3 Assume that today’s date is 10 May 2005.
You have recently been approached by Fred Flop. Fred is the managing director and 100% shareholder of Flop
Limited, a UK trading company with one wholly owned subsidiary. Both companies have a 31 March year-end.
Fred informs you that he is experiencing problems in dealing with aspects of his company tax returns. The company
accountant has been unable to keep up to date with matters, and Fred also believes that mistakes have been made
in the past. Fred needs assistance and tells you the following:
Year ended 31 March 2003
The corporation tax return for this period was not submitted until 2 November 2004, and corporation tax of ￡123,500
was paid at the same time. Profits chargeable to corporation tax were stated as ￡704,300.
A formal notice (CT203) requiring the company to file a self-assessment corporation tax return (dated 1 February
2004) had been received by the company on 4 February 2004.
A detailed examination of the accounts and tax computation has revealed the following.
– Computer equipment totalling ￡50,000 had been expensed in the accounts. No adjustment has been made in
the tax computation.
– A provision of ￡10,000 was made for repairs, but there is no evidence of supporting information.
– Legal and professional fees totalling ￡46,500 were allowed in full without any explanation. Fred has
subsequently produced the following analysis:
Analysis of legal & professional fees
￡
Legal fees on a failed attempt to secure a trading loan 15,000
Debt collection agency fees 12,800
Obtaining planning consent for building extension 15,700
Accountant’s fees for preparing accounts 14,000
Legal fees relating to a trade dispute 19,000
– No enquiry has yet been raised by the Inland Revenue.
– Flop Ltd was a large company in terms of the Companies Act definition for the year in question.
– Flop Ltd had taxable profits of ￡595,000 in the previous year.
Year ended 31 March 2004
The corporation tax return has not yet been submitted for this year. The accounts are late and nearing completion,
with only one change still to be made. A notice requiring the company to file a self-assessment corporation tax return
(CT203) dated 27 July 2004 was received on 1 August 2004. No corporation tax has yet been paid.
1 – The computation currently shows profits chargeable to corporation tax of ￡815,000 before accounting
adjustments, and any adjustments for prior years.
– A company owing Flop Ltd ￡50,000 (excluding VAT) has gone into liquidation, and it is unlikely that any of this
money will be paid. The money has been outstanding since 3 September 2003, and the bad debt will need to
be included in the accounts.
1 Fred also believes there are problems in relation to the company’s VAT administration. The VAT return for the quarter
ended 31 March 2005 was submitted on 5 May 2005, and VAT of ￡24,000 was paid at the same time. The previous
return to 31 December 2004 was also submitted late. In addition, no account has been made for the VAT on the bad
debt. The VAT return for 30 June 2005 may also be late. Fred estimates the VAT liability for that quarter to be ￡8,250.
Required:
(a) (i) Calculate the revised corporation tax (CT) payable for the accounting periods ending 31 March 2003
and 2004 respectively. Your answer should include an explanation of the adjustments made as a result
of the information which has now come to light. (7 marks)
(ii) State, giving reasons, the due payment date of the corporation tax (CT) and the filing date of the
corporation tax return for each period, and identify any interest and penalties which may have arisen to
date. (8 marks)
第1题：
(b) On 31 May 2007, Leigh purchased property, plant and equipment for $4 million. The supplier has agreed to
accept payment for the property, plant and equipment either in cash or in shares. The supplier can either choose
1·5 million shares of the company to be issued in six months time or to receive a cash payment in three months
time equivalent to the market value of 1·3 million shares. It is estimated that the share price will be $3·50 in
three months time and $4 in six months time.
Additionally, at 31 May 2007, one of the directors recently appointed to the board has been granted the right to
choose either 50,000 shares of Leigh or receive a cash payment equal to the current value of 40,000 shares at
the settlement date. This right has been granted because of the performance of the director during the year and
is unconditional at 31 May 2007. The settlement date is 1 July 2008 and the company estimates the fair value
of the share alternative is $2·50 per share at 31 May 2007. The share price of Leigh at 31 May 2007 is $3 per
share, and if the director chooses the share alternative, they must be kept for a period of four years. (9 marks)
Required:
Discuss with suitable computations how the above share based transactions should be accounted for in the
financial statements of Leigh for the year ended 31 May 2007.
(b) Transactions that allow choice of settlement are accounted for as cash-settled to the extent that the entity has incurred a
liability (IFRS2 para 34). The share based transaction is treated as the issuance of a compound financial instrument. IFRS2
applies similar measurement principles to determine the value of the constituent parts of a compound instrument as that
required by IAS32 ‘Financial Instruments: Disclosure and Presentation’. The purchase of the property, plant and equipment
(PPE) and the grant to the director, both fall under this section of IFRS2 as the supplier and the director have a choice of
settlement. The fair value of the goods can be measured directly as regards the purchase of the PPE and therefore this fact
determines that the transaction is treated in a certain way. In the case of the director, the fair value of the service rendered
will be determined by the fair value of the equity instruments given and IFRS2 says that this type of share based transaction
should be dealt with in a certain way. Under IFRS2, if the fair value of the goods or services received can be measured directly
and easily then the equity element is determined by taking the fair value of the goods or services less the fair value of the
debt element of this instrument. The debt element is essentially the cash payment that will occur. If the fair value of the goods
or services is measured by reference to the fair value of the equity instruments given then the whole of the compound
instrument should be fair valued. The equity element becomes the difference between the fair value of the equity instruments
granted less the fair value of the debt component. It should take into account the fact that the counterparty must forfeit its
right to receive cash in order to receive the equity instrument.
When Leigh received the property, plant and equipment it should have recorded a liability of $4 million and an increase in
equity of $0·55 million being the difference between the value of the property, plant and equipment and the fair value of theliability. The fair value of the liability is the cash payment of $3·50 x 1·3 million shares, i.e. $4·55 million.
The accounting entry would be:
第2题：
For this part, assume today’s date is 15 August 2005.
5 (a) Donald is aged 22, single, and about to finish his university education. He has plans to start up a business selling
computer games, and intends to start trading on 1 April 2006, making up accounts to 31 March annually.
He believes that his business will generate cash (equal to taxable profits) of ￡47,500 in the first year. He
originally intended to operate as a sole trader, but he has recently discovered that as an alternative, he could
operate through a company. He has been advised that if this is the case, he can take a maximum gross salary
of ￡42,648 out of the company.
Required:
(i) Advise Donald on the income tax (IT), national insurance (NIC) and corporation tax (CT) liabilities he
will incur for the year ended 31 March 2007 trading under each of the two alternative business
structures (sole trade/company). Your advice should be supported by calculations of disposable income
for both alternatives assuming that in the company case, he draws the maximum salary stated.
(7 marks)
第3题：
A. named
B. appointed
C. assigned
D. allocated
第4题：
4 (a) For this part, assume today’s date is 1 March 2006.
Bill and Ben each own 50% of the ordinary share capital in Flower Limited, an unquoted UK trading company
that makes electronic toys. Flower Limited was incorporated on 1 August 2005 with 1,000 ￡1 ordinary shares,
and commenced trading on the same day. The business has been successful, and the company has accumulated
a large cash balance of ￡180,000, which is to be used to purchase a new factory. However, Bill and Ben have
received an offer from a rival company, which they are considering. The offer provides Bill and Ben with two
alternative methods of payment for the purchase of their shares:
(i) ￡480,000 for the company, inclusive of the ￡180,000 cash balance.
(ii) ￡300,000 for the company assuming the cash available for the factory purchase is extracted prior to sale.
Bill and Ben each currently receive a gross salary of ￡3,750 per month from Flower Limited. Part of the offer
terms is that Bill and Ben would be retained as employees of the company on the same salary.
Neither Bill nor Ben has used any of their capital gains tax annual exemption for the tax year 2005/06.
Required:
(i) Calculate which of the following means of extracting the ￡180,000 from Flower Limited on 31 March
2006 will result in the highest after tax cash amount for Bill and Ben:
(1) payment of a dividend, or
(2) payment of a salary bonus.
You are not required to consider the corporation tax (CT) implications for Flower Limited in your
answer. (5 marks)
As a result, Bill and Ben would each be better off by ￡15,005 (69,142 – 54,137). If the cash were extracted by way
of dividend.
Tutorial note: In this answer the employers’ national insurance liability on the salary has been ignored. Credit would be
given to a candidate who recognised this issue.
第5题：
3 On 1 January 2007 Dovedale Ltd, a company with no subsidiaries, intends to purchase 65% of the ordinary share
capital of Hira Ltd from Belgrove Ltd. Belgrove Ltd currently owns 100% of the share capital of Hira Ltd and has no
other subsidiaries. All three companies have their head offices in the UK and are UK resident.
Hira Ltd had trading losses brought forward, as at 1 April 2006, of ￡18,600 and no income or gains against which
to offset losses in the year ended 31 March 2006. In the year ending 31 March 2007 the company expects to make
further tax adjusted trading losses of ￡55,000 before deduction of capital allowances, and to have no other income
or gains. The tax written down value of Hira Ltd’s plant and machinery as at 31 March 2006 was ￡96,000 and
there will be no fixed asset additions or disposals in the year ending 31 March 2007. In the year ending 31 March
2008 a small tax adjusted trading loss is anticipated. Hira Ltd will surrender the maximum possible trading losses
to Belgrove Ltd and Dovedale Ltd.
The tax adjusted trading profit of Dovedale Ltd for the year ending 31 March 2007 is expected to be ￡875,000 and
to continue at this level in the future. The profits chargeable to corporation tax of Belgrove Ltd are expected to be
￡38,000 for the year ending 31 March 2007 and to increase in the future.
On 1 February 2007 Dovedale Ltd will sell a small office building to Hira Ltd for its market value of ￡234,000.
Dovedale Ltd purchased the building in March 2005 for ￡210,000. In October 2004 Dovedale Ltd sold a factory
for ￡277,450 making a capital gain of ￡84,217. A claim was made to roll over the gain on the sale of the factory
against the acquisition cost of the office building.
On 1 April 2007 Dovedale Ltd intends to acquire the whole of the ordinary share capital of Atapo Inc, an unquoted
company resident in the country of Morovia. Atapo Inc sells components to Dovedale Ltd as well as to other
companies in Morovia and around the world.
It is estimated that Atapo Inc will make a profit before tax of ￡160,000 in the year ending 31 March 2008 and will
pay a dividend to Dovedale Ltd of ￡105,000. It can be assumed that Atapo Inc’s taxable profits are equal to its profit
before tax. The rate of corporation tax in Morovia is 9%. There is a withholding tax of 3% on dividends paid to
non-Morovian resident shareholders. There is no double tax agreement between the UK and Morovia.
Required:
(a) Advise Belgrove Ltd of any capital gains that may arise as a result of the sale of the shares in Hira Ltd. You
are not required to calculate any capital gains in this part of the question. (4 marks)
第6题：
4 Assume today’s date is 5 February 2006.
Joanne is 37, she was born and until 2005 had lived all her life in Germany. She recently married Fraser, aged 38,
who is a UK resident, but who worked briefly in Germany. They have no children.
The couple moved to the UK to live permanently on 9 October 2005. Joanne was employed by an American company
in Germany, and she continued to work for them in the UK until the end of November 2005. Her earnings from the
American company were ￡5,000 per month. Joanne has not remitted any of the income she earned in Germany prior
to her arrival in the UK.
Joanne resigned from her job at the end of November 2005. The company did not hold her to the three months notice
stipulated in her contract, but still paid her for that period. In total, Joanne paid ￡4,200 in UK income tax under PAYE
for the tax tear 2005/06.
Joanne also wishes to sell the shares she holds in a German listed company. The shareholding cost the equivalent of
￡3,500 in September 1986, and its current value is ￡21,500. She intends to sell the shares in March 2006 and to
invest the proceeds from the sale in the UK. Joanne has made no other capital disposals in the year.
Prior to her leaving employment, Joanne investigated the possibility of starting her own business providing a German
translation service for UK companies, and took some advice on the matter. She paid consultancy fees of ￡5,000
(excluding value added tax (VAT)) and bought a computer for ￡2,000 (excluding VAT), both on 23 October 2005.
Joanne started trading on 1 December 2005. She made sales of ￡2,000 in December, and estimates that her sales
will rise by ￡1,000 every month to a maximum of ￡7,000 per month. Joanne believes that her monthly expenses of
￡400 (excluding VAT) will remain constant. Her year end will be 31 March, and the first accounts will be drawn up
to 31 March 2006.
Although Joanne has registered her business for tax purposes with the Revenue, she has not registered for VAT and
is unsure what is required of her in this respect.
Required:
(a) State, giving reasons, whether Joanne will be treated as resident or non-resident in the UK for the year of
assessment 2005/06, together with the basis on which her income and gains of that year will be subject to
UK taxation. (3 marks)
第7题：
6 Assume today’s date is 16 April 2005.
Henry, aged 48, is the managing director of Happy Home Ltd, an unquoted UK company specialising in interior
design. He is wealthy in his own right and is married to Helen, who is 45 years old. They have two children – Stephen,
who is 19, and Sally who is 17.
As part of his salary, Henry was given 3,000 shares in Happy Home Ltd with an option to acquire a further 10,000
shares. The options were granted on 15 July 2003, shortly after the company started trading, and were not part of
an approved share option scheme. The free shares were given to Henry on the same day.
The exercise price of the share options was set at the then market value of ￡1·00 per share. The options are not
capable of being exercised after 10 years from the date of grant. The company has been successful, and the current
value of the shares is now ￡14·00 per share. Another shareholder has offered to buy the shares at their market value,
so Henry exercised his share options on 14 April 2005 and will sell the shares next week, on 20 April 2005.
With the company growing in size, Henry wishes to recruit high quality staff, but the company lacks the funds to pay
them in cash. Henry believes that giving new employees the chance to buy shares in the company would help recruit
staff, as they could share in the growth in value of Happy Home Ltd. Henry has heard that there is a particular share
scheme that is suitable for small, fast growing companies. He would like to obtain further information on how such
a scheme would work.
Henry has accumulated substantial assets over the years. The family house is owned jointly with Helen, and is worth
￡650,000. Henry has a ￡250,000 mortgage on the house. In addition, Henry has liquid assets worth ￡340,000
and Helen has shares in quoted companies currently worth ￡125,000. Henry has no forms of insurance, and believes
he should make sure that his wealth and family are protected. He is keen to find out what options he should be
considering.
Required:
(a) (i) State how the gift of the 3,000 shares in Happy Home Ltd was taxed. (1 mark)
第8题：
3 (a) Leigh, a public limited company, purchased the whole of the share capital of Hash, a limited company, on 1 June
2006. The whole of the share capital of Hash was formerly owned by the five directors of Hash and under the
terms of the purchase agreement, the five directors were to receive a total of three million ordinary shares of $1
of Leigh on 1 June 2006 (market value $6 million) and a further 5,000 shares per director on 31 May 2007,
if they were still employed by Leigh on that date. All of the directors were still employed by Leigh at 31 May
2007.
Leigh granted and issued fully paid shares to its own employees on 31 May 2007. Normally share options issued
to employees would vest over a three year period, but these shares were given as a bonus because of the
company’s exceptional performance over the period. The shares in Leigh had a market value of $3 million
(one million ordinary shares of $1 at $3 per share) on 31 May 2007 and an average fair value of
$2·5 million (one million ordinary shares of $1 at $2·50 per share) for the year ended 31 May 2007. It is
expected that Leigh’s share price will rise to $6 per share over the next three years. (10 marks)
Required:
Discuss with suitable computations how the above share based transactions should be accounted for in the
financial statements of Leigh for the year ended 31 May 2007.
第9题：
(b) Peter, one of Linden Limited’s non-executive directors, having lived and worked in the UK for most of his adult
life, sold his home near London on 22 March 2006 and, together with his wife (a French citizen), moved to live
in a villa which she owns in the south of France. Peter is now demanding that the tax deducted from his director’s
fees, for the board meetings held on 18 April and 16 May 2006, be refunded, on the grounds that, as he is no
longer resident in the UK, he is no longer liable to UK income tax. All of the company’s board meetings are held
at its offices in Cambridge.
Despite Peter’s assurance that none of the other companies of which he is a director has disputed his change of
tax status, Damian is uncertain whether he should make the refunds requested. However, as Peter is a friend of
the company’s founder, Linden Limited’s managing director is urging him to do so, stating that if the tax does
have to be paid, then Linden Limited could always bear the cost.
Required:
Advise Damian whether Peter is correct in his assertion regarding his tax position and in the case that there
is a UK tax liability the implications of the managing director’s suggestion. You are not required to consider
national insurance (NIC) issues. (4 marks)
第10题：
(b) For this part, assume today’s date is 1 May 2010.
Bill and Ben decided not to sell their company, and instead expanded the business themselves. Ben, however,
is now pursuing other interests, and is no longer involved with the day to day activities of Flower Limited. Bill
believes that the company would be better off without Ben as a voting shareholder, and wishes to buy Ben’s
shares. However, Bill does not have sufficient funds to buy the shares himself, and so is wondering if the
company could acquire the shares instead.
The proposed price for Ben’s shares would be ￡500,000. Both Bill and Ben pay income tax at the higher rate.
Required:
Write a letter to Ben:
(1) stating the income tax (IT) and/or capital gains tax (CGT) implications for Ben if Flower Limited were to
repurchase his 50% holding of ordinary shares, immediately in May 2010; and
(2) advising him of any available planning options that might improve this tax position. Clearly explain any
conditions which must be satisfied and quantify the tax savings which may result.
(13 marks)
Assume that the corporation tax rates for the financial year 2005 and the income tax rates and allowances
for the tax year 2005/06 apply throughout this question.
(b) [Ben’s address] [Firm’s address]
Dear Ben [Date]
A company purchase of own shares can be subject to capital gains treatment if certain conditions are satisfied. However, one
of these conditions is that the shares in question must have been held for a minimum period of five years. As at 1 May 2010,
your shares in Flower Limited have only been held for four years and ten months. As a result, the capital gains treatment will
not apply.
In the absence of capital gains treatment, the position on a company repurchase of its own shares is that the payment will
be treated as an income distribution (i.e. a dividend) in the hands of the recipient. The distribution element is calculated as
the proceeds received for the shares less the price paid for them. On the basis that the purchase price is ￡500,000, then the
element of distribution will be ￡499,500 (500,000 – 500). This would be taxed as follows:
