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Copyright © ICAEW 2023. All rights reserved. Page 1 of 10

Question 1

You are a newly qualified ICAEW Chartered Accountant. You have just been offered a new
job working in the tax department of Smoot plc, a company specialising in artificial
intelligence (AI). The new job would bring a significant pay rise.

As a climate change campaigner, you were attracted to the job at Smoot plc because of its
commitment to be a market leader in tackling climate issues, and to be net zero by 2030.

At your interview Chris Pierson, Smoot plc’s Finance Director and also an ICAEW Chartered
Accountant, explained that the finance department has a large part to play in achieving net
zero. The finance department will purchase electric cars and implement tax efficient
measures to maximise tax reliefs. Chris explained that these measures will help Smoot plc to
move towards net zero by making positive changes that actively reduce emissions.

However, you have just read this extract from an online news article:

Will Smoot plc ‘come clean’ over its emissions

Smoot plc has worked hard to promote its drive towards net zero by 2030 – but is this a
reality?

An undisclosed source from inside the company has confirmed that this is not quite the truth.
The source suggested that targets will only be achieved by the controversial approach of
‘carbon offsetting’. ‘Carbon offsetting’ includes practices such as paying for projects that
reduce carbon dioxide emissions, for example planting trees and managing forests, to
compensate for greenhouse gases emitted elsewhere. These practices are seen by many
climate-change activists as a false way to achieve net zero status. This practice is NOT in
line with the statement made by the company in a recent press release, that it would make
purely positive changes that reduce emissions.

Smoot plc has been approached but has declined to comment on this issue.

You are concerned that the company has falsely represented its climate change
commitments and are now unsure whether you should accept this job offer.

Requirement

Explain the fundamental principles that may be under threat for both you and Chris in this
situation. Identify any actions that you should take to mitigate the threats, and explain how
you should treat any information provided to you by Chris in future.

Total: 7 marks

Copyright © ICAEW 2023. All rights reserved. Page 3 of 11

Question 2

Lou Harris owns 100% of the ordinary shares in Stinson Ltd. Stinson Ltd owns 100% of the
ordinary shares of River Ltd and Bilson Ltd.

All three companies are UK resident.

Lou has a sole trader business through which he operates a number of coffee shops, making
mainly taxable supplies.

Stinson Ltd undertakes many of the administrative functions for its subsidiary companies and
Lou’s coffee shops business. It makes only standard-rated supplies, and is in a VAT group
with Lou.

River Ltd manufactures and sells biscuits. Most of its products are plain biscuits which are
zero-rated supplies. It makes a small number of chocolate biscuits which are standard-rated
supplies, but these account for only a small proportion of its total supplies.

Bilson Ltd holds most of the commercial properties that are used by the other group
companies and the coffee shops business. It also holds commercial properties that are let to
unconnected companies. It makes only exempt supplies.

On 1 March 2023 Bilson Ltd purchased a new office building for £300,000 (excluding VAT)
from an unconnected company.

In the next few months River Ltd intends to change its product mix so that it will be selling
mainly standard-rated supplies. At that time it will join a VAT group with Lou and Stinson Ltd.
Stinson Ltd owns the 15-year old factory that is used to manufacture River Ltd’s products, but
wants to sell the factory to River Ltd at its market value of £200,000 in the next few months. It
is unclear whether Stinson Ltd had opted to tax the factory.

Requirements

1. Explain the advantages of Lou Harris and Stinson Ltd being in a VAT group, and why it
is not beneficial to include River Ltd and Bilson Ltd in the VAT group. For the purposes
of this part, ignore River Ltd’s proposed change to its product mix. (3 marks)

2. Explain who is in the group for stamp duty land tax (SDLT) purposes. (2 marks)

3. Calculate the SDLT payable by Bilson Ltd on the purchase of the office building. State
the due date for payment and the date by which the land transaction form must be filed.
(3 marks)

4. Explain, with supporting calculations, both the VAT and SDLT liabilities relating to the
factory sale by Stinson Ltd to River Ltd assuming the sale takes place:

• before River Ltd joins the VAT group;

• after River Ltd joins the VAT group.
(5 marks)

Total: 13 marks

Copyright © ICAEW 2023. All rights reserved. Page 4 of 11

Question 3.1

Lily died on 12 February 2023, leaving all of her assets to her son, Jason. She owned the
following assets at the date of her death:

• Her house valued at £800,000.

• 5% shareholding in an unquoted trading company valued at £130,000. Lily owned the

shares for more than 20 years.

• Jewellery valued at £170,000. Lily inherited the jewellery on the death of her mother,
Stella, in January 2021, when it was valued at £150,000. Stella’s estate (including the
jewellery) was valued at £670,000. The remaining assets, which did not include a
residential property, were inherited by Lily’s siblings. Stella made no lifetime transfers.

• Investments in commercial property and quoted shares valued at £590,000.

At her death Lily’s outstanding income tax payable for 2022/23 was £36,500, and the costs of
her funeral amounted to £8,000.

Other information

Lily made two transfers during her lifetime.

• In August 2015 she created a discretionary trust for the benefit of her grandchildren. This
resulted in a gross chargeable transfer of £400,000.

• In June 2021 Lily gave her holding of 5,000 ordinary shares in Milloti plc, a quoted
investment, to Jason. At that time the shares were quoted at 380p–387p with marked
bargains of 377p, 382p, and 385p. Milloti plc has an issued share capital of 10 million £1
ordinary shares.

Lily’s husband, Marshall, died in November 2018. He left a total estate to Jason of
£2,050,000, before deduction of the nil rate band. Marshall’s estate did not include any
residential property. At the time of Marshall’s death the residential nil rate band (RNRB) was
£125,000. Marshall made no lifetime transfers.

Requirement

Calculate the inheritance tax payable on Lily’s death. (16 marks)

Question 3.2

During 2022/23 Robyn made the following capital disposals:

Aldrin Ltd shares

In May 2022 Robyn sold her entire shareholding in Aldrin Ltd, an unquoted trading company,
to her son for £125,000 when the shareholding was valued at £720,000, and they made a
claim for gift relief. Robyn has owned a 70% holding since 2005, although she has worked for
Aldrin Ltd since 1998. Robyn originally purchased her shares for £137,000.

Copyright © ICAEW 2023. All rights reserved. Page 5 of 11

At May 2022 the net assets of Aldrin Ltd were valued as follows:

£
Freehold building 800,000
Shares held as an investment 25,000
Plant and machinery 100,000
Net current assets 79,000

The shares held as an investment relate to a company that manufactures microchips used by
Aldrin Ltd.

Most items of plant and machinery cost and are valued at less than £6,000. However, one
specialist item is valued at £16,000.

Zinman Ltd shares

In August 2022 Robyn sold shares in Zinman Ltd, an unquoted investment company, to her
friend for £23,900. The shares were given to Robyn in June 2010 by her husband, Ted, when
they were valued at £12,600. Ted purchased the shares in January 2005 for £4,500.

Land disposals
During February 2023 Robyn sold three separate plots of land that she had held for many
years as investments.

Plot number Sold to Gain/ (Loss)

£
1 Daughter (4,000)
2 Friend (7,000)
3 Unconnected company 50,000

Other information

Robyn will make no more capital disposals before 5 April 2023. Robin is a higher rate
taxpayer for 2022/23.

Requirement

Calculate Robyn’s capital gains tax payable for 2022/23. Show your treatment of each item.
(9 marks)

Note: Ignore VAT and stamp taxes.

Total: 25 marks

Copyright © ICAEW 2023. All rights reserved. Page 6 of 11

Question 4

Segeel Ltd is preparing accounts for the 15 months ending 31 March 2023, having previously
prepared accounts to 31 December each year.

Segeel Ltd’s estimated tax-adjusted trading profit for the 15 months ending 31 March 2023 is
£100,000. This is stated before deduction of capital allowances.

Capital allowances

At 1 January 2022, the tax written down value on the main pool was £42,500, and on the
special rate pool was £38,100. The company made the following plant and machinery
additions and disposals in the period to date:

Additions £
10 March 2022 Air conditioning units for office buildings 50,000
1 June 2022 Car with CO2 emissions of 140g/km 25,000
4 January 2023 New machinery 80,000

Disposal proceeds
1 June 2022 Main pool car (original cost in June 2020 of £18,000) 6,500
27 December 2022 Machinery (original cost in August 2021 of £61,000) 40,000

No further additions or disposals are anticipated before 31 March 2023.

Segeel Ltd always claims the maximum possible capital allowances and relieves losses as
early as possible.

Other income and gains

The estimated tax-adjusted trading profit of £100,000 has been correctly adjusted for the
following income and gains:

(1) On 20 August 2022 Segeel Ltd sold an office building that it no longer needed, realising
a gain of £59,000. This building will not be replaced.

(2) On 18 November 2022 Segeel Ltd sold its entire 1% shareholding in Bart plc for
£61,000. In June 2012 Segeel Ltd purchased 10,000 shares in Bart plc for £20,000. In
August 2018 Bart plc made a 1-for-4 rights issue at £3 per share and Segeel Ltd took
up all of its rights.

(3) Segeel Ltd received interest on debentures:

Interest for the six months to: £

30 June 2022 5,000
31 December 2022 6,000
30 June 2023 (estimated) 7,000

Other information

Segeel Ltd intends to have a staff reward, taking its 10 members of staff to a luxury hotel
from 2nd to 4th April 2023 to thank them for their commitment. The costs, including all food

Copyright © ICAEW 2023. All rights reserved. Page 7 of 11

and drinks, are expected to be £360 per person. The company will have a PAYE settlement
agreement in relation to the staff reward. Half of the staff members are basic-rate taxpayers
and the other half are higher-rate taxpayers.

Requirements

1. Calculate the chargeable gain on disposal of the shares in Bart plc. (3 marks)

2. Calculate Segeel Ltd’s corporation tax payable for the 15 months ending 31 March
2023. State the date(s) by which

• any corporation tax is payable; and

• the returns are due to be filed with HMRC.
(14 marks)

3. Calculate the estimated after-tax cost to Segeel Ltd of the staff reward. (3 marks)

Note: Ignore VAT.

Total: 20 marks

Copyright © ICAEW 2023. All rights reserved. Page 8 of 11

Question 5.1

Taran has been UK resident for eight years but is not UK domiciled. He has a domicile of
origin in the country of Venkatar. It is his intention to return to Venkatar when he retires.
Taran is employed by Mosbay Ltd as a senior marketing executive, based in England. His
employment package for 2022/23 is as follows:

• Salary
Monthly salary of £5,000 payable on the last working day of each month. By the end of
2022/23 total PAYE of £21,350 will have been deducted from Taran’s salary.

• Car
Mosbay Ltd provides Taran with a hybrid car that has CO2 emissions of 25g/km and has a
battery range of 44 miles. The car had a list price of £35,400, but Taran paid Mosbay Ltd
£5,800 to reduce the benefit when he first got the car in 2021. Mosbay Ltd pays for all
petrol for the car, this will cost approximately £2,800 for 2022/23.

• Apartment
Taran continues to live in the apartment that Mosbay Ltd provided when he first moved to
the UK in 2014. Mosbay Ltd purchased the apartment for £300,000 in 2010 and it was
valued at £370,000 when Taran moved into it. It has an annual value of £6,000. The
apartment was furnished by Mosbay Ltd at a cost of £9,600, and the company pays all
heating and lighting bills which are expected to be £2,400 for 2022/23.

• Smartphone
Taran has use of a smartphone provided by Mosbay Ltd, at a cost of £30 per month to the
company.

• Entertaining expenses
Mosbay Ltd has reimbursed Taran £850 during 2022/23 for expenses incurred entertaining
potential customers. Taran does not expect to incur any more entertaining costs before 5
April 2023.

Other income and expenses

In addition to his employment income Taran also has the following sources of income for
2022/23:

• Property income
Taran owns a commercial property in London and receives rent of £26,000 pa.
During 2022/23 he will have paid buildings insurance of £4,000 and made loan
repayments of £15,300, including £3,100 of interest.

• Dividends received
By 5 April 2023 Taran will have received cash dividends of £81,980. This comprises
£10,400 from UK shareholdings, and £71,580 from a shareholding in his family’s
company in Venkatar. Venkatarian tax of £28,420 has been deducted at source. Taran is
saving the overseas dividends in a Venkatarian bank account to be used in his
retirement.

Copyright © ICAEW 2023. All rights reserved. Page 9 of 11

Each year Taran decides whether to make a remittance basis claim depending on his total
tax payable.

Gillian

Gillian is Taran’s childhood friend. Gillian had never been to the UK until recently, and all of
her family live in Ventakar. In December 2022 she left her parent’s home, came to the UK
and has been living with Taran in the apartment. Since late January 2023 she has worked in
a local factory for 25 hours per week. She will have been in the UK for 105 days by the end of
2022/23.

Gillian does not pass any of the automatic overseas resident or automatic UK resident tests.
She has heard that she needs to consider ‘sufficient ties’ to determine her residence status.

Requirements

a. Calculate Taran’s employment income for 2022/23. Show your treatment of each item.
(6 marks)

b. Calculate Taran’s income tax payable for 2022/23, assuming that he

• does make the remittance basis claim (RB)

• does not make the remittance basis claim (no RB).
(13 marks)

Clearly label your workings to identify which one relates to claiming the remittance
basis. Use the short calculation for double tax relief and show your workings.

c. Explain the personal allowance available to Taran for 2022/23. (2 marks)

d. Explain whether Gillian is deemed to be UK resident for 2022/23. (4 marks)

Note: The official rate of interest for 2022/23 is 2%.

Question 5.2

Josh started trading as ‘Toile’, a website design business, on 1 April 2022.

He has provided his spreadsheet to show the estimated draft accounting profits for the year
ending 31 March 2023. He does not use the cash basis of accounting. An extract of the
spreadsheet is as follows:

Notes £ £
Income 87,000
Less expenses
Rent – paid on 1 September 2022 (2) 750
Salaries (3) 51,500
Heating and lighting 1,500
Insurance 680
Entertaining customers 470
(54,900)

Copyright © ICAEW 2023. All rights reserved. Page 10 of 11

 Draft accounting profit 32,100

Notes:

1. Payments in March 2022

Before Josh started trading he made the following payments out of his personal bank
account. These have not been included as expenses in the spreadsheet.

£
Rent for the six-month period 1 March to 31 August 2022. (See 750
note 2)
Gifts of e-readers to 40 potential customers costing £45 each. 1,800
The e-readers were preloaded with an advert for ‘Toile’
Computers and office furniture 2,860

2. Rent
Rent of £1,500 pa is payable six monthly in advance on 1 March and 1 September. The
amount of £750 paid on 1 September 2022 is included in Josh’s spreadsheet. However,
Josh has not yet paid the amount due on 1 March 2023, and has not included anything in
relation to this in the spreadsheet.

3. Salaries
Salaries comprise £23,500 in relation to Josh, £16,000 for Matt, Josh’s husband and
£12,000 for another employee. Matt and the other employee job-share, each working for
the business two days per week.

Other information

Josh and Matt have two children aged 5 and 7, for whom Matt claims child benefit and will
receive £1,885 for 2022/23.

Matt has another part-time employment and his total income for his two jobs in 2022/23 is
£51,000. He is starting a new job on 1 April 2023 and his total income in 2023/24 is expected
to be £66,000.

Josh and Matt have no other source of income.

Requirements

a. Calculate Josh’s Class 2 and Class 4 national insurance contributions for 2022/23.
Ignore VAT. (6 marks)

b. Calculate the child benefit tax charge for 2022/23, stating by whom it is payable. Explain
the impact on the payment of the child benefit tax charge when Matt’s total income
increases in 2023/24. (4 marks)

Total: 35 marks

Copyright © ICAEW 2023. All rights reserved. Page 11 of 11