问答题

问答题

问答题

问答题James is about to be made redundant by Quark Ltd. He is seeking advice on the taxation of his redundancy payment and on the sale of shares acquired via an approved share incentive plan. He intends to form Proton Ltd, which is expected to be treated as a personal service company, and wants to know how much better or worse off he will be as compared to the job he is about to lose. The following information has been obtained from a meeting with James. James - Income, national insurance and capital gains tax position: - James is paid a salary of ￡70,000 per year by Quark Ltd. - He is not contracted out of the State Second Pension. - He has no income other than that from Quark Ltd and Proton Ltd in the tax year 2012/13. - He withdrew shares from the Quark Ltd approved share incentive plan on 1 September 2012. - His disposal of the shares in Quark Ltd is his only disposal for the purposes of capital gains tax in the tax year 2012/13. Withdrawal and sale of shares from the Quark Ltd approved share incentive plan: - James has been awarded free shares on 1 June every year since 2008. - James withdrew all of the shares in the plan on 1 September 2012 and immediately sold them. Redundancy and future plans: - Quark Ltd will make James redundant on 31 January 2013. - The company will make a redundancy payment to James of ￡38,500. - In accordance with its usual policy, the company will also pay James ￡17,500 in lieu of notice. - James will form a new company, Proton Ltd. Proton Ltd - Activities: - Proton Ltd will provide services to Quark Ltd and to other companies. - The services will be carried out by James personally. - All of Proton Ltd's income will be in respect of relevant engagements and therefore subject to the personal service company (IR35) legislation. Proton Ltd - Estimated income and outgoings for a full year: ￡ Gross fee income 80,000 Salary paid to James 48,000 Administrative expenses 3,000 Travel expenses reimbursed to James 1,500 Dividends paid to James 18,000 Notes: 1 Where applicable, the above amounts are stated excluding value added tax (VAT). 2 The travel expenses are those which will be necessarily incurred by James in performing the work for Quark Ltd and the other customers of Proton Ltd. Required (a) Identify the income tax, national insurance contribution and capital gains tax implications, if any, of the withdrawal and subsequent sale of the shares in Quark Ltd, the redundancy payment and the payment in lieu of notice. (b) (i) Prepare calculations to determine the effect on James's annual income, after deduction of all taxes, of working for Proton Ltd rather than Quark Ltd. (ii) Calculate the effect on James's annual income, after deduction of all taxes, if the income of Proton Ltd were not regarded as being in respect of relevant engagements. (c) Give three examples of specific contractual arrangements that would assist in arguing that the relationships between Proton Ltd and its customers do not amount to relevant engagements such that they would no longer be covered by the personal service company (IR35) legislation. Assume that the tax rules and rates for 2011/12 continue to apply in subsequent years.

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