Practice Paper 2

Question 1

What’s the tax rate on company’s profit on sale of assets

Answer 1

Corporation tax 19%

Question 2

Formula for after tax sale proceeds of goodwill , that’s been amortised but the amortisation is not tax deductible

Answer 2

Proceed
Less: (Proceed- cost of goodwill ) X 19%

Question 3

Formula for post tax proceeds of Brand with amortisation amount and no election made to write off the cost of the brand name at the 4% rate

Answer 3

Proceeds
Less
( Proceed - ( cost - amortisation) ) x19%

Question 4

payment to shareholders prior to the appointment of liquidator:
Explain tax rate and relief

Answer 4

Dividend
2,000 = 0%
Excess = taxed @ s/h top slice of income
BRB= amount fallen in = 8.75%
Balance = 33.75%

Question 5

Payment to shareholders after the appointment of liquidator :
Explain tax rate and relief

Answer 5

Payment made would be proceeds as per CGT.
Any amount not covered by AEA £12,300 = subject to CGT
- BADR
Lifetime limit £1m
CGT @10% regardless of what type of tax payer they are.
Condition :
- 5% interest in co.
- employee for at least 2 years
- shares disposed within 3 years of cessation
If BADR Not available
BRB= 10%
Balance = 20%

Question 6

How to calculate TTP for first two tax year of trade @ y/e 31st July
- started trading 11th nov 2023
- tax adjusted trading profit given per month for 2 years in periods
Tax year
23/24
23/25

Answer 6

1. Calculate profit for first two 31st July y/e
   11.11.23- 31.7.23
   1.8.23 - 31.7.24
2. Proportion it for next 2 tax year using opening year rule
   23/24
   1.11.23 - 5.4.23

24/25 (less than 12 months till 31.7.23 from 5.4.23 = first 12 months of trading profit)
1.11.23 - 31.10.24

Question 7

Advantages of adopting an earlier accounting date

Answer 7

After the first tax year there will be a greater time period between earning profits and paying the tax due in respect of them.

There will be a greater time period between knowing the amount of taxable profits and the end of the tax year. This time period can be used to plan for example, in respect of pensions.

Question 8

Costs already incurred
Since 1 October 2022, Joe has been purchasing consultancy services every month in respect of the design and manufacture of the product the new business will be selling.

Explain whether or not Joe will be able to recover the related input tax for value added tax
(VAT) purposes in respect of the consultancy costs already incurred

Answer 8

Joe will be able to recover input VAT in respect of services provided to him for business purposes in the six months prior to registering for VAT.

Accordingly, because Joe first incurred these costs more than six months ago, he should consider registering for VAT as soon as possible in order to recover as much of the input tax relating to the consultancy services as he can.

Question 9

Business premises
A building for use as the business premises has been identified. It is a commercial property unit, which was constructed in 2006. Joe has agreed a price with the vendor of £190,000 plus value added tax (VAT). He intends to lease a third of the building to an unrelated business until his trading activities have grown sufficiently to require the use of the whole building.
Joe confirmed that his trading activity will be standard-rated for VAT purposes.

Explain whether or not Joe will be able to recover the related input tax for value added tax

Answer 9

The amount of input tax which Joe can recover will depend on whether or not he opts to tax the building for the purposes of VAT.

If he opts to tax the building, he will be able to recover all of the input tax.

Otherwise, he will only be able to recover two thirds of it.

This is because the granting of the lease will be an exempt supply unless an option to tax is made in respect of the building.

The building will not be subject to the capital goods scheme because its VAT exclusive cost will be less than £250,000.

Question 10

Actions to carry out before we become tax advisers to new clients

Answer 10

• obtain proof of address and identity
• consider professional ethics
• consider threats
• if threats = not accept unless reduced by safeguards
• assure that client not involved in money laundering
• obtain permission from client to contact existing tax advisers
• issue letter of engagement

Question 11

• Explain why the remittance basis will be available to Fiona in the tax year 2024/25 and whether or not she will be subject to the remittance basis charge.

She’s uk resident in the tax year but not domicile
But she was born in uk with domicile origin
Overseas income :
Property income 31k
Bank interest 1.2k
Only the bank interest Friona will retain overseas

Answer 11

• remittance babes : UK R & Non UK Dom
• she would be uk R & deemed domicile
  = remittance basis only available = unremitted overseas income & gains less than 2k
  = remittance basis applied automatically
  = bank interest less than 2k
  = no remittance basis charge coz she qualifies for the remittance Basis automatically

Question 12

If remittance basis is automatic is personal allowance given

Answer 12

Yes