required to make payments by instalments in respect of the 9 months ended 31 August 2022.
the part of the period that relates to the FY21/22 period would be payable in that tax year with the later part being required to be paid in the later period. Usually, the due date Is 9 months and one day after the end of the accounting period, even though in this case we straddle to accounting periods only one payment is needed. if they were to make an instalment then they would need to pay the tax on 7/10/13 and 16 months before the start of the accounting period. there can be penalties for failing to pay taxes on time
From the structure and additional information given on page 5, identify the companies which form a group (or groups) for group relief for losses purposes and explain how trading losses can be utilised within a group relief for losses group and the potential benefits that can be achieved.
relief for trading losses can either be
- Set against total profits of the same accounting period
- Carry forward
- Surrendered as group relief
- Carried back and set against total profits
1) Set against total profits of the same period
If we are carrying trading losses forward then this must be incurred on or after 1st April 2017 and the company must be looking to continue with the view to continue the same trade and with a view to make a profit. The company can determine how much relief they would like to allocate and they do not need to use it at the earliest opportunity, as well as this it is deducted before qualifying charitable donations essentially protecting our charitable donations.
2) Surrendered as group relief.
the maximum relief that can be given is the lower of Loss that is being transferred or the profit of the period that relates to the company that is transferring the loss
3) Relief carried back and set against total profits
This relief is what is known as part A/B relief. Part A - trade losses incurred in the accounting period must be set against before charitable donations, if the claimant also wishes to claim further relief then they must claim the maximum relief in Part A before claiming Part B, Part B reduced falling wholly or partly within the prior 12 month period this is also taken before charitable donations.
this type of claim does not protect our charitable donations. in order to claim this relief the business must have been carrying the same trade in the previous months and be made within two years of the end of the accounting period in which the loss was incurred.
From the structure and additional information given on page 5, identify the companies which form a group (or groups) for group relief for losses purposes and explain how trading losses can be utilised within a group relief for losses group and the potential benefits that can be achieved.
relief for trading losses can either be
- Set against total profits of the same accounting period
- Carry forward
- Surrendered as group relief
- Carried back and set against total profits
1) Set against total profits of the same period
If we are carrying trading losses forward then this must be incurred on or after 1st April 2017 and the company must be looking to continue with the view to continue the same trade and with a view to make a profit. The company can determine how much relief they would like to allocate and they do not need to use it at the earliest opportunity, as well as this it is deducted before qualifying charitable donations essentially protecting our charitable donations.
2) Surrendered as group relief.
the maximum relief that can be given is the lower of Loss that is being transferred or the profit of the period that relates to the company that is transferring the loss
3) Relief carried back and set against total profits
This relief is what is known as part A/B relief. Part A - trade losses incurred in the accounting period must be set against before charitable donations, if the claimant also wishes to claim further relief then they must claim the maximum relief in Part A before claiming Part B, Part B reduced falling wholly or partly within the prior 12 month period this is also taken before charitable donations.
this type of claim does not protect our charitable donations. in order to claim this relief the business must have been carrying the same trade in the previous months and be made within two years of the end of the accounting period in which the loss was incurred.
what do 75% and 51% companies relate to and how do we calculate them
75% of companies relate to group losses and the transfer of assets between companies and 51% of companies relate to whether a company can be considered for group payments, we identify these companies by multiplying the percentages together and if the total percentage is equal to or above the percentage we can consider them related
How do we measure for Principal Private Residences relief?
this is a relief that is given if the dweller has lived in the property for the whole period, the amount of relief given is the period of (residence/period of ownership) x all of which is multiplied by the whole gain.
if you are working abroad you can have any length of deemed residency, if it is anywhere else in the UK it is 4 Years and it is up to 3 years for any reason - it should be noted that you can combine the relief together
if part of the house if being used for business use then this percentage is not included
regardless of what the use of the house is for we are always given the last 9 months as residency.
How do you get a reduced rate of inheritance tax
If more than 10% of the estate is left to charity then you get a reduced rate of inheritance of 36%
How do we deal with damaged assets
If the insurance has not been used in regards to the asset then we need to do a partA/B disposal for the asset, if we have used the insurance to repair the damaged asset and the difference not used is less than 3,000 or 5% then it is not subject to capital gains and the amount that was used can be considered allowable expenditure on the asset
