(ii) Describe the basis for the calculation of the provision for deferred taxation on first time adoption of IFRS
including the provision in the opening IFRS balance sheet. (4 marks)
(ii) Describe the basis for the calculation of the provision for deferred taxation on first time adoption of IFRS
including the provision in the opening IFRS balance sheet. (4 marks)
Assume that the rates and allowances for 2004/05 apply throughout this part.
(b) Explain the consequences of filing the VAT returns late and advise Fred how he should deal with the
underpayment and bad debt for VAT purposes. Your explanation should be supported by relevant
calculations. (10 marks)
(b) (i) Advise Alasdair of the tax implications and relative financial risks attached to the following property
investments:
(1) buy to let residential property;
(2) commercial property; and
(3) shares in a property investment company/unit trust. (9 marks)
(c) (i) Provide three examples of personal financial planning protection products that would be of use in
Henry’s situation. Justify your selections by reference to the type of protection provided. (6 marks)
4 Assume today’s date is 15 May 2005.
In March 1999, Bob was made redundant from his job as a furniture salesman. He decided to travel round the world,
and did so, returning to the UK in May 2001. Bob then decided to set up his own business selling furniture. He
started trading on 1 October 2001. After some initial success, the business made losses as Bob tried to win more
customers. However, he was eventually successful, and the business subsequently made profits.
The results for Bob’s business were as follows:
Period Schedule D Case I
Trading Profits/(losses)
£
1 October 2001 – 30 April 2002 13,500
1 May 2002 – 30 April 2003 (18,000)
1 May 2003 – 30 April 2004 28,000
Bob required funds to help start his business, so he raised money in three ways:
(1) Bob is a keen cricket fan, and in the 1990s, he collected many books on cricket players. To raise money, Bob
started selling books from his collection. These had risen considerably in value and sold for between £150 and
£300 per book. None of the books forms part of a set. Bob created an internet website to advertise the books.
Bob has not declared this income, as he believes that the proceeds from selling the books are non-taxable.
(2) He disposed of two paintings and an antique silver coffee set at auction on 1 December 2004, realising
chargeable gains totalling £23,720.
(3) Bob took a part time job in a furniture store on 1 January 2003. His annual salary has remained at £12,600
per year since he started this employment.
Bob has 5,000 shares in Willis Ltd, an unquoted trading company based in the UK. He subscribed for these shares
in August 2000, paying £3 per share. On 1 December 2004, Bob received a letter informing him that the company
had gone into receivership. As a result, his shares were almost worthless. The receivers dealing with the company
estimated that on the liquidation of the company, he would receive no more than 10p per share for his shareholding.
He has not yet received any money.
Required:
(a) Write a letter to Bob advising him on whether or not he is correct in believing that his book sales are nontaxable.
Your advice should include reference to the badges of trade and their application to this case.
(9 marks)
(ii) Briefly outline the tax consequences for Henry if the types of protection identified in (i) were to be
provided for him by Happy Home Ltd compared to providing them for himself. You are not required to
discuss the corporation tax (CT) consequences for Happy Home Ltd. (4 marks)
(ii) State, giving reasons, the tax reliefs in relation to inheritance tax (IHT) and capital gains tax (CGT) which
would be available to Alasdair if he acquires the warehouse and leases it to Gallus & Co, rather than to
an unconnected tenant. (4 marks)
(c) State any reliefs Bob could claim regarding the fall in value of his shares in Willis Ltd, and describe how the
operation of any such reliefs could reduce Bob’s taxable income. (4 marks)
Relevant retail price index figures are:
September 1990 129·3
April 1998 162·6
December 2004 189·9
(ii) State when the inheritance tax (IHT) calculated in (i) would be payable and by whom. (2 marks)
(b) Calculate the corporation tax (CT) liabilities for Alantech Ltd, Boron Ltd and Bubble Ltd for the year ending
31 December 2004 on the assumption that loss reliefs are taken as early as possible. (9 marks)
(c) Without changing the advice you have given in (b), or varying the terms of Luke’s will, explain how Mabel
could further reduce her eventual inheritance tax liability and quantify the tax saving that could be made.
(3 marks)
The increase in the retail prices index from April 1984 to April 1998 is 84%.
You should assume that the rates and allowances for the tax year 2005/06 will continue to apply for the
foreseeable future.