1 Sam and Kim White are a married couple. Sam is aged 36 and Kim is aged 38. The following information is available
for the tax year 2007–08:
Sam White
(1) Sam is self-employed running a retail clothing shop. His profit and loss account for the year ended 5 April 2008
is as follows:
Note £ £
Gross profit 140,300
Depreciation 7,600
Motor expenses 2 8,800
Patent royalties 3 700
Professional fees 4 1,860
Other expenses 5 71,340
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(90,300)
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Net profit 50,000
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(2) During the year ended 5 April 2008 Sam drove a total of 25,000 miles, of which 5,000 miles were driven when
he visited his suppliers in Europe. The balance of the mileage is 25% for private journeys and 75% for business
journeys in the United Kingdom.
(3) During the year ended 5 April 2008 Sam paid patent royalties of £700 (gross) in respect of specialised
technology that he uses when altering clothes for customers.
(4) The figure for professional fees consists of £1,050 for legal fees in connection with an action brought against a
supplier for breach of contract and £810 for accountancy. Included in the figure for accountancy is £320 in
respect of personal capital gains tax advice for the tax year 2006–07.
(5) The figure for other expenses of £71,340 includes £560 for gifts to customers of food hampers costing £35 each
and £420 for gifts to customers of pens carrying an advertisement for the clothing shop costing £60 each.
(6) Sam uses one of the eight rooms in the couple’s private house as an office for when he works at home. The total
running costs of the house for the year ended 5 April 2008 were £5,120. This cost is not included in the profit
and loss account expenses of £90,300.
(7) Sam uses his private telephone to make business telephone calls. The total cost of the private telephone for the
year ended 5 April 2008 was £1,600, and 25% of this related to business telephone calls. The cost of the private
telephone is not included in the profit and loss account expenses of £90,300.
(8) During the year ended 5 April 2008 Sam took goods out of the clothing shop for his personal use without paying
for them and no entry has been made in the accounts to record this. The goods cost £820, and had a selling
price of £1,480.
(9) The tax written down values for capital allowance purposes at 6 April 2007 were as follows:
£
General pool 14,800
Expensive motor car 20,200
The expensive motor car is used by Sam.
Kim White
(1) Kim is employed as a sales person by Sharp-Suit plc, a clothing manufacturing company. During the tax year
2007–08 she was paid a gross annual salary of £21,600.
(2) On 1 June 2007 Sharp-Suit plc provided Kim with an interest free loan of £12,000 so that she could purchase
a new motor car.
8J–UKPA
Paper F6UK
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(3) During the period from 1 June 2007 to 5 April 2008 Kim used her private motor car for business and private
purposes. She received no reimbursement from Sharp-Suit plc for any of the expenditure incurred. Kim’s mileage
during this period included the following:
Miles
Normal daily travel between home and permanent workplace 3,400
Travel between permanent workplace and Sharp-Suit plc’s customers 11,200
Travel between home and a temporary workplace for a period of one month 1,300
(4) During the tax year 2007–08 Kim paid interest of £140 (gross) on a personal loan taken out on 1 January 2007
to purchase a laptop computer for use in her employment with Sharp-Suit plc.
Joint income – Building society deposit account
The couple have savings of £25,000 in a building society deposit account which is in their joint names.
During the tax year 2007–08 Sam and Kim received building society interest totalling £1,200 from this joint account.
This was the actual cash amount received.
Required:
(a) Calculate Sam’s tax adjusted trading profit for the year ended 5 April 2008. (11 marks)
(b) Calculate Sam and Kim’s respective income tax liabilities for the tax year 2007–08.
Note: you should ignore any capital allowances that Kim might be entitled to. (10 marks)
(c) Explain to Sam and Kim how their overall income tax liability could be reduced if they were to either:
(i) transfer their joint building society deposit account into individual savings accounts (ISAs); or
(2 marks)
(ii) transfer their joint building society deposit account into Kim’s sole name. (2 marks)
(25 marks) 1 (a) Sam White – Trading profit for the year ended 5 April 2008
£ £
Net profit 50,000
Depreciation 7,600
Motor expenses (8,800 x 20%) 1,760
Patent royalties –
Personal capital gains tax advice 320
Gifts to customers (560 + 420) 980
Use of office (5,120 x 1/8) 640
Private telephone (1,600 x 25%) 400
Own consumption 1,480
Capital allowances 6,100
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62,140 7,140
(7,140)
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Trading profit 55,000
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Working – Capital allowances
Motor
Pool car Allowances
£ £ £
WDV brought forward 14,800 20,200
WDA – 25% (3,700) 3,700
WDA – restricted (3,000) x 80% 2,400
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WDV carried forward 11,100 17,200 6,100
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(1) Of the 25,000 miles driven by Sam during the year ended 5 April 2008, 20,000 (5,000 + 15,000 (25,000 – 5,000
= 20,000 x 75%)) were for business journeys. The business proportion is therefore 80% (20,000/25,000 x 100).
(2) Patent royalties are allowed as a deduction when calculating the trading profit, so no adjustment is required.
(3) Gifts to customers are an allowable deduction if they cost less than £50 per recipient per year, are not of food, drink,
tobacco or vouchers for exchangeable goods and carry a conspicuous advertisement for the company making the gift.
(b) Sam White – Income tax computation 2007–08
£
Trading profit 55,000
Building society interest (1,200 x 100/80 = 1,500/2) 750
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55,750
Personal allowance (5,225)
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Taxable income 50,525
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Income tax
2,230 at 10% 223
32,370 at 22% 7,121
15,925 (50,525 – 2,230 – 32,370) at 40% 6,370
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50,525
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Income tax liability 13,714
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Kim White – Income tax computation 2007–08
£ £
Employment income
Salary 21,600
Beneficial loan 625
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22,225
Expense claim (4,625)
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17,600
Building society interest 750
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18,350
Interest paid (140)
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18,210
Personal allowance (5,225)
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Taxable income 12,985
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Income tax
2,230 at 10% 223
10,005 (12,985 – 2,230 – 750) at 22% 2,201
750 at 20% 150
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12,985
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Income tax liability 2,574
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(1) The taxable benefit from the beneficial loan is £625 (12,000 at 6·25% x 10/12).
(2) Ordinary commuting (travel between home and the permanent workplace) does not qualify for relief. The travel to a
temporary workplace qualifies as it is for a period lasting less than 24 months.
(3) Kim can therefore make an expense claim based on 12,500 (11,200 + 1,300) miles as follows:
£
10,000 miles at 40p 4,000
2,500 miles at 25p 625
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4,625
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(4) The loan interest paid of £140 is eligible for relief since the loan was used by Kim to finance expenditure for a relevant
purpose. It is paid gross.
(c) Individual savings accounts
(1) Both Sam and Kim can invest a maximum of £3,000 each tax year into either a Mini cash ISA or the cash component
of a Maxi ISA.
(2) Interest received from ISAs is exempt from income tax, so Sam will save tax at the rate of 40% whilst Kim will save tax
at the rate of 20% on gross interest of £180 (1,500 x 3,000/25,000).
Transfer to Kim’s sole name
(1) Sam pays income tax at the rate of 40%, whilst Kim’s basic rate tax band is not fully utilised.
(2) Transferring the building society deposit account into Kim’s sole name would therefore save tax of £150 (750 x 20%
(40% – 20%)). |
发表于 2008-10-11 14:31
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