TAXATION POLICY PRACTICE AND ADMINISTRATION

 TAXATION POLICY PRACTICE AND ADMINISTRATION SECTION A – answer ONE question from this section 1. Answer all parts of this question. The parts are unrelated. Part one Eva was born in Holland and is a Dutch citizen. On 1 June 2018 she travels over to England to visit friends in the UK until 31 January 2019. During this time she works as a locum doctor on a part time basis at a medical practice for four weeks and earns a salary of £1,200 (gross). She owns a large property in Amsterdam which she rents out during her visit. She receives property income equal to £3,000, paid into a non-interest bearing current bank account in Holland, of which £1,500 is remitted to the UK in 2018/19. She also earns bank interest of £200 (gross) in the tax year 2018/19 on a savings account in Holland amounting to £200. She does not withdraw any cash from this savings account in 2018/19. Required: Identify whether Eva is resident in the UK in the tax year 2018/2019 for tax purposes and if she is liable to pay any UK income tax. You should explain in your answer the tests that are applicable to determine her residency and identify any claims available that could reduce her tax liability. (7 marks) Part two Boris is a Russian citizen. He has been resident in the UK for the past six tax years. He lives in Cardiff and has established a business importing antique furniture. He earned trading profits, adjusted for tax purposes, amounting to £80,000 in 2018/19. He has property income amounting to £8,000 per annum from an investment property in Russia that he rents out, which is not remitted to the UK. He has two savings accounts, one in the UK and the other in Russia. He earned £300 of bank interest on his UK savings account in 2018/19. He earned a further £1,000 of interest on his Russian savings account. He withdrew £200 of his Russian bank interest in 2018/19 through a UK bank. He further used £250 of his Russian bank interest to pay for a gift he purchased in the UK for his wife. He has in the past claimed for his income to be assessed on the remittance basis Required: Advise Boris about his UK income tax position in 2018/19 and explain what the implications are if he i) continues to make an election for his income to be assessed on the remittance basis and ii) if he does not. (6 marks) Part three Critically discuss the following statement: “Taxation has an important role to play in society in addressing grand social challenges including global wealth inequality and environmental issues.” (12 marks) (Total 25 marks) 3 2. Answer all parts of this question. The parts are unrelated. Part one Maria has been trading for many years as a self-employed plumber. Her recent trading profits and losses, adjusted for tax purposes but before capital allowances are as follows: Trading profit/(loss) £

Year to 30 June 2016 Year to 30 June 2017 Year to 30 June 2018

32,000 (21,500) 23,000

In relation to the accounting periods above, she is eligible to claim the following capital allowances: Capital allowances £

Year to 30 June 2016	2,000
Year to 30 June 2017	1,500
Year to 30 June 2018	1,000

Her estimated trading profits are likely to rise significantly in future years. Her only other income comprises £5,000 of UK property income, after the deduction of allowable expenses, from an investment property and savings income of £300 gross each tax year. Required: Identify and evaluate the different loss relief options that are available to Maria. You should discuss the factors and implications that should be considered for each of the options you outline. (17 marks) Part two Provide three examples that illustrate how the global tax landscape has changed extensively in recent years and assess the implications for governments. (8 marks) (Please turn over) 4 SECTION B - answer ONE question from this section 3. On 1 February 2015, two accountants, Beech and Oak began trading together in general partnership. They decided that they would prepare their accounts to 30 June each year. They agreed that they would receive annual salaries of £16,000, £18,000 respectively before sharing profits and losses in the ratio of 3:4. Fixed capitals are Beech £60,000 and Oak, £60,000. On 1 December 2016, Beech retired and on the same day, Alder was admitted as a new partner. Alder introduced capital of £30,000. They agreed to share profits equally and Alder is entitled to a salary of £12,000. It was also decided that each partner would receive 5% interest on fixed capital. The adjusted trading profits of the partnership for all accounting periods up to 30 June 2018 were as follows: Required a) Calculate the trading income for Beech, Oak, Hazel and Alder for each tax year affected by the above profits, identifying any overlap profits arising for each partner. (18 marks) b) How can overlap profits be relieved? (2 marks) c) Why are the income tax rules for the assessment of trading profits in the early years of a business potentially problematic for new partners and sole traders? (5 Marks) (Total 25 marks) 4. Gold Ltd. is the parent company of Silver Ltd. owning 80% of its ordinary share capital. The ordinary share capital of Bronze Ltd. is 85% owned by Silver Ltd. All three companies are resident in the UK. The results of the three companies for the year ended 31 March 2019 are as follows: (Question 4 continues over page)

Accounting periods	£
1 January 2015 – 30 June 2015	45,000
Year to 30 June 2016	32,600
Year to 30 June 2017	48,000
Year to 30 June 2018	36,500

5

Gold Ltd.	Silver Ltd.	Bronze Ltd.
£	£	£
Trading profit/(loss)	550,000	400,000	(380,000)
Trading losses brought forward	-	(130,000)	-
Interest receivable	1,500	800	600
Income from property	10,000	15,000	18,000
Chargeable gains	-	8,000	5,000
Capital losses	(65,000)	-	-
Qualifying charitable donations	20,000	25,000	30,000

Required: a) Identify within the group of companies above any group structures available for Group Relief purposes. (2 marks) b) Identify within the group of companies above any group structures available for capital gains purposes. (2 marks) c) Highlight the options that are available to Bronze Ltd. to relieve the losses arising in 2019. You should discuss the factors and implications that need to be considered for each method outlined. (8 marks) d) Suggest what options are available to Gold Ltd. to relieve its 2019 capital losses. (4 marks) e) What general factors should be taken into consideration to ensure that trading losses (and other eligible items) are relieved as tax effectively as possible so that a group’s total tax liability is minimised. (9 marks) (Total 25 marks) (Please turn over) 6x https://www.studyhelpus.com/taxation-policy-practice-and-administration/