Lai Chan Until 31 December 2010 Lai Chan was employed by Put-it-Right plc as a management consultant.

The following information relates to the period of employment from 6 April to 31 December 2010. (1) Lai was paid a gross salary of 3,250 per month. (2) She contributed 6% of her gross salary into Put-it-right plc's registered occupational pension scheme. The company contributed a further 6%. (3) Put-it-Right plc provided Lai with a motor car with a list price of 26,400. The motor car's CO2 emissions were 180g/km. Lai paid Put-it-Right plc 130 per month for the use of the motor car. Put-it-Right plc paid for the petrol in respect of all the mileage done by Lai during 2010/11. She paid the company 30 per month towards the cost of her private petrol. The motor car was returned to Put-it-Right plc on 31 December 2010. (4) Put-it-Right plc provided Lai with an interest free loan of 30,000 on 1 January 2007. She repaid 20,000 of the loan on 30 June 2010 with the balance of 10,000 being repaid on 31 December 2010. On 1 January 2011 Lai commenced in self-employment running a music recording studio. The following information relates to the period of self-employment from 1 January to 5 April 2011. (1) The trading profit for the period 1 January to 5 April 2011 is 44,500. This figure is before taking account of capital allowances. (2) Lai purchased the following assets: 1 January 2011 Recording equipment 20,000 15 January 2011 Motor car CO2 emissions 175g/km 18,800 20 February 2011 Motor car CO2 emissions 145g/km 10,400 4 March 2011 Mixing desk 6,500 The motor car purchased on 15 January 2011 is used by Lai, and 40% of the mileage is for private purposes. The motor car purchased on 20 February 2011 is used by an employee, and 10% of the mileage is for private purposes. The mixing desk purchased on 4 March 2011 is to be treated as a short-life asset. (3) Since becoming self-employed Lai has paid 400 (net) per month into a personal pension scheme. Payments are made on the 20th of each month. Required (a) Calculate Lai's income tax liability for 2010/11. (20 marks) (b) Briefly explain how Lai's income tax liability for 2010/11 will be paid to the HM Revenue and Customs. (5 marks) (Total = 25 marks)

2 (a)P Ltd P Ltd owns the following holdings in ordinary shares in other companies, which are all UK resident. Q Ltd 83% R Ltd 77% S Ltd 67% M Ltd 80% T Ltd 70% In each case, the conditions for claiming group relief, where appropriate, are satisfied. The following are the results of the above companies for the year ended 31 March 2011. M Ltd P Ltd Q Ltd R Ltd S Ltd T Ltd Trading profit 20,000 0 64,000 260,000 0 70,000 Trading loss 0 226,000 0 0 8,000 0 Property business income 0 6,000 4,000 0 0 0 Gift aid donation paid 4,000 4,500 2,000 5,000 0 0 Required (a) Compute the corporation tax payable for the above accounting period by each of the above companies. Assume that group relief is claimed where appropriate and the most tax efficient manner. (b) Advise the board of P Ltd of the advantages of increasing its holding in S Ltd, a company likely to sustain trading losses for the next two years before becoming profitable. P Ltd itself is likely only to break even in the next few years. (15 marks) 2 (b) Elderflower Ltd Elderflower Ltd is a UK resident company which trades as a manufacturer of specialist soft drinks. The companys income statement for the year ended 31 March 2011 is as follows: Gross profit 510,000

Other income Profit on disposal of office building (note 1) 54,000 Bank interest (note 2) 7,000 Expenses Depreciation 54,690 Professional fees (note 3) 22,000 Repairs and renewals (note 4) 29,700 Other expenses (note 5) 24,400 (130,790) Finance costs Interest payable (note 6) (23,000) Profit before taxation 417,210 Notes (1) Disposal of office building The profit of 54,000 is in respect of a freehold office building that was sold on 30 June 2010 for 380,000. The chargeable gain on sale has been computed to be 50,690. (2) Bank interest received The bank interest was received on 31 March 2011 and is the amount accrued to that date. The bank deposit is held for non-trading purposes. (3) Professional fees Professional fees are as follows: Accountancy and audit fee 4,600 Legal fees in connection with the issue of share capital 8,800 Legal fees in connection with the issue of loan notes (see note 6) 6,400 Legal fees in connection with breach of contract by supplier 1,300 Legal fees in connection with fine for breach of health and safety legislation 900 22,000 (4) Repairs and renewals The figure of 29,700 for repairs includes 9,700 for constructing an extension to the companys manufacturing premises and 5,400 for repainting the interior of the companys offices. (5) Other expenses Other expenses include 2,310 for entertaining customers, 1,600 for entertaining employees and a Gift Aid donation of 500. (6) Interest payable

Elderflower Ltd issued loan notes on 1 October 2010. The capital raised was used for trading purposes. Interest of 23,000 in respect of the first six months of the loan was paid on 31 March 2011. (7) Plant and machinery On 1 April 2010 the tax written down values of plant and machinery were as follows: Main pool 27,500 Expensive motor car 14,700 The following transactions took place during the year ended 31 March 2011: Cost/(Proceeds) 10 May 2010 Purchased plant 30,200 5 January 2011 Sold the expensive motor car (9,700) 20 March 2011 Sold a delivery van (11,600) 31 March 2011 Purchased a motor car CO2 emissions 137g/km 9,600 The van sold on 20 March 2011 for 11,600 originally cost 18,500. The motor car purchased on 31 March 2011 is used by the sales manager: 25% of the mileage is for private journeys. Required (a) Calculate Elderflower Ltds trading profit for the year ended 31 March 2011. Your answer should commence with the profit before taxation figure of 417,210 and should list all of the items in the income statement indicating by the use of a zero (0) any items that do not require adjustment. You should assume that the company claims the maximum available capital allowances. (13 marks) (b) Calculate Elderflower Ltds taxable total profits for the year ended 31 March 2011. (2 marks) (Total = 15 marks) 3(a)Kai Kai started in business as a sole trader in August 2004. He acquired a freehold shop for 80,000 and awarehouse for 150,000. Kai sold his business as a going concern to Jibran in December 2010 and received 50,000 for goodwill,90,000 for the shop and 180,000 for the warehouse. Kai also sold a plot of land to Jibran which he had not used in his business. The land cost 10,000 and Jibran paid 25,000 for it. Other than those listed above, Kai had never undertaken any transactions which were relevant for capital gains tax purposes. Kais taxable income in 2010/11 was 20,000. Required

Compute the capital gains tax payable by Kai for 2010/11. (10 marks) 3(b)Melissa Melissa bought shares in Fisher plc as follows: 12 July 2001 6,000 shares for 21,000 14 December 2006 2,000 shares for 6,500 11 July 2010 4,000 shares for 16,000 She sold 10,000 shares for 42,000 on 2 July 2010. Required Compute Melissa's gain on sale. (10 marks) 4 Ongoing Ltd Ongoing Ltd is registered for VAT, and its sales and purchases are all standard rated. The following information relates to the company's VAT return for the quarter ended 30 April 2011: (1) Standard rated sales amounted to 120,000. Ongoing Ltd offers its customers a 5% discount for prompt payment, and this discount is taken by half of the customers. (2) Standard rated purchases and expenses amounted to 35,640. This figure includes 480 for entertaining customers. (3) On 15 April 2011 the company wrote off impairment losses (bad debts) of 2,100 and 840 in respect of invoices due for payment on 10 August 2010 and 5 December 2010 respectively. (4) On 30 April 2011 the company purchased a motor car at a cost of 16,450 for the use of a salesperson, and machinery at a cost of 21,150. Both these figures are inclusive of VAT. The motor car is used for both business and private mileage. Unless stated otherwise, all of the above figures are exclusive of VAT. Ongoing Ltd does not operate the cash accounting scheme. Required Calculate the amount of VAT payable by Ongoing Ltd for the quarter ended 30 April 2011. (20 marks) 5 Alice Alice decided to incorporate her sole trader business on 9 January 2011. She started this business in 1992. All of the business assets were transferred to the new company. The consideration consisted of 200,000 1 ordinary shares valued at 200,000 and 100,000 in cash. The transfer of the business assets resulted in total gains of 120,000. Required

Calculate the gain arising on the transfer before any claim for entrepreneurs relief. Also show the cost of the shares for future disposals. (5 marks)