案例分析题

Your manager has sent you the notes she prepared following a meeting with Pippin, an established client of your firm who is resident and domiciled in the UK. The notes together with an email from your manager are set out below.

Meeting notes from your manager – dated 8 June 2017

Commencement of ‘Pinova’ business

Pippin intends to start a new unincorporated business, ‘Pinova’, on 1 August 2017. He has identified two alternative strategies: strategy A and strategy B.

The budgeted tax-adjusted profit/(loss) of the two strategies are set out below. These figures are before the adjustments necessary in respect of the equipment purchases and employment costs (see below).

Equipment purchases and employment costs

The above profit/loss figures need to be adjusted in respect of the following:

– Both strategies will require Pippin to purchase equipment in August 2017 for £8,000.

– Strategy B will require two employees from 1 April 2018. Pippin will pay each of them a gross salary of £2,000 per month. He will also pay them £0·50 per business mile for driving their own cars. He expects each of them to drive 250 business miles per month.

– Strategy A will not require any employees.

Pippin will claim the maximum capital allowances available to him. He will also claim opening years loss relief in respect of the trading loss arising under strategy B.

Cessation of previous business

Pippin’s previous unincorporated business ceased trading on 31 December 2016. The taxable profits of the business for its final three tax years were:

2014/15 82,000

2015/16 78,000

2016/17 14,000

Pippin had no other taxable income during these three years.

Receipt of £75,000

Pippin’s aunt, Esme, died on 31 January 2017.

On 1 September 2011, Esme’s father (Pippin’s grandfather) died leaving the whole of his estate to Esme. However, on 1 January 2012 Pippin received £75,000 but cannot remember whether the money came from Esme or from his grandfather’s estate.

On 1 November 2011, Esme had transferred cash of £375,000 to a trust for the benefit of her children.

Shares in Akero Ltd

Pippin owns 16,000 shares in Akero Ltd which have a current market value of £4·50 per share. Pippin subscribed £16,000 for these shares on 4 January 2015. Pippin obtained income tax relief of £4,800 (£16,000 x 30%) under the enterprise investment scheme (EIS) in the tax year 2014/15. He also claimed EIS deferral relief in that year of £16,000 in relation to a chargeable gain on the sale of a painting.

Pippin is considering selling 5,000 of his Akero Ltd shares in order to fund his personal expenditure during the start-up phase of the Pinova business.

Extract from an email from your manager – dated 8 June 2017

Please prepare a memorandum for the client files which addresses the following issues:

(i) Additional funds required for the 20-month period from 1 August 2017 to 31 March 2019

Pippin’s taxable income will consist of the profits of the Pinova business and, for the tax year 2018/19 onwards, he expects to receive dividend income of £1,500 per year. His personal expenditure is £4,000 per month.

I want you to complete the table below to calculate the additional funds which Pippin would require during the first 20 months of the business under each of the two strategies (A and B) after putting aside sufficient funds to settle his tax liabilities for the tax years 2017/18 and 2018/19. You should then evaluate the two strategies by reference to the results of your calculations.

Pippin and I calculated his total pre-tax cash receipts; you do not need to check them. The only adjustment required to these pre-tax cash receipts is the cost of employing the two employees.

问答题

Additional funds required for the 20-month period from 1 August 2017 to 31 March 2019.

【正确答案】

Pippin
Memorandum
Client Pippin
Subject Pinova business
Prepared by Tax senior
Date 8 June 2017
Additional funds required for the 20-month period from 1 August 2017 to 31 March 2019

Tutorial note: Non-payment of class 2 NIC can affect the availability of state benefits, including the state pension. Accordingly, it may be advisable for Pippin to pay the class 2 NIC contributions even if his profit is below the small profits threshold.

Claiming opening years loss relief will result in a repayment of income tax and class 4 NIC of £7,560 (£18,000 x 42%) in respect of 2014/15.

【答案解析】

问答题

Receipt of £75,000.

【正确答案】

eceipt of £75,000
The tax implications for Pippin depend on whether the £75,000 was a direct gift from Esme or the result of Esme having made a tax-effective deed of variation of her father’s will.
Gift from Esme
The gift would have been a potentially exempt transfer. Esme’s death within seven years of the gift would result in an inheritance tax liability for Pippin as follows:

【答案解析】

问答题

Sale of shares in Akero Ltd.

Professional marks will be awarded for the approach taken to problem solving, the clarity of the explanations and calculations, the effectiveness with which the information is communicated, and the overall presentation and style of the memorandum.

【正确答案】

Sale of shares in Akero Ltd
Capital gains tax
Chargeable gain on the sale of the shares
Pippin will realise a chargeable gain of £17,500 ((£4·50 – £1) x 5,000) if the shares are sold prior to 4 January 2018 at their current market value.
However, if the shares are sold on or after 4 January 2018, the chargeable gain arising on the sale will be exempt.
Chargeable gain deferred in respect of the painting
Regardless of when the shares are sold, the chargeable gain which was deferred on their acquisition will become chargeable. The chargeable gain deferred was £16,000, or £1 per share, such that, on the sale of 5,000 shares, a gain of £5,000 will become chargeable.
Capital gains tax liability
Any chargeable gains realised by Pippin in the tax year 2017/18 will be reduced by his annual exempt amount of £11,100. Any gains not covered by the annual exempt amount will be taxed at 10%, as Pippin has no taxable income.
Income tax
If the shares are sold prior to 4 January 2018 at their current market value, there will be a withdrawal of £1,500 (5,000 x £1 x £0·30) of the income tax relief originally obtained by Pippin. This is because the shares will have been sold for more than their cost.

【答案解析】