Tax- Additional questions

Which of the following best describes the tax status of individuals in employment law?

1. Individuals may be classified as employed, self-employed, or workers for tax purposes.

2. The status of ‘worker’ is recognized for both employment and tax purposes.

3. For tax purposes, individuals are classified as either employed or self-employed.

4. All individuals in the gig economy are classified as self-employed for tax purposes.

3. For tax purposes, individuals are classified as either employed or self-employed.

This is because the status of 'worker' is recognized under employment law but not for tax purposes. 5.2

Which of the following best describes the employment rights of ‘workers’?

1. They have the same rights as employees, including protection against unfair dismissal.

2. They are entitled to the national minimum wage, holiday pay, and paid rest breaks.

3. They have no employment rights whatsoever.

4. They are guaranteed all benefits provided under employment law.

2. They are entitled to the national minimum wage, holiday pay, and paid rest breaks.

This distinguishes 'workers' from both employees, who have broader rights, and self-employed individuals, who lack these entitlements. 5.2

Which of the following is not considered a badge of trade when determining whether a trade exists?

1. The subject matter of the transaction.

2. The frequency of transactions carried out.

3. The motive behind the transaction.

4. The tax rate applied to the profits from the transaction.

5. The length of ownership of the asset.

4.The tax rate applied to the profits from the transaction.

This is not considered a badge of trade. The badges of trade focus on elements like the subject matter, frequency of transactions, length of ownership, motive, supplementary work, and reason for sale. 5.2

Which of the following scenarios is most likely to indicate the existence of a trade based on the badges of trade?

1. An individual purchases a painting to enjoy in their home and later sells it for a profit due to rising market value.

2. A taxpayer sells an asset to raise cash for urgent home repairs following a storm.

3. A person buys a large quantity of an asset, works on it to improve its marketability, and sells it at a profit.

4. A company buys a building for long-term rental income and later decides to sell it after 10 years.

3. A person buys a large quantity of an asset, works on it to improve its marketability, and sells it at a profit.

This scenario aligns strongly with several badges of trade, including supplementary work and motive to generate profit, which are key indicators of a trading transaction. Option 4 is not considered a strong indicator of a trade because it aligns more with long-term investment rather than trading activity. Purchasing a building for rental income and holding it for 10 years before selling suggests the individual sought to generate passive income and benefit from capital appreciation over time. This aligns with investment motives rather than trading motives. 5.2

Sophia has received income of £2,200 from selling handmade jewellery. She incurred £600 of expenses. Assuming that Sophia elects not to take a deduction for her expenses, calculate the amount of taxable profit that she will need to report on this income.

1. £1,600

2. £2,200

3. £1,200

4. £600

3) £1,200

Here's how it's calculated: Sophia's trading income exceeds £1,000, so the trading allowance of £1,000 will be deducted from her total income of £2,200. This leaves a taxable profit of £1,200 (£2,200 - £1,000).

Question: Which of the following expenses is NOT eligible for tax relief according to specific rules in tax law?

1. Expenses incurred wholly and exclusively for the purposes of the trade

2. Gifts to employees provided they are not merely incidental to gifts for others

3. Costs incurred for general health and fitness

4. Entertainment provided as part of the trader’s usual trade to advertise to the public

The correct answer is 3. Costs incurred for general health and fitness.

5.3

Which of the following statements about tax relief for expenses is accurate?

1. Gifts to employees are always tax deductible, regardless of context.

2. Expenses incurred with duality of purpose may be partially deductible on a pro-rata basis.

3. Health and fitness costs are deductible if they also serve the purposes of the trade or profession.

4. Entertainment provided to clients is tax deductible under all circumstances.

The correct statement is 3. Expenses incurred with duality of purpose may be partially deductible on a pro-rata basis 5.3

Elliot leases a van, entering into a lease agreement on 1 August. The vehicle details are as follows for the year to 31 December:

• Ford Transit

• Lease cost per month = £450

• CO2 emissions = 168g/km

Based on these details, what is the disallowable lease cost that should be added back in the taxable trading profit computation for the year to 31 December?

£450 x 5 months = £2,250 x 15% = £337.5

Alex leases a car, entering into a lease agreement on 1 March. The car details are as follows for the year to 31 December:

• Toyota Prius

• Lease cost per month = £220

• CO2 emissions = 45g/km

Instructions: Calculate the disallowable lease costs which will be added back in the taxable trading profit computation for the year to 31 December.

No adjustment. CO2 emissions do not exceed 50g/km.

Which of the following deductions is specifically allowed under tax law?

1. Increase in a doubtful debts allowance based on a percentage of total trade receivables

2. Pension contributions made by the business on behalf of an employee, provided they are paid

3. Accrued employee pension contributions at the end of the accounting period

4. General health and fitness expenses for employees

The correct option is 2. Pension contributions made by the business on behalf of an employee, provided they are paid.

Chris runs a logistics business and leases a BMW car (CO2 emissions of 165g/km) for a total annual lease cost of £9,000. The car is used 70% for business purposes and 30% for personal use. Identify the amount that should be added back to the accounting profits to calculate taxable profits:

1. £2,700

2. £1,345

3. £3,645

4. £1,800

• Personal use disallowance: £9,000 × 30% = £2,700

• CO2 emissions restriction (business portion): £6,300 × 15% = £945

• Total addback: £2,700 + £945 = £3,645

3.5

Penelope is a sole trader. When calculating her trading profits, Penelope has deducted the following expenses:

• Gifts of chocolate hampers for 15 customers, costing £525 in total.

• Team lunch for four employees, costing £800 in total.

• Legal fees of £200 in respect to the acquisition of a 15-year lease of a property.

• Employee parking fine while on business of £50.

Calculate the amount that must be added back when calculating Penelope’s tax-adjusted trading profits

• Gifts of chocolate hampers: These are disallowed as they include food.
  Add back: £525

• Team lunch: No adjustment is required since the entertainment was provided to employees and was not incidental to entertainment for others.

• Legal fees: These are related to a capital item (acquisition of a lease), so they must be added back.
  Add back: £200

• Employee parking fine: No adjustment is necessary because the fine was incurred by the employee, not the business owner.

Total add-back: £525 + £200 = £725

Liam has been trading for several years as a sole trader and has a year-end of 30 June. His tax-adjusted trading profits are as follows:

• 30 June 2024: £28,000

• 30 June 2025: £35,000

Instructions: Calculate what Liam’s trading income figure for inclusion in his 2024/25 tax return would be.

1. Tax year 2024/25 includes:

   • 9 months of profits from the year ending 30 June 2024 (1 July 2023 – 5 April 2024):
     £28,000 × 9/12 = £21,000.

   • 3 months of profits from the year ending 30 June 2025 (6 April 2024 – 30 June 2024):
     £35,000 × 3/12 = £8,750.

2. Total trading income for inclusion in the 2024/25 tax return:
   £21,000 + £8,750 = £29,750.

Bella commenced her sole-trade business on 25 February 2025.  

Q1 What will be the first tax year in which Bella will be assessed for trading income?  

Q2 What will the basis period be in that year?

Q1 Bella starts her business in the tax year 2024/25, so this will be the first year that trading income will be allocated to the tax return.  

Q2 The basis period for trading profits for that tax return will be from 25 February 2025 to 5 April 2025. 5.4

Which ONE of the following statements is CORRECT:

a) A VAT registered business may claim capital allowances on the recoverable VAT element of capital expenditure

b) A business may claim capital allowances on the element of capital expenditure which is covered by a grant

c) A business may claim capital allowances on the cost of second hand assets

d) A business may claim capital allowances on the cost of assets which are part of the setting of the trade

6.1

The correct answer is c. 

A business may claim capital allowances on the cost of second hand assets. 

 

A business may only claim capital allowances on the actual cost of the capital expenditure to the business. Any VAT paid will normally be recoverable by a VAT registered business and does not represent a cost to the business. Neither does an asset which has been bought through a grant. Capital allowances are available on assets which have a function in a trade, rather than being part of the setting of the trade.

Which ONE of the following statements is CORRECT:

 Capital allowances may be claimed on:

a) assets used for business entertainment. 

b) the strengthening of a floor to install machinery

c) inventory

d) capital expenditure on the setting of a trade

6.1

The correct answer is b.

Capital allowances may be claimed on the alteration of a building to install plant and machinery.

A VAT registered business purchases qualifying plant and machinery for £1,200 + VAT. The current VAT rate is 20%. 

State the amount qualifying for capital allowances:

6.1

The correct answer is £1,200

As a VAT registered business, the cost to the business of the qualifying plant and machinery is £1,200. The VAT can be recovered from HMRC. Capital allowances will be available on the cost of the asset net of VAT.

A VAT registered company purchases a machine for £20,000 plus VAT at 20%. The company has to spend £1,500 plus VAT at 20% altering the building in order to install the machine, and gets a cash subsidy of £4,000 from a government department towards the purchase. The company is able to reclaim all of the VAT that it is charged on its purchases. 

Identify the amount of expenditure which will attract capital allowances:

a) £16,000

b) £17,500

c) £21,800

d) £25,800

6.1

The correct answer is b. 

The company will be able to claim capital allowances on the cost to the business of purchasing and installing the machine. This is the cost net of VAT less the cash subsidy from the government. (£20,000 + £1,500 - £4,000)

What happens to depreciation when calculating taxable trading profits?

1. It is deducted as an expense

2. It is added back and replaced with capital allowances

3. It is ignored in tax calculations

4. It is deducted twice for tax purposes

6.1

2. It is added back and replaced with capital allowances

Which of the following is NOT eligible for plant and machinery allowances?

1. Office furniture

2. IT equipment

3. Lift shafts

4. Vehicles used in the business

6.1

3. Lift shafts

What is the purpose of capital allowances?

1. To provide businesses with government funding

2. To allow businesses to deduct the net cost of a qualifying asset over time

3. To increase the taxable income of businesses

4. To standardize depreciation methods across industries

6.1

2. To allow businesses to deduct the net cost of a qualifying asset over time

According to case law, what key question helps determine if an asset qualifies for capital allowances?

1. Is the asset expensive?

2. Does the asset have a function in the trade?

3. Has the asset been fully paid for?

4. Is the asset owned by multiple businesses?

6.1

2. Does the asset have a function in the trade?

When can a business claim capital allowances on the full cost of an asset including VAT?

1. If the business is VAT registered

2. If the asset is a vehicle

3. If the business is not VAT registered

4. If the asset is second-hand

6.1

3. If the business is not VAT registered

Bobby draws up accounts for the 6-month period to 30 June. His capital allowances computation shows TWDV brought forward at 1 January of £48,399. He has no additions or disposals in the period.  

 

Use the table to help you calculate the allowances available to Bobby for the 6-month period to 30 June.

Bobby

Capital allowances – 6 months to 30 June

6.2

	£
TWDV b/f	48,399
Qualifying additions	-
Disposals	-
Qualifying for WDA	48,399
WDA @ 18% x 6/12	(4,356)
TWDV c/f	44,043

£4,356 will be claimed as a trading profit deduction in the computation of tax-adjusted trading profits. 

Riley buys a new machine costing £1,000 to use in his business during the 12 month period to 30 May. This qualifies for a WDA of 18%.

His TWDV brought forward at the start of the period is £13,000 in the main pool. 

Calculate the capital allowances available for the year (ignoring any possible AIA or FYA claims)

6.2

The correct answer is £2,520

	£
TWDV b/f	13,000
Qualifying additions	1,000
Disposals	-
Qualifying expenditure	14,000
WDA @ 18%	(2,520)
TWDV c/f	11,480

Carter buys a new computer to be used in his business. He purchases it for £1,500 during his seven month period of account to 31 August. This qualifies for a WDA of 18%.

Calculate the capital allowances that can be claimed on this asset (ignoring any possible AIA or FYA claims) 

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

6.2

The correct answer is £158.

£1,500 x 18% x 7/12 = £158

A business spent £1,550,000 on qualifying plant and machinery for the year to 31 March. The TWDV brought forward at 1 April is £375,000

 

Calculate the amount of capital allowances the business can claim in the year to 31 March. 

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

6.2

The correct answer is £1,166,500.

	AIA £	Main pool £	Total Allowances £
TWDV b/f	-	375,000
Additions	1,000,000	550,000
Disposals	-	-
Qualifying expenditure	1,000,000	925,000
AIA @ 100%	(1,000,000)	-	1,000,000
WDA @ 18%	-	(166,500)	166,500
TWDV c/f	nil	758,500
Total WDAs			1,166,500

Blake spent £550,000 on a new machine to use in his business during the five month period to 31 March. The machine is eligible for the annual investment allowance. Blake has no TWDV carried forward at the beginning of the period.

 

Calculate the capital allowances Blake can claim in the period to 31 March. 

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

6.2

The correct answer is £426,667.

This is a 5 month period of accounts. Both the AIA maximum and the WDA in the main pool will be pro-rated by 5/12.

 

	AIA £	Main pool £	Total Allowances £
TWDV b/f	-	-
Additions (£1,000,000 x 5/12)	416,667	133,333
Disposals	-	-
Qualifying expenditure	416,667	133,333
AIA @ 100%	(416,667)	-	416,667
WDA @ 18% x 5/12	-	(10,000)	10,000
TWDV c/f	nil	123,333
Total WDAs			426,667

 

AIA available: £1,000,000 x 5/12 = £416,667

 

£416,667 of the £550,000 is eligible for AIA of 100% and the remaining £133,333 is eligible for WDA of 18%. This is also pro-rated to 5 months: 18% x 5/12 = £10,000. Total capital allowances of (£10,000 + £416,667) £426,667 can be claimed. 

A company prepares accounts for the year to 31 December. On 1 January there is a TWDV balance brought forward of £135,500 in the main pool. The company purchases a car and some IT equipment: 

• A brand new Ford car for £65,000 with CO₂ emissions of 0g/km

• IT equipment £85,000

There have been no disposals in the year.

Calculate the maximum allowances available for the company for the year to 31 December.

6.3

The car is eligible for 100% FYA. The IT equipment will be eligible for AIA.

	AIA £	FYA £	Main pool £	Total  allowances £
TWDV b/f	-	-	135,500
Additions	85,000	65,000	-
Qualifying expenditure	85,000	65,000	135,500
AIA @ 100%	(85,000)	-	-	85,000
FYA @ 100%	-	(65,000)	-	65,000
WDA @ 18%	-	-	(24,390)	24,390
TWDV c/f	nil	nil	111,110
Total allowances				174,390

A company prepares accounts for the year to 31 August. On 1 January there is a TWDV balance brought forward of £270,000 in the main pool. The company purchases a car and two delivery vans: 

• A Fiat car for £55,000 with CO₂ emissions of 50g/km

• A VW van for £30,000 with CO₂ emissions of 0g/km

• A Renault van for £35,000 with CO₂ emissions of 40g/km

There have been no disposals in the year.

Calculate the maximum allowances available for the company for the year to 31 August.

 

6.3

The FIAT car is eligible for 18% WDA. The VW van is a zero-emissions vehicle and is eligible for 100% FYA. The Renault van is eligible for the AIA. 

	AIA £	FYA £	Main pool £	Total allowances £
TWDV b/f	-	-	270,000
Additions	35,000	30,000	55,000
Qualifying expenditure	35,000	30,000	325,000
AIA @ 100%	(35,000)	-	-	35,000
FYA @ 100%	-	(30,000)	-	30,000
WDA @ 18%	-	-	(58,500)	58,500
TWDV c/f	nil	nil	266,500
Total allowances				123,500

Daniel is self-employed. He prepares accounts for the year to 30 June.  

 

His TWDV at 1 July was £195,200. During the year he purchases machinery for £642,000 and a car with CO₂ emissions of 130g/km for £34,200. He also sells some old machinery (original cost £320,000) for £172,000.

 

Calculate the maximum capital allowances available.

6.3

The correct answer is £648,228.

The machinery is eligible for AIA. The car is eligible for WDA at 6% in the special rate pool.

The machinery which has been sold would originally have been placed in the main pool so the disposal proceeds are deducted from the same column.

 

	AIA £	Main pool £	Special rate pool £	Total WDA £
TWDV b/f	-	195,200	-
Additions	642,000	-	34,200
Disposals	-	(172,000)	-
Qualifying expenditure	642,000	23,200	34,200
AIA @ 100%	(642,000)	-	-	642,000
WDA @ 18%	-	(4,176)	-	4,176
WDA @ 6%	-	-	(2,052)	2,052
TWDV c/f	nil	19,024	32,148
Total allowances				648,228

Daniel prepares accounts for the 6-month period to 30 June.  

 

His TWDV at 1 January was £195,200. During the year he purchases machinery for £642,000 and a car with CO₂ emissions of 130g/km for £34,200. He also sells some old machinery (original cost £320,000) for £172,000.

 

Calculate the maximum capital allowances available.

6.3

The machinery is eligible for AIA. The car is eligible for WDA at 6% in the special rate pool.

The machinery which has been sold would originally have been placed in the main pool so the disposal proceeds are deducted from the same column.

 

The AIA maximum available will be pro-rated for a 6 month accounting period = £1m x 6/12 = £500,000. The balance of the machinery addition will be placed in the main pool and written down at 18%.

 

The main pool and the special rate pool allowances will also be pro-rated for a 6 month period.

 

	AIA £	Main pool £	Special rate pool £	Total WDA £
TWDV b/f	-	195,200	-
Additions	500,000	142,000	34,200
Disposals	-	(172,000)	-
Qualifying expenditure	500,000	165,200	34,200
AIA @ 100%	(500,000)	-	-	500,000
WDA @ 18% x 6/12	-	(14,868)	-	14,868
WDA @ 6% x 6/12	-	-	(1,026)	1,026
TWDV c/f	nil	150,332	33,174
Total allowances				515,894

Kevin decides to start a sole trade business. Prior to this, he has already spent £1,000 on a laptop and £3,400 on office furniture for the business.

Once he has started trading, he spends £15,000 on a second hand car (CO₂ emissions 80g/km) which he will use 90% for his trade.

Calculate the maximum capital allowances available to Kevin for the year ended 31 March:

a) £810

b) £5,210

c) £5,300

d) £6,830

6.3

The correct answer is b.

Kevin can claim capital allowances on the laptop and office furniture purchased before he started trading. This is qualifying pre-trading expenditure and is treated as being purchased on the first day of trading for the purposes of capital allowances. AIA will cover this expenditure.

The CO₂ emissions level of the car means that it will receive capital allowances at 6%. The allowances claimed will be restricted to the business use percentage of 90%.

	AIA £	Part-trade asset £	Total allowances £
TWDV b/f	-	-
Additions
Pre-trading expenditure	4,400
Car	-	15,000
Qualifying expenditure	4,400	15,000
AIA @ 100%	(4,400)	-	4,400
WDA @ 6%	-	(900)	810	(90%)
TWDV c/f	nil	14,100
Total allowances			5,210

Jack is self-employed. He purchases four vehicles for his business in the year to 30 April. Jack's employees use the vehicles as follows:

The four vehicles are:

Vehicle	CO2 emissions	Use	Cost
Delivery van	160g/km	50% personal use by Jack, 50% business use	£30,000
Peugeot car	10g/km	100% business use by Jack	£35,000
Volvo car	0g/km	15% personal use by employee, 85% business use	£38,000
Audi car	85g/km	20% personal use by employee, 80% business use	£44,000

Which ONE vehicle qualifies for the LOWEST amount of capital allowances in the year of purchase:

a) Delivery van

b) Peugeot car

c) Volvo car

d) Audi car

The correct answer is d.

The allowances for each vehicle are as follows:

The delivery van is not a car, therefore, the business can claim AIA of 100% but this will be restricted to 50% business use by Jack as the owner of the business: £30,000 x 100% x 50% = £15,000.

The Peugeot car is eligible for 18% WDA: £35,000 x 18% = £6,300.

Volvo qualifies for 100% FYA as an ultra low emission car. There is no restriction for private use by an employee: £18,000 x 100% = £38,000.

Audi qualifies for 6% WDA. There is no restriction for private use by an employee: £44,000 x 6% = £2,640.

None of the three cars can use the AIA. The Audi will be eligible for the lowest amount of capital allowances.

Jamie has the following tax-adjusted trading results for his business: 

Year ended	£
31 March 2025	(14,000)
31 March 2026	40,000

Jamie also receives dividends of £12,000 each year from his share portfolio. 

 

Calculate the loss left to carry forward to 2025/26 if Jamie decides to make a current year claim. 

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

7.2

The correct answer is £2,000.

	2024/25 £	2025/26 £
Trading income	nil	40,000
C/fwd loss	-	(2,000)
Dividend income	12,000	12,000
Total income	12,000	50,000
CY claim	(12,000)	-
PY claim	-	-
Net income	nil	50,000
Personal allowance	-	(12,570)
Taxable income	-	37,430

Loss memo

	£
Available loss of 2024/25	14,000
CY claim - 2024/25	(12,000)
Loss to c/fwd – 2025/26	2,000

Which of the following statements is/are CORRECT:

1. A current year trading loss claim is deducted from total income.   

2. A prior year trading loss claim is deducted from total income.  

3. A partial loss claim can be made for a tax year to avoid wasting the personal allowance.

a) 1 only

b) 1 and 2 only

c) 1 and 3 only

d) 2 and 3 only

The correct answer is b. 

A current year and a prior year trading loss claim are both deducted from total income.  It is not possible to make a partial loss claim to avoid wasting the personal allowance.

Which ONE of the following statements is correct:

a) A current year claim must always be made before a prior year claim

b) The largest saving possible from a prior year trading loss claim is where it has been offset against income which otherwise would have been taxed at the higher rate of tax

c) A carried forward loss will roll forward indefinitely to be offset against profits from the same trade  

d) A carry forward loss claim must be made by the anniversary of 31 January following the tax year of the loss.

7.2

The correct answer is c. 

A carried forward loss will roll forward indefinitely to be offset against profits from the same trade.

Trading loss claims may be made in any order. The largest saving possible from a prior year trading loss claim is where it has been offset against income which otherwise would have been taxed at the additional rate of tax. A carry forward loss claim is automatic. 

The claim to establish the amount of the loss must be made no later than 4 years from the end of the tax year in which the loss arose.

Eva is self-employed, and makes a trading loss of £110,000, after having made a trading profit of £24,000 in the previous tax year. She had employment income of £92,000 for the previous tax year.   

What is the maximum loss relief claim which Eva can make against her total income for the previous tax year?

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

10.2

The correct answer is £74,000.

The maximum loss Eva can claim against non-trading income is the higher of £50,000 and 25% of her total income = £29,000 (25% x (£24,000 + £92,000))

Eva may claim £50,000 of loss against her non trading income. In this case, this is her employment income.

There is no restriction on the amount of loss which may be claimed against trading income.

The maximum loss relief claim is £74,000 (£24,000 + £50,000).

Muhammed has a tax adjusted trading loss of £80,000 for the current tax year. He also has £95,000 of property income and £25,000 of dividend income from a share portfolio.

Muhammed has decided to claim the trading loss in the current year.

Calculate the trading loss remaining after the current year claim.

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

7.2

The correct answer is £30,000.

The current year trading loss claim will be restricted to the higher of £50,000 and 25% of Muhammed’s total income = £30,000 (25% x (£95,000 + 25,000). The trading loss will be restricted to £50,000.

Loss memo

	£
Loss available	80,000
CY claim (restricted)	50,000
Loss remaining	30,000

Lee makes up accounts each year to 31 March. His latest agreed tax-adjusted trading loss for the year ending 31 March 2025 is £23,000 and his estimated profit for the year ending 31 March 2026 is £33,600.  
 
Lee also has a portfolio of shares in UK companies, giving him a dividend income of:  

2024/25	£25,000
2025/26	£20,000

    

Calculate the final tax payable for 2024/25, assuming a current year claim is made in 2024/25 (ignoring any prior year claims).

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

10.2

The trading loss for the year ended 31 March 2025 is the trading loss of the 2024/25 tax year.

	£
Trading income	nil
Dividend income	25,000
Total income	25,000
CY claim	(23,000)
Net income	2,000
Personal allowance	(2,000)
Taxable income	nil

Chen has the following tax-adjusted trading results for her sole-trade business: 

Year ended:	£
31 March 2024	37,000
31 March 2025	18,000
31 March 2026	(40,000)

    

In all of the above years, Chen also received dividend income of £4,800.  
 

Calculate the amount of loss from tax year 2025/26 left to carry forward to 2026/27 if Chen decides to use the loss as early as possible. 

10.2

The loss for 2025/26 is £40,000. Chen has decided to make a prior year claim only. The loss will be carried back to 2024/25 and used against £18,000 of trading income and £4,800 of dividend income. No current year claim will be made because the dividend income of £4,800 will be covered by the personal allowance. The balance of the loss remaining will be carried forward against the first available trading income from the same trade in future years.

Loss memo

	£
Available loss 2025/26	40,000
PY claim 2024/25	(22,800)	(£18,000 + £4,800)
Remaining loss to C/fwd	17,200

Poppy’s recent trading results are:    

	£
Year to 31 March 2024	8,900
Year to 31 March 2025	(52,900)
Year to 31 March 2026 (estimate)	28,000

    

Poppy also has dividend income of £3,000 each year.    

 

In 2023/24, Poppy made a capital gain of £29,000.  She has a capital loss brought forward of £5,600. 

    

Calculate the remaining loss left after Poppy has made a claim to use the trading loss against capital gains of the previous year.    

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

The correct answer is £17,600.

The claim to use the loss against capital gains may only be made once a claim against total income has been made for the same tax year. This will be a prior year claim. 

 

In the prior tax year, Poppy has total income of £11,900 (£8,900 + £3,000).

 

The maximum loss which can be offset against the capital gains is the lower of 

• the available loss once a claim has been made against total income = £41,000 (£52,900 – £11,900)

• net capital gains, deducting both current and brought forward capital losses = £23,400 (£29,000 - £5,600)

£23,400 of trading loss may be used against Poppy’s capital gain in the previous year.

Loss memo

	£
Available loss	52,900
PY claim	(11,900)
Claim against PY capital gain	(23,400)
Remaining loss available	17,600

Bonnie has been trading for many years and draws up accounts to 31 March each year. 

Bonnie’s recent trading results are:  

	£
Year to 31 March 2023	4,000
Year to 31 March 2024	8,900
Year to 31 March 2025	(61,700)
Year to 31 March 2026 (estimate)	3,240

    

Bonnie also has property income of £1,850 each year.  
In 2024/25, Bonnie made a capital gain of £19,850.    
  
Calculate the remaining loss left after making a claim to use the trading loss against capital gains of 2024/25.

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

7.2

The claim to use the loss against capital gains may only be made once a claim against total income has been made for the same tax year. This will be a current year claim. In 2024/25 Bonnie has total income of £1,850

Loss memo

	£
Available loss 2024/25	61,700
CY claim 2024/25	(1,850)
Claim against CY capital gain	(19,850)
Remaining loss available	40,000

Mason has been trading as a sole trader for many years, with adjusted trading profits/(losses) being: 

Year ended 31 March 2024	£55,000
Year ended 31 March 2025	£(90,000)

Mason also receives bank interest of £14,000 each tax year. 

Calculate the amount of trading loss carried forward to the next tax year, assuming that Mason makes a claim to use the loss in the current and prior tax years. 

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

7.2

Mason has a trading loss for the 2024/25 tax year. His total income in that year is £14,000 of bank interest. In the previous tax year Mason has £14,000 of bank interest plus £55,000 of adjusted trading profit giving him total income of £69,000 in the previous tax year. A loss claim in respect of the current year uses £14,000 of the loss and in respect of the previous year uses £69,000 of the loss. There is therefore £90,000 - £14,000 - £69,000 = £7,000 of loss remaining to carry forward. This is shown in the loss memo as

Loss memo

	£
Available loss 2024/25	90,000
CY claim 2024/25	(14,000)
PY claim 2023/24	(69,000)	(£55,000 + £14,000)
Remaining loss to C/fwd	7,000

Johnny is a sole trader who has the following tax adjusted results:

	£
Current tax year: Trading Loss	(15,500)
Previous tax year: Trading income	13,000

Johnny has claimed capital allowances in the current tax year of £7,400 which is included within the £15,500 trading loss.

Johnny also has property income of £8,000 a year from his investment property.

Johnny intends to make a prior year trading loss claim.

Calculate the amount of the prior year trading loss claim which will let Johnny maximise his personal allowance.

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

7.2

The correct answer is £8,430.

Johnny needs to have net income of £12,570 to maximise the use of his personal allowance. With total income before loss claims of £21,000 this means that his loss claim cannot be any more than £8,430.

	£
Trading income	13,000
Property income	8,000
Total income	21,000
PY claim	(8,430)
Net income	12,570
Personal allowance	(12,570)
Taxable income	nil

Identify which classes of NICs an employer would be liable for in respect of its employees:

a) Class 1 NICs only

b) Class 1 and Class 1A NICs only

c) Class 1 and Class 1A and Class 1B NICs only

d) Class 3 NICs only

8.1

The correct answer is c.

Voluntary Class 3 NICs are paid by individuals directly to HMRC.  

Class 1, Class 1A and Class 1B NICs are the liability of employers in respect of their employees.

Is the following statement TRUE or FALSE?

Class 1A NICs are payable by employees at a flat rate.

a) True

b) False

8.1

The correct answer is b.

The statement is FALSE.

Class 1A NICs are payable by the employer at a flat rate.

Which of the following statements are correct?

a) Class 1 NICs are paid to HMRC using the PAYE system.

b) Class 4 NICs are paid monthly by the self-employed.

c) Employers are liable for NICS in respect of taxable employment benefits provided to their employees under Class 1.

d) Only employees can make Voluntary Class 3 NICs to maintain their entitlements to benefits.

8.1

The correct answer is a.

Class 4 NICs are settled under the income tax payment on account rules for the self-employed.

Taxable employment benefits are subject to NICs under either Class 1A or Class 1B.

Any individual is able to make Voluntary Class 3 NICs.

Identify which TWO of the following statements in relation to NICs are CORRECT .

• a) Class 3 NICs are compulsory.

• b) If salary is paid weekly, then Class 1 primary NICs are declared to HMRC weekly and paid to HMRC monthly.

• c) If salary is paid weekly, then Class 1 primary NICs are declared to HMRC weekly and paid to HMRC weekly.

• d) The balance Class 4 NICs is payable on 31 January after the end of the tax year.

8.1

The correct answers are b and d.

Class 3 NICs are voluntary.

If salaries are paid weekly then Class 1 primary NIC is declared to HMRC in accordance with the weekly payment cycle. However, it is payable to HMRC monthly along with employer Class 1 secondary NIC and income tax deducted under PAYE.

Class 4 NICs re paid via payments on account, with the balancing amount for a particular tax year due on 31 January following the end of the tax year.

Chang is an employee of A Ltd. He earns £15,600 basic salary in the tax year paid weekly and receives a bonus of £7,000 on 30 June in the tax year.

 
Calculate his Class 1 primary NICs for the 2024/25 tax year.

a) £241.28

b) £421.30

c) £555.26

d) 802.4

8.2

Chang will earn £300 per week (£15,600 / 52) for 51 weeks of the year. In the week in which he receives his bonus his earnings will be £7,300.
 

	£	£
51 weeks of earnings between the PT and UEL:
51 x (£300 - £242) x 8% = 51 weeks x £4.64		236.64
1 week’s earnings including the bonus:
The earnings need to be split as follows:
1 x (£967 - £242) x 8%	58.00
1 x (£7,300 - £967) x 2%	126.66
		184.66
Total Class 1 primary NICs		421.30

In the week the bonus is received, the earnings liable to NICs at 8% are capped at £967 (Upper Earnings Limit). The excess over £967 is liable to NICs at 2%.

Chang is an employee of A Ltd. He earns £15,600 basic salary in the tax year paid weekly and receives a bonus of £7,000 on 30 June in the tax year.

What would change about the calculation if Chang were a director of A Ltd? 
Calculate his Class 1 primary NICs if he were a director of A Ltd in the 2024/25 tax year.

a) £242.40

b) £421.30

c) £555.26

d) 802.40

8.2

Class 1 primary NICs – director so use annual limits.
 

((£15,600 + £7,000) - £12,570)) x 8%

£802.40

Chang has annual earnings below the annual UEL so no amount is subject to the 2% rate.

Chang earns an annual £15,600 basic salary paid weekly and receives a bonus of £7,000 on 30 June in the tax year.

Calculate the Class 1 secondary NICs payable by A Ltd in respect of Chang’s employment for the 2024/25 tax year.

a) £421.30

b) £897.00

c) £1,080.00

d) £1,863.00

8.2

Secondary contributions have no upper limit.

	£
51 weeks of earnings above the ST:
51 x (£300- £175) x 13.8% = 51 x £17.25	879.75
Earnings for week of bonus payment:
1 x (£7,300 - £175) x 13.8%	983.25
Total Class 1 secondary NICs	1,863.00

Oscar is an employee who earns £4,223 per month.

Calculate his Class 1 primary NICs liability for the tax year.

a) £3,015.36

b) £3,023.52

c) £3,048.00

d) £4,029.60

8.2

Oscar’s Class 1 primary NICs are calculated as:

	£
Between PT and UEL: (£4,189 - £1,048) x 8%	251.28
Above UEL: (£4,223 - £4,189) x 2%	0.68
Monthly Class 1 primary NICs	251.96
Total Class 1 primary NICs for the year: £251.96 x 12	£3,023.52

Oscar is an employee who earns £4,223 per month.

Calculate his employers Class 1 secondary NICs liability for the tax year.

a) £3,326.40

b) £5,209.66

c) £5,738.04

d) £6,993.29

8.2

The correct answer is c.

Oscar’s employer’s Class 1 secondary NICs are calculated as:

[(£4,223 - £758) x 13.8%] = £478.17 x 12 = £5,738.04

Lily is employed and earns £25,000 in the tax year. In addition to her salary, she receives a cash bonus of £1,000 in March of the tax year. She is entitled to the use of a company car with a taxable benefit value of £2,500 and receives private medical insurance which costs her employer £1,000 per annum.

Which elements of Lily's remuneration will give rise to a Class 1A NICs liability?

a) Class 1A  secondary NICs will be due on Lily’s benefits

b) Class 1A secondary NICs will be due on Lily’s benefits and cash bonus.

c) Class 1A secondary NICs will be due on Lily’s benefits,  salary, and cash bonus.

8.2

The correct answer is a.

Lily’s employer is liable for Class 1A NICs on Lily’s company car and private medical insurance benefits only. Her employer is also liable for Class 1 secondary NICs on Lily’s salary and cash bonus.

Lily is employed and earns £25,000 in the tax year. In addition to her salary, she receives a cash bonus of £1,000 in March of the tax year. She is entitled to the use of a company car with a taxable benefit value of £2,500 and receives private medical insurance which costs her employer £1,000 per annum.

Calculate the Class 1A NICs liability payable by Lily’s employer for the tax year.

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number

2.8

The correct answer is £483.00.

Class 1A NICs will be due to be paid by Lily’s employer on the values of the car and private medical insurance benefits.  

There is no threshold for Class 1A NICs. Therefore, the amount due is £483.00 ((£2,500 + £1,000) x 13.8%).  

Harry earned a monthly salary of £3,603 during the whole tax year.

His employer paid for Harry’s private medical insurance, which cost £3,500 in the year, and provided him with a company car benefit which has a taxable value of £8,000. Harry also received incidental staff welfare benefits during the year worth £2,400 which his employer has agreed will be subject to a PSA.

Harry has no other income

Calculate the Class 1 primary NICs liability for the tax year 2024/25 in respect of Harry’s remuneration from his employment.

a) £2,452.80

b) £2,644.80

c) £2,732.80

d) £3,458.88

8.2

The correct answer is a.

Harry has a Class 1 primary NICs liability on his cash earnings ie his salary.

The monthly NICs liability is (£3,603 - £1,048) x 8% = £204.40. The liability for the year is 12 x £204.40 = £2,452.80.

Harry earned a monthly salary of £3,603 during the whole tax year.

His employer paid for Harry’s private medical insurance, which cost £3,500 in the year, and provided him with a company car benefit which has a taxable value of £8,000. Harry also received incidental staff welfare benefits during the year worth £2,400 which his employer has agreed will be subject to a PSA.

Harry has no other income.

Calculate the Class 1 secondary NICs liability for the tax year 2024/25 in respect of Harry’s remuneration from his employment.

a) £2,731.20

b) £4,321.08

c) £4,711.32

8.2

The correct answer is c.

Harry’s employer has a Class 1 secondary NICs liability on his cash earnings ie his salary.

The monthly NICs liability is (£3,603-£758) x 13.8% = £392.61. The liability for the year is 12 x £392.61 = £4,711.32.

Harry earned a monthly salary of £3,603 during the whole tax year.

His employer paid for Harry’s private medical insurance, which cost £3,500 in the year, and provided him with a company car benefit which has a taxable value of £8,000. Harry also received incidental staff welfare benefits during the year worth £2,400 which his employer has agreed will be subject to a PSA.

Harry has no other income.

Calculate the Class 1A NICs liability for the tax year 2024/25 in respect of Harry’s remuneration from his employment.

a) £483.00

b) £1,104.00

c) £1,587.00

d) £1,918.20

8.2

The correct answer is c.

Harry’s employer has a Class 1A NICs liability on the non-cash taxable employment benefits not included in the PSA ie the private medical insurance and the company car. There is no upper limit for Class 1A NICs.

The liability is: (£3,500 + £8,000) x 13.8% = £1,587.00.

Harry earned a monthly salary of £3,603 during the whole tax year.

His employer paid for Harry’s private medical insurance, which cost £3,500 in the year, and provided him with a company car benefit which has a taxable value of £8,000. Harry also received incidental staff welfare benefits during the year worth £2,400 which his employer has agreed will be subject to a PSA.

Harry has no other income

Calculate the Class 1B NICs liability for the tax year 2024/25 in respect of Harry’s remuneration from his employment.

a) £320.00

b) £331.20

c) £463.68

d) £552.00

8.2

The correct answer is d.

Harry’s employer has a Class 1B NICs liability on the non-cash taxable employment benefits included in the PSA ie the incidental staff welfare benefits. There is no upper limit for Class 1B NICs.

Harry’s employment income is (12 x £3,603) + £3,500 + £8,000 = £54,736. The benefits that will be covered by the PSA are not included in Harry’s employment income. After the personal allowance, Harry has taxable income of £42,166 and is therefore a higher rate taxpayer for 2024/25.

	£	£
Value of taxable employee benefits covered by PSA		2,400
Income tax at 40% of £2,400	960
Grossed-up amount of income tax (£480 x 100/60) included in PSA		1,600
Total amount subject to Class 1B NICs		4,000
Class 1B NICs due (£4,000 x 13.8%)		552.00

OR: £2,400 x 100/60 = £4,000 x 13.8% = £552.00

Mia is self-employed and has trading profits of £66,000 in the 2024/25 tax year. She was only trading for 6 months (26 weeks) in the year.   

Calculate Mia’s Class 4 NICs liability.

a) £1,068.60

b) £2,576.60

c) £3,205.80

d) £3,330.80

3.8

Identify whether the following statement is TRUE or FALSE: 

 

Class 4 NICs are paid together with income tax payments on account via self-assessment on 31 January during the tax year and 31 July after the tax year. 

a) True

b) False

8.3

The correct answer is a.

This statement is true.

Mia is self-employed and has trading profits of £66,000 in the 2024/25 tax year. She was only trading for 6 months (26 weeks) in the year.   

Calculate Mia’s Class 4 NICs liability.

a) £1,068.60

b) £2,576.60

c) £3,205.80

d) £3,330.80

8.3

The correct answer is b.

Class 4 NICs liability = [(£50,270 - £12,570) x 6% + (£66,000 - £50,270) x 2%] = £2,576.60.

Identify the basis on which the following types of income, gains or expense will be allocated to a chargeable accounting period:

Chargeable gains

a) Accruals

b) Actual

The correct answer is b

11.1

Identify the basis on which the following types of income, gains or expense will be allocated to a chargeable accounting period:

Qualifying charitable donations

a) Accruals

b) Actual

The correct answer is b

11.1

Identify the basis on which the following types of income, gains or expense will be allocated to a chargeable accounting period:

Property income

a) Accruals

b) Actual

The correct answer is a

11.1

Which of the following statements correctly describes the process when a company has a 14-month long period of account?

a) The tax-adjusted trading profit after capital allowances is calculated for the period of account and then time apportioned (12/14 : 2/14) across the two CAPs.

b) The tax-adjusted trading profits before capital allowances are calculated for the period of account and then time apportioned to the CAPs. Capital allowances are calculated for the period of account with WDAs being scaled up by 14/12.

c) The tax-adjusted trading profit before capital allowances and the capital allowances are calculated for each chargeable accounting period separately.

d) The tax-adjusted trading profits before capital allowances are calculated for the period of account and then time apportioned (12/14 : 2/14) across the two CAPs. Capital allowances are calculated for each CAP separately and then deducted from the apportioned amount of adjusted profits allocated to each CAP

The correct answer is d

The tax-adjusted trading profits before capital allowances are calculated for the long period of account and then time apportioned across the two CAPs. Capital allowances are calculated for each CAP separately and then deducted from the apportioned amount of adjusted profits allocated to each CAP.

Which of the following statements about the calculation of tax-adjusted trading profits for a company is TRUE?

a) A company must disallow the expenditure it incurs to reimburse an employee for their private expenses.

b) A company can deduct dividends paid in the adjustments of profits process.

c) Where a company has provided cars for the private use of the directors, these will be in their own pool in the capital allowances computation.

d) A company must make an adjustment for a doubtful debt provision, which is not calculated in accordance with GAAP.

11.2

The correct answer is d. 

Private expenses of employees are deductible to the company and will be dealt with for the employee under the employment income rules. There is no adjustment to profit before tax.

Dividends paid reduce the profit after tax in the accounts and therefore do not require adjustment when calculating tax-adjusted trading profits.

The cars owned by the company and made available for private use by the directors are not treated as separate assets for company capital allowances calculations. There is no restriction to the allowances for the company and the private use is dealt with in the directors’ income tax computation under the employment income rules.

A company purchases a car at a cost of £133,333 which is not eligible for the zero emissions first-year allowance in the 8-month CAP to 31 December. The car is eligible for the 18% WDA  in the main pool. It is made available to an employee for use in their employment and for their own private purposes. The employee uses the asset 35% of the time privately.

What capital allowances are available for the company in the CAP of purchase?

a) £10,400

b) £15,600

c) £16,000

d) £24,000

11.2

The correct answer is c. 

The allowances available to the company are not restricted for the private use, however, they must be scaled down as the CAP of purchase is 8 months long. The allowances are therefore £133,333 X 18% = £24,000 x 8/12 = £16,000.

Is the following statement TRUE or FALSE?

 

Companies can have full expensing of the cost of qualifying plant and machinery at 100%, so will never need to use the annual investment allowance.

a) True

b) False

11.2

The statement is FALSE. 

Expenditure on qualifying plant and machinery which is in the special rate pool is given an FYA at 50% under the full expensing rules. Therefore, the AIA is still beneficial as it can give capital allowances at 100% on such expenditure up to the £1,000,000 limit.

Is the following statement TRUE or FALSE?

 

The full expensing rules cover qualifying expenditure on plant and machinery by companies up to an annual limit of £1,000,000.

a) True

b) False

11.2

The statement is FALSE. 

Only the 100% relief under the annual investment allowance is capped at £1,000,000 per annum.

Is the following statement TRUE or FALSE?

 

A company must scale down the 100% or 50% first-year allowances available under the full expensing rules when the expenditure is incurred in a CAP which is shorter than 12 months.

a) True

b) False

11.2

The statement is FALSE. 

As first-year allowances, the amounts available under the full expensing rules are not scaled down for short CAPs.

Sandringham Ltd has bought qualifying plant and machinery costing £2,750,000 during the year to 31 March. All of these were integral features and there were no other purchases during the period. 

Calculate the most beneficial claim for capital allowances possible in the period of purchase for these assets:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £1,875,000.

Expenditure on integral features is put into the special rate pool. These are eligible for a 50% FYA in the year of purchase. However, where the company has not used the £1,000,000 AIA for the period, it is more beneficial to use this up to the limit on this expenditure. The allowances are therefore £1,875,000 (£1,000,000 x 100% (AIA) + £1,750,000 x 50% (FYA)). 

£875,000 of the remaining expenditure is transferred to the special rate pool and will be eligible for WDA at 6% per annum in future CAPs.

A company purchases qualifying plant and machinery for £645,000 and claims 100% FYA under the full expensing rules. It sells these assets in a later period for £625,000.

Is the following statement TRUE or FALSE?

 

The company will add back a balancing charge amount of £625,000 when it calculates its tax-adjusted trading profits for the period of disposal.

a) True

b) False

11.2

This statement is TRUE. 

A balancing charge equal to the lower of cost (£625,000) and disposal proceeds (£645,000) arises and is added back in the calculation of tax-adjusted trading profits for the company.

Balmoral Ltd purchased integral features costing £350,000 and claimed the 50% FYA in the year of purchase. The AIA was used up against other expenditure in the period. It also purchased qualifying plant and machinery for £825,000, claiming 100% FYA on that expenditure. The company then sold all of these assets for £300,000 and £850,000 respectively in a later CAP (all disposals happened in the same CAP).

Instructions: Calculate the total balancing charge that must be added back in the calculation of tax-adjusted trading profits in the CAP of disposal:

11.2

The correct answer is £975,000.

A balancing charge equal to the lower of proceeds and cost arises where the full expensing FYAs have been claimed and the assets are later sold. Where 100% allowances have been claimed, the full amount is a balancing charge. Where 50% allowances have been claimed, 50% of the amount is added back, while the other 50% is deducted from the special rate pool.

In this case, the total balancing charge is £975,000 (825,000 + (50% x £300,000)).

Marchmain Ltd is a trading company with a bank deposit account and two loans with the same bank. The first loan was taken out to renovate their business offices and the second loan was taken out in order to buy a small commercial property which is rented out by the company as an investment. 

The results for the company for the most recent year to December are shown below:

	£
Expenditure disallowed by law	10,000
Interest receivable on bank deposit	25,000
Interest payable on loan for renovation	32,000
Interest payable on loan to buy commercial property	17,500
Net property income from commercial letting	63,000
Donation to charity	23,000

All of the above are included in the profit before tax for the period, which is £245,000. There was £4,500 of the charity donation accrued but not paid at the year end. An amount of £2,700 was accrued at the end of the previous period and paid to the charity in the current CAP.

 

In order to calculate the trading income, the disallowed and non-trade items must be adjusted:

11.2

	£
Profit before tax per accounts	245,000
Add: items disallowed by law	10,000
Add: items deductible elsewhere
Interest payable on non-trade loan	17.500
Donation to charity per accounts	23,000
Subtract: items taxable elsewhere
Interest receivable on non-trade loan	(25,000)
Net property income	(63,000)
Adjusted trading profit before capital allowances	207,500

The amount included in the corporation tax computation for non-trading loans is:

	£
Non-trading loan income	25,000
Non-trading loan expense	(17,500)
Non-trade loan income (net amount)	7,500

 

 

The qualifying charitable donation amount paid during the year is £21,200 (£23,000 – £4,500 + £2,700). 

 

The company’s corporation tax computation will be:

Corporation tax computation

	£
Trading income	207,500
Property income	63,000
Non-trade loan relationships income	7,500
Total profits	278,000
Less qualifying charitable donations (QCDs)	(21,200)
Taxable total profits (TTP)	256,800

Generous Limited makes several charitable donations and draws up accounts to 31 December each year. The total charitable donation in recent accounts was made up as follows:

31 December 2024	£	£
Donation paid – 15 May 2024	7,000
Donation paid – 30 November 2024	7,200
Year-end accrual – paid 5 January 2025	1,700	15,900
31 December 2025	£	£
Reversal of prior year accrual	(1,700)
Donation paid – 5 January 2025	1,700
Donation paid – 19 May 2025	6,100
Donation paid – 30 November 2024	7,000	13,100

Instructions: Calculate how these figures should be treated in the corporation tax computations.

11.2

qualifying charitable donations (QCDs)

Year to 31 December 2024

Remove the statement of profit or loss charge from trading income by adding back the charge. Then, claim relief for charitable donations actually paid in the year as a QCD.

Adjustment required when calculating trading income = add £15,900

QCD = £14,200 (£7,000 + £7,200)

Year to 31 December 2025

Remove the statement of profit or loss charge from trading income by adding back the charge. Then, claim relief for charitable donations actually paid in the year as a QCD.

Adjustment required when calculating trading income = add £13,100

QCD = £14,800 (£1,700 + £6,100 + £7,000)

Carter Ltd sells a chargeable asset during the chargeable accounting period to last December. There were sale proceeds of £645,000, legal fees incurred in connection with the sale of £7,500 and the asset cost £224,000 in September 1993. 

The indexation factor for the period from September 1993 to 31 December 2017 is 0.96.

The indexed chargeable gain is calculated-

11.2

The indexed chargeable gain is calculated as shown:

	£
Sales proceeds	645,000
Less: incidental costs of sale	(7,500)
Net sale proceeds	637,500
Allowable costs	(224,000)
Unindexed gain	413,500
Indexation allowance (0.96 x £224,000)	(215,040)
Chargeable gain	198,460

The amount of £198,460 is included in Carter’s taxable total profits for the chargeable accounting period and will be charged to corporation tax.

Chargeable gain
Walton Ltd sells a chargeable asset on 31 July in the current chargeable accounting period for £35,000 but incurs auction fees of £400. The indexation factor for the period from May 1986 to 31 December 2017 is 1.842. 

The company had acquired the asset on 1 May 1986 for £9,000 and incurred £1,000 of legal costs.

Calculate the chargeable gain:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £6,180.

	£
Sales proceeds	35,000
Less: incidental costs of sale	(400)
Net sale proceeds	34,600
Allowable costs	(10,000)
Unindexed gain	24,600
Indexation allowance (1.842 x £10,000)	(18,420)
Chargeable gain	6,180

Forest Ltd is considering selling a property. The company acquired the property in August 1990 for £1,000,000 and the sale proceeds are likely to be one of three results: 

1. £3,000,000

2. £1,200,000

3. £800,000

The indexation factor from August 1990 to December 2017 is 1.171.  

Calculate the gain/loss after indexation in each of the above cases.

11.2

	(1)	(2)	(3)
	£	£	£
Proceeds	3,000,000	1,200,000	800,000
Cost	(1,000,000)	(1,000,000)	(1,000,000)
Unindexed gain/loss	2,000,000	200,000	(200,000)
Indexation allowance (1.171 x £1,000,000)	(1,171,000)	(200,000)	0
Chargeable gain/allowable loss	829,000	0	(200,000)

 

1. Full indexation allowance available

2. Restricted to £200,000 so as not to create a loss

3. No allowance available – unindexed loss

Parkin plc bought a factory in November 1987 for £160,000 and incurred a stamp duty land tax charge of £1,600. The company spent £50,000 on capital improvements in May 1989 and sold the factory for £650,000 in October 2022.

The indexation factor from November 1987 to December 2017 is 1.690. The indexation factor from May 1989 to December 2017 is 1.418. 

Calculate the chargeable gain on the sale of the factory:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £94,396.

	£
Sale proceeds	650,000
Original cost (November 1987)	(161,600)
Enhancement (May 1989)	(50,000)
Unindexed gain	438,400
Indexation – cost: 1.690 x £161,600	(273,104)
Indexation – enhancement: 1.418 x £50,000	(70,900)
Chargeable gain	94,396

On 1 June 2002, Y Ltd acquired office premises for £100,000. 

On 1 June in the current chargeable accounting period, part of the premises was sold for £45,000 and the part retained was worth £180,000 at that date.

The indexation factor from June 2002 to December 2017 is 0.578. 

Calculate the chargeable gain on the part disposal of the office premises:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £13,440.

	£
Sales proceeds	45,000
Cost (see working)	(20,000)
Unindexed gain	25,000
Indexation allowance 0.578 x £20,000	(11,560)
Chargeable gain	13,440

(Working) – cost of part disposed of

(£45,000 / (£45,000 + £180,000)) x £100,000 = £20,000

North Ltd receives dividends of £90,000 from its 35% holding of East Ltd’s OSC and £75,000 of dividends from its 80% holding of the OSC of West Ltd. North has taxable total profits of £245,000 for the current chargeable accounting period.

North’s augmented profits for the CAP are calculated as:

11.2

	£
Taxable total profits	245,000
Dividends received from non-51% subsidiaries (East Ltd)	90,000
Augmented profits	335,000

South Ltd has taxable total profits of £500,000 and received dividends of £50,000 from companies in which it owns < 50% OSC and a dividend of £30,000 from a 100% subsidiary. 

Calculate South Ltd’s augmented profits:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £550,000.

	£
Taxable total profits	500,000
Dividends received from non-51% subsidiaries	50,000
Augmented profits	550,000

Castle Ltd has taxable total profits of £450,000 and has received dividends from non-51% subsidiaries of £35,000 in its current 12-month chargeable accounting period. Its augmented profits for the CAP are therefore £485,000. This is above the upper limit of £250,000, so the main rate of corporation tax applies.

The corporation tax liability for Castle for the CAP is

11.2

The corporation tax liability for Castle for the CAP is £112,500 (£450,000 x 25%).

Note: Take care to apply the corporation tax rate to TTP not augmented profits.

In the year ended 31 March 2025, Hobbes Ltd has TTP of £210,000 and received non-51% subsidiary dividends of £50,000. 

Calculate the corporation tax payable:

11.2

The correct answer is £52,500.

	£
Taxable total profits	210,000
Dividends received from non-51% subsidiaries	50,000
Augmented profits	260,000

 

Corporation tax liability
Augmented profits > £250,000 so main rate applies
Corporation tax payable: £210,000 x 25%	£52,500.00
(TTP x tax rate)

Cathedral Ltd has taxable total profits of £18,400 and has received dividends from non-51% subsidiaries of £15,000 in its current 12-month chargeable accounting period. Its augmented profits for the CAP are therefore £33,400. This is below the lower limit of £50,000, so the small profits rate of corporation tax applies.

The corporation tax liability for Cathedral Ltd for the CAP is

11.2

Cathedral Ltd has taxable total profits of £18,400 and has received dividends from non-51% subsidiaries of £15,000 in its current 12-month chargeable accounting period. Its augmented profits for the CAP are therefore £33,400. This is below the lower limit of £50,000, so the small profits rate of corporation tax applies.

The corporation tax liability for Cathedral Ltd for the CAP is £3,496 (£18,400 x 19%).

B Ltd has TTP of £20,000 and non-51% subsidiary dividends of £10,000 for the CAP to 31 March 2025.

Calculate the corporation tax liability:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £3,800.

 

Augmented profits = £20,000 + £10,000 = £30,000, so less than £50,000

Small profits rate of 19% applies 

Corporation tax liability = £20,000 x 19% = £3,800.00

Abbey Ltd has taxable total profits of £38,500 for its 12-month chargeable accounting period. It has received £25,000 of dividends from non-51% subsidiaries in the period.

Note: Be very alert to these sorts of situations – the TTP is below the lower limit and a common error is to then apply the small profits rate of 19%. However it is the augmented profits figure that should be compared with the limits, as we have seen. So, for Abbey Ltd, with augmented profits of £38,500 + £25,000 = £63,500, we need to complete the marginal relief calculation.

The corporation tax liability for Abbey Ltd is calculated as follows:

	£
Taxable total profits	38,500
Dividends received from non-51% subsidiaries	25,000
Augmented profits	63,500

 

Corporation tax liability	£
£38,500 x 25%	9,625.00
Less: marginal relief (working)	(1,696.12)
Corporation tax liability	7,928.88

Working – remember the formula:

(Upper limit – augmented profits) x	Taxable total profits	x	3
	Augmented profits		200

So, for Abbey Ltd:

(£250,000 – £63,500) x	£38,500	x	3	=  £1,696.12
	£63,500		200

Palazzo Ltd has taxable total profits of £145,500 for its 12-month chargeable accounting period. It has received £60,000 of dividends from non-51% subsidiaries in the period.

The corporation tax liability for Palazzo Ltd is calculated as follows:

11.2

	£
Taxable total profits	145,500
Dividends received from non-51% subsidiaries	60,000
Augmented profits	205,500

 

Corporation tax liability	£
£145,500 x 25%	36,375.00
Less: marginal relief (working)	(472.61)
Corporation tax liability	35,902.39

Working – remember the formula:

(Upper limit – augmented profits) x	Taxable total profits	x	3
	Augmented profits		200

So, for Palazzo Ltd:

(£250,000 – £205,500) x	£145,500	x	3	=  £472.61
	£205,500		200

Note: The other situation to watch out for is when the TTP falls between the two limits but augmented profits are above the upper limit. A common error is to then work through an unnecessary, and incorrect, marginal relief calculation. Once again, it is the augmented profits figure that should be compared with the limits rather than TTP.

Identify whether the following statements are TRUE or FALSE:

 

Marginal relief is applied by first of all working out the corporation tax using the small profits rate.

True

False

11.2

The correct answer is False

The calculation of corporation tax when marginal relief applies starts with the application of the main rate of corporation tax to TTP.

Tower Ltd makes up its accounts to 31 March each year. In the year to 31 March 2025, the company has TTP of £66,000 and receives dividends of £9,000 from a non-51% subsidiary company.

Calculate the corporation tax liability for Tower Ltd:

Note: Only numbers should be typed here. No other characters should be used. Round your answer to the nearest whole number.

11.2

The correct answer is £14,190.

	£
Taxable Total Profits	66,000
Dividends received from non-51% subsidiaries	9,000
Augmented profits	75,000
Marginal relief applies
Corporation tax liability	£
£66,000 x 25%	16,500.00
Less marginal relief ((£250,000 - £75,000) x (£66,000/£75,000) x (3/200))	(2,310.00)
Corporation tax liability	14,190.00