案例分析题

Your manager has had a meeting with Gail. Gail owns the whole of the ordinary share capital of Aero Ltd. An email from your manager setting out the matters discussed in the meeting and a schedule prepared by Mill, a junior member of your firm’s tax department, are set out below.

Email from your manager – dated 9 June 2016

Gail

Gail was born in 1969 and is resident and domiciled in the UK. She owns the whole of the ordinary share capital of Aero Ltd (A Ltd) and works full-time as a director of the company. A Ltd owns the whole of the ordinary share capital of Zephyr Ltd (Z Ltd). A Ltd and Z Ltd are both UK resident companies paying corporation tax at the main rate.

Historical transactions in respect of A Ltd and Z Ltd – all transactions took place at market value

1 January 2008 A Ltd acquired the whole of the ordinary share capital of Z Ltd for £180,000.

1 October 2012 A Ltd sold a building (the Simpson Building) to Z Ltd for £110,000. A Ltd had purchased this building for £75,000 on 1 December 2004.

1 March 2014 Z Ltd sold a building (the Torro Building) to A Ltd for £170,000. Z Ltd had purchased this building for £115,000 on 1 June 2010.

Proposed transactions – all transactions will take place at market value

Gail intends to raise a substantial sum of money by carrying out the following transactions:

(1) 24 June 2016 Z Ltd will sell the Simpson Building to an unrelated purchaser for £140,000. Rollover relief will not be claimed in respect of this disposal.

Z Ltd will pay a dividend to A Ltd equal to the post-tax proceeds of this sale.

(2) 1 July 2016 A Ltd will sell the whole of the ordinary share capital of Z Ltd for £250,000

(3) 15 July 2016 All of the cash realised by A Ltd as a result of transactions (1) and (2) will be paid to Gail in the form of either a dividend or a bonus.

Please carry out the following work:

(a) Schedule prepared by Mill

I can confirm that there are no computational errors in the schedule but I suspect that Mill will have made a few technical errors.

Please identify and explain any errors in the schedule, explain whether or not the notes to the schedule are or are not correct, and calculate the correct amount of total cash available to pay to Gail.

(b) Payment to Gail

Calculate the additional tax and national insurance contributions due, as reduced by any corporation tax savings, if all of the cash realised by A Ltd as a result of the proposed transactions (1) and (2) is paid to Gail in the form of:

(i) a bonus

(ii) a dividend.

Gail’s annual income tax liability in respect of her annual salary of £85,000 from A Ltd is £23,627. This will be her only source of income in the tax year 2016/17 other than any payments received from A Ltd as outlined above.

(c) Non-disclosure of income

Gail has realised that she has not declared some of her income in respect of the tax year 2011/12. As a result of this, her income tax liability for that tax year was understated. I have already explained the interest and penalties which may be charged in respect of this error.

State the other matters which need to be considered, by us and by Gail, in relation to the disclosure of this error to HM Revenue and Customs (HMRC).

Tax manager

Schedule prepared by Mill

Cash which will be available to pay to Gail as a result of the proposed transactions (1) and (2)

问答题
Schedule prepared by Mill.

Note: The following movements in the Retail Prices Index should be used, where necessary.

December 2004 to October 2012 0·293

December 2004 to June 2016 (est.) 0·400

January 2008 to July 2016 (est.) 0·250

June 2010 to March 2014 0·137

October 2012 to June 2016 (est.) 0·080

【正确答案】
Gail
Schedule prepared by Mill
The computation
– The chargeable gain on the sale of the Simpson Building is incorrect. The sale of the building on 1 October 2012 will have taken place at no gain, no loss because Aero Ltd (A Ltd) and Zephyr Ltd (Z Ltd) were in a capital gains group (A Ltd owns at least 75% of Z Ltd). Accordingly, Z Ltd’s base cost in the building is the amount paid for the building by A Ltd plus indexation allowance up to the date of the no gain, no loss transfer.
– The post-tax proceeds on the sale of the Simpson Building will be the sale proceeds (not the chargeable gain) less the related corporation tax liability.
– Dividend income received by UK companies is generally not subject to corporation tax. Accordingly, A Ltd will not have a corporation tax liability in respect of the dividend received from Z Ltd.
The notes
1. The substantial shareholding exemption is available where a trading company sells shares in another trading company out of a substantial shareholding (a shareholding of at least 10%) of that company’s ordinary share capital. The substantial shareholding must have been owned for a continuous period of at least 12 months in the two years prior to the sale.
Accordingly, the SSE will only be available if A Ltd and Z Ltd are both trading companies.
2. There will not be a degrouping charge in respect of the Torro Building. A degrouping charge would only arise if an asset had been transferred to Z Ltd at no gain, no loss within six years of the sale of Z Ltd.
Tutorial note: For a degrouping charge to arise it would also be necessary for Z Ltd to still own the asset when A Ltd sells Z Ltd.
Cash available to pay to Gail as a result of transactions (1) and (2)

【答案解析】

问答题
Payment to Gail.

【正确答案】
Payment to Gail
Payment of a bonus of £382,594 – total additional taxes

Tutorial note: The reduction in the corporation tax liability will be dependent on there being sufficient taxable profits to absorb the tax deductions.
Payment of a dividend of £382,594 – total additional taxes

【答案解析】

问答题
Non-disclosure of income.

【正确答案】
Disclosure of error
The error made by Gail must be disclosed to HM Revenue and Customs (HMRC).
Gail can inform HMRC herself or she may authorise us to do so. However, we must not disclose the error to HMRC unless we have her permission.
We cannot continue to act for Gail unless this disclosure is made.
We should ascertain how the error arose in order to determine whether or not there are further errors to disclose
We should inform the firm’s money laundering officer of the situation
We should notify Gail of the following consequences of not informing HMRC of her error:
– If she refuses to disclose the error, we will advise HMRC that we no longer act for her. We would not, however, give any reason for our actions.
– Non-disclosure of the error would also amount to tax evasion. This could result in criminal proceedings under both the tax and money laundering legislation.

【答案解析】