Income tax liability

10 Charles and William (TX 12/11) (amended)

Charles and William are father and son. The following
information is available for the tax year 2014/15:

Charles
Charles was born in 1964. He is self-employed and his tax
adjusted trading profit for the year ended 31 December
2014 was £111,400.
During the tax year 2014/15 Charles made a gift aid donation of
£800 (gross) to a national charity.
 10 Charles and William (TX 12/11) (amended)
William
William was born in 1990. He is employed by Crown plc.
During the tax year 2014/15 William was paid a gross annual
salary of £174,035.
Throughout the tax year 2014/15 Crown plc provided William with
a petrol-powered motor car which has a list price of £83,100. The
motor car cost Crown plc £78,800, and it has an official CO2
emission rate of 217 grams per kilometer. Crown plc also provided
William with fuel for private journeys. During the tax year
2014/15 William made contributions of £8,000 to Crown plc in
respect of the motor car. This consisted of £4,800 for the use of the
motor car, and £3,200 towards the cost of fuel for private journeys.
The total cost of the fuel for private journeys was £4,400.
 10 Charles and William (TX 12/11) (amended)
Required
(a) Calculate the respective income tax liabilities for the tax
year 2014/15 of:
(i) Charles (4 marks)
(ii) William (5 marks)
 10 Charles and William (TX 12/11) (amended)
Required
(b) Explain to Charles and William, with supporting calculations,
how their respective income tax liabilities for the tax year
2014/15 would have been reduced if:
(i) Charles had contributed £10,600 (gross) into a personal
pension scheme during the tax year 2014/15. (3 marks)

(ii) William’s contributions of £8,000 to Crown plc in respect of

the company motor car for the tax year 2014/15 had been
allocated on a more beneficial basis. (3 marks)
 Answer
(a)(i)与(b)(i)一起回答
Answer: (a)(i)
W1: Adjusted net income = net income – gross gift and donation
=111400 – 800=110660 100000
-10660
W2: Personal allowance: 6s, std PA = £10000
£
Std PA 10000
Less : restriction (5300)
(110600 – 100000) × 1/2
Adjusted PA 4700 10000
 Answer
NSI
£
Trading income 111400
Less: PA (W2) (4700) (10000)
Taxable income 106700 ↓5300

Tax liability: £
32665 (W3) × 2006 6533
(106700 – 32665) × 40% 29614
36147

W3: basis rate band extended: +10660

31865 + gross gift and donation = 31865 + 800 = £32665 ↑10660

 Answer
NSI
£
Trading income 111400
Less: PA (W2) (4700) (10000)
Taxable income 106700 ↓5300

Tax liability: £
32665 (W3) × 2006 6533
(106700 – 32665) × 40% 29614
36147
Answer
(b)(i) 用红色表示，请在原来(a)(i)的答案上用相同形式加上，再加
上下面的这个水桶圆。

10670 20% }5300

40%
32665 (40%-20%) }10660

20%

Saving tax =
{ 40%×5300
(40% - 20%)×10660
Answer
(a)(ii)
W1: Car benefit
Percentage = (217 – 95)÷5 + 12% round down to 36%
Maximum 35% √
Car benefit = percentage×(list price – contribution for purchase
of the car) – contribution for the use of the car
=35%×(83100 – 0) – 4800
=24285
W2: Fuel benefit (part reimbursement of private fuel)
£21700×35% = £7595
Answer
NSI
£
Employment income
─Salary 174035
─Car benefit (W1) 24285
─fuel benefit (W2 7595
Net income 205915 > 120000
Less: PA (0)
Taxable income 205915

Tax liability £
31865×20% 6373
(150000 – 31865)×40% 47254
(205915 – 150000)×45% 25162
78789
Answer
(b)(ii) Contribution £8000
Option 1: Contribution for use of the car: 8000
{ Contribution for fuel: 0
Car benefit ↓ 3200
→ { Fuel benefit remain the same

Option 2: Contribution for use of the car: 3600

{
Contribution for fuel: 4400
Car benefit ↑ (4800–3600)=1200
→ { fuel benefit ↓ 7595

Choose option 2: (less benefit)

Saving tax: 7595×45%
21 Michael and Sean (TX 06/12) (amended)

You are a trainee chartered certified accountant and your manager

has asked for your help regarding two taxpayers who have both made

trading losses.
 21 Michael and Sean (TX 06/12) (amended)
Michael
Michael (born in 1988) commenced in self-employment on 1 July 2013, preparing
accounts to 5 April. His results for the first two periods of trading were as follows:
£
Nine-month period ended 5 April 2014 – Trading loss (25,230)
Year ended 5 April 2015 – Trading profit 9,065
For the tax years 2009/10 to 2011/12 Michael had the following income from
employment:
£
2009/10 44,500
2010/11 18,765
2011/12 49,575
Michael did not have any income during the period 6 April 2012 to 30 June 2013.
21 Michael and Sean (TX 06/12) (amended)
Sean
Sean (born in 1976) has been in self-employment since 2004, but ceased
trading on 31 December 2014. He has always prepared accounts to 31
December. His results for the final five years of trading were as follows:
£
Year ended 31 December 2010 – Trading profit 21,300
Year ended 31 December 2011 – Trading profit 14,400
Year ended 31 December 2012 – Trading profit 18,900
Year ended 31 December 2013 – Trading profit 3,700
Year ended 31 December 2014 – Trading loss (23,100)
For each of the tax years 2010/11 to 2014/15 Sean has property business
profits of £10,200.
Sean has unused overlap profits brought forward of £3,600.
 21 Michael and Sean (TX 06/12) (amended)

Required

For each of the two taxpayers Michael and Sean, identify the loss
relief claims that are available to them, and explain which of the
available claims would be the most beneficial.
21 Michael and Sean (TX 06/12) (amended)
Notes
1. You should clearly state the amount of any reliefs claimed and
the rates of income tax saved. However, you are not expected
to calculate any income tax liabilities.
2. You should assume that the tax rates and allowances for the
tax year 2014/15 apply throughout.
3. The following mark allocation is provided as guidance for this
requirement:
Michael, 4½ marks
Sean, 5½ marks (10 marks)
Answer
Michael

10/11 11/12 12/13 13/14 14/15

£ £ £ £ £
Trading income - - nothing - 9065
Other income 18765 49575 - -
Total income 18765 49575 - 9065
Answer
① Early trade loss relief (FIFO)
10/11: loss relief 18765 Water PA £10000
{ Saving tax: (18765 – 10000)×20%

11/12: loss relief (25230 – 18765) = £6465 No PA wastage

{ Saving tax: 6465×40%
12/13: nothing to claim

② Carry back less relief & current year loss relief ?

③ Carry forward loss relief (￡9056<PA)
Answer
Sean
BP last: 14.1.1 – 14.12.31
① Terminal loss relief:
£
Terminal loss: Final year: 14.4.5 – 14.12.31 (23100)×9/12 (17325)
Overlap profit (3600)
(20925)

Penultimate FY
14.1.1 – 14.4.5 (23100)×3/12 (5775)
∴Terminal loss: 20925 + 5775 =26700
Answer
11/12 12/13 13/14 14/15
£ £ £ £
Trading income 14400 18900 3700 -
TLR (4100) (18900) (3700)
Other income 10200 10200 10200 10200
Total income 20500 10200 10200 10200
Less: PA (10000) (10000) (10000) (10000)
Taxable income 10500 200 200 200
Answer
TLR: (LIFO, trading income)
13/14: loss relief 3700 No PA wastage
{ Saving tax 3700×20%

12/13: loss relief 18900 No PA wastage

{ Saving tax 18900×20%

11/12: loss relief (26700 – 3700 – 18900) = 4100 No PA wastage

{ Saving tax 4100×20%
Answer
② Current year + carry back: BP last loss = 23100 + 3600 = 26700
13/14 14/15
£ £
Trading income 3700 0
Other income 10200 10200
Total income 13900 10200
Less: loss relief against
Total income (13900) (10200)
Taxable income - -
Answer
13/14 loss relief 13900 PA waste 10000
{ Saving tax 3900×20%

14/15 loss relief 10200

{ PA waste 10000
Saving tax 200×20%
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