Linda’s income statement for the year ended 31 March 2021 is as follows:
Sales
Less: Cost of Sales
Gross Profit
Add: Rents receivable
Bank interest receivable
Profit on sale of non-current asset
Less: Wages and salaries
Business rates and insurance
Heating and lighting
Repairs and renewals
Telephone
Motor Expenses
Sundry expenses
Bad and doubtful debts
Credit card interest
Loss on sale of non-current asset
Depreciation
Net profit for the year
£ £
82,500
37,200
45,300
1,200
80
510 1,790
47,090
22,620
1,750
2,170
4,280
880
3,250
1,650
640
120
70
2,500 39,930
7,160
Notes:
a) Linda draws a salary of £250 per week from the business. This is included in the wages and salaries figure.
b) Repairs and renewals are as follows:
£
Decorating of business premises 380
Installation of new improved heating system 3,700
Minor repair 200
4,280
c) It has been agreed with HMRC that one-quarter of telephone costs and one-fifth of
motor expenses relate to private use.
d) Sundry expenses include business entertaining of£520.
e) Trade debts written off in the year amounted to £440 and £200 has been set aside as a general allowance (or provision) for bad and doubtful debts.
Required:
Compute Linda’s tax adjusted trading profit (before capital allowances) for the year
ended 31 March 2021. (25 marks)
Question 2 :
a) How do you distinguish between an individual who is employed and one that is self- employed? (19 marks)
b) Why do people prefer self-employment rather than being employed, resulting in so many IR 35 cases? (6 marks)
Question 3 :
a) Discuss the six badges of trade with examples? (15 marks)
b) Briefly discuss the different VAT schemes available to the VAT registered business?
(10 marks)
Question 4 :
On 23 August 2015, Peter made a gift of a house valued at £420,000 to his son, John. This
was a wedding gift when John got married. The nil rate band for the tax year 2015/16 is
£325,000.
Peter
Peter died on 20 March 2021 at which time his estate was valued at £880,000. Under the terms of his will, Peter divided his estate equally, before inheritance tax, between his wife and his son, John. Peter had not made any gifts during his lifetime except for the gift of the house to John. Peter did not own a main residence.
John
John sold the house which he received as a wedding gift from Peter, his father, on 5April 2021. The following information relates to the property:
Net sale proceeds after costs of disposal
Cost of new boundary wall around the property (there
was previously no boundary wall)
Cost of replacing the property’s chimney
£
496,400
(5,200)
(2,800)
John has taxable income (after deduction of the personal allowance) of £13,950 in
2020/21. The house was never occupied by John.
Required:
a) Calculate the inheritance tax that will be payable as a result of Peter’s death.
(15 marks)
b) Calculate John’s capital gains tax liability for the tax year 2020/21.
(10 marks)
