Semester 2 ACC3009 Taxation in Accounting Assignment Solution

This document presents a comprehensive solution to a Taxation in Accounting assignment, likely for a university course. It addresses various aspects of taxation, including questions on motor vehicle depreciation and overlap profits, employment income calculations, and VAT computations, offering a detailed breakdown of output and input VAT. The assignment also covers group relief, capital gains tax on the sale of shares and residential property, and inheritance tax liabilities. Furthermore, it explores the ethical principles in business, analyzing a case study, and evaluating the merits and demerits of corporate tax incentives. The solution includes detailed calculations, explanations, and answers to each question, providing a valuable resource for students studying taxation.

TAXATION IN ACCOUNTING

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Question 2..................................................................................................................................4
Question 3..................................................................................................................................4
Question 4..................................................................................................................................5
Question 5..................................................................................................................................6
QUESTION- 6...........................................................................................................................6
1) Sale of shares in Halliday Limited.....................................................................................6
2) Sale of residential property................................................................................................9
QUESTION- 7...........................................................................................................................9
Merits and demerits of the corporate tax incentives as a means of promoting business
growth, investment and entrepreneurship..............................................................................9
REFERENCES.........................................................................................................................11

Question 1
a)
 For the purpose of effectively evaluating the large increase in the net book value of
motor vehicles, the company requires additional information pertaining to purchase
receipt of the motor vehicles.
 In addition to this, other details regarding what is required to be done in respect to the
amount of tax paid. Also, the purpose for which the motor vehicle is being utilized by
the company.
 From where the motor vehicle is being purchased and the amount pad as tax on it.
 The amount of deprecation is being charged on the motor vehicle.
b)
First year profit ended on 2019-20
Profit = 4500
Second year profit ended 20-21 = 14000*11/15 = 10266.6
Third year profit ended on 21-22 = 34000
Comment on overlap profits
Trading profits 4500 + 14000 +34000 = 52500
Less: profits assessed= 3000 +10266.6+34000 = 47266.6
Overlap profit = 5233.4
c)
i)
Total employment income of Sandra for 20-21
Particulars
Amoun
t
Salary 43200
add: Personal car used for business
purpose 900
Add: Gym membership 400
Add: Allowance on interest 160
Total employment income 44660
ii)
Monthly total primary Class I NIC due for Sandra and Toby

Sandra = 3721.67 – 4167 = NA Below threshold
Toby = 5950 – 4167 = 1783
primary Class I NIC due = 1783 *12% = 213.96
iii)
Total annual cost = 11900 – 9500 = 2400 *12% = 288
Question 2
a)
i) Diamond Plc’s losses group: Pearl Ltd and Sapphire Ltd
ii) Diamond Plc’s gains group: Emerald Ltd
b)
Emerald Ltd’s total taxable profit
Particulars
Amoun
t
Profit before tax
350000
0
Add: Capital allowance 56700
Taxable profit
355670
0
c)
Pearl Ltd can surrender as much as 3556700 of the profits to Emerald ltd.
d)
Sales price = 400000
Purchase price = 150000
Gain = 250000
Purchased new office building = 120000 (370000 – 250000) this is the base cost of building.
The sale proceeds are fully reinvested so the entire chargeable gain can be rolled over.
Question 3
Particulars
Amoun
t
Output VAT
Credit sales to customers
(60000*4%*20%*60%) 288
Credit sales to customers without
discount (60000*40%*20%) 4800

Cash sales (12000*20%) 2400
Fuel charge (450*20/120) 75
Total output VAT 7563
INPUT VAT
Material purchased from the
suppliers based in UK
(43000*20%) 8600
Materials purchased from
suppliers based in EU
(14000*20%) 2800
Purchase of motor car
(1768*20/120) 295
Total input VAT 11695
Notes:
 If the customers are given discount on making payment early within 28 days are
eligible for 4% discount and only 60% of the customers availed the offer in the
quarter.
 The sales made to the EU VAT registered customers amount to £40,000 is not
allowed for output tax as any UK VAT registered businesses supplies goods to
another VAT registered customers within EU then the supply of goods is zero rated.
 The Features Ltd has purchased motor vehicle over which it can recover the input
VAT.
 The input VAT is greater than the output VAT, therefore, the VAT liability of the
business is negative and under such circumstance the business can reclaim the
difference from HRMC as a VAT refund.
Question 4
In respect to the given case scenario, the Adam Smith have not met with the
fundament ethical principles related to work. He has breached various principles such as the
honesty, loyalty, trustworthiness and responsibility. Adam failed to disclose the truth
regarding his ability to carry out the task of VAT and the corporate tax returns in regard to
the position of Finance controller of Rep Ltd. Adam was not honest regarding telling the truth
regardless of the consequences and has resulted into blaming the junior accountants for any
mistakes or errors made. This has resulted into affecting the reputation of the Adam at the
end (15 Ethical Principles in Business. 2021). On account of the loyalty, remaining faithful to
the juniors and colleagues actually depicts a sense of commitment which results into

developing long lasting relationship and attaining future success. The company has even
asked Adam if he wants to undertake the specific training regarding it, to which he denied
with the only reason that he did not want to lose face so he refused to take the training and
also put the blame on the junior assistant accountant and has continued to submit the return
with the expectation that no error will occur.
Another fundamental ethical principle breached is the trustworthiness which also
involves being dependable and meeting with the obligations. It involves arriving at time,
meeting with the deadlines and highlighting consistency in work. But Adam failed to be
committed towards his work as it was not having relevant skills and knowledge in relation to
the position given which affected the work. The last principle breached is responsibility
which involves the taking ownership of the tasks and the responsibility pertaining to the
effect of the actions being undertaken as the employer and employees are mainly depend
upon the responsible workers in order to undertake the decisions. Therefore, all these factors
have resulted into breach in the appointment Adam Smith and his role as financial controller.
Question 5
IHT liabilities are as follows:
Lifetime transfers
Net chargeable transfer on December 2011 280000
Net chargeable transfer in May 2018 227000
Total 507000
IHT liability
325000 at nil%
182000 (507000 - 325000) *20% 36400
IHT liability already paid 36400
Additional liability arising on death
Chargeable estate 1500000
IHT liability @40% 600000
QUESTION- 6
1) Sale of shares in Halliday Limited
Assessee- Gordon
Shares acquired on 1st January, 2018 in Halliday Limited
15000 shares * 1 per unit of share= £15000
On 1st March, 2019 became a full time worker in Halliday Limited at an annual salary of
£100000 per year

Sale of 15000 shares
Option- 1
Sale of shares on 31st December, 2020 at £30 per share
Particulars Amount
Proceeds 15000 * £30= £450000
Less: Cost of acquisition 15000 * £1= £15000
Net proceeds £450000 – £15000= £435000
Less: Annual exemption £12300
Taxable amount £435000 - £12300= £422700
Capital gains tax @ 10% £422700 * 10% = £42270
Net after tax proceeds for Gordan= Proceeds from sale of shares – Capital gains tax
Net after tax proceeds for Gordan= £450000 - £42270
Net after tax proceeds for Gordan= £407730
Income tax on salary
Particulars Amount
Amount of salary £100000 / 12 * 9= £75000
Less: Personal allowance limit £12500
Taxable amount £75000 - £12500= £62500
Basic rate @ 20% on first £37500 £37500 * 20%= £7500
Higher rate @ 40% from £37501 to
£150000
(£62500 - £37500) * 40%= £10000
Total tax applicable £17500
Capital gains tax on sale of residential property
Particulars Amount
Capital gains on residential property £20000
Less: Annual exemption £12300
Taxable amount £7700
Capital gains tax @ 18% standard rate £7700 * 18%= 1386
Particulars Amount
Capital gains tax on sale of shares £42270
Income tax on salary £17500
Capital gains tax on sale of residential
property
£1386
Total tax £61156
Option- 2
Sale of shares on 31st March, 2021 at £27.50 per share
Particulars Amount

Proceeds 15000 * £27.50= £412500
Less: Cost of acquisition 15000 * £1= £15000
Net proceeds £412500 – £15000= £397500
Less: Annual exemption £12300
Taxable amount £397500 - £12300= £385200
Capital gains tax @ 10% £385200 * 10% = £38520
Net after tax proceeds for Gordan= Proceeds from sale of shares – Capital gains tax
Net after tax proceeds for Gordan= £412500 - £38520
Net after tax proceeds for Gordan= £373980
Income tax on salary
Particulars Amount
Amount of salary £100000
Less: Personal allowance limit £12500
Taxable amount £100000 - £12500= £87500
Basic rate @ 20% on first £37500 £37500 * 20%= £7500
Higher rate @ 40% from £37501 to
£150000
(£87500 - £37500) * 40%= £20000
Total tax applicable £27500
Capital gains tax on sale of residential property
Particulars Amount
Capital gains on residential property £20000
Less: Annual exemption £12300
Taxable amount £7700
Capital gains tax @ 18% standard rate £7700 * 18%= 1386
Particulars Amount
Capital gains tax on sale of shares £38520
Income tax on salary £27500
Capital gains tax on sale of residential
property
£1386
Total tax £67406
Total net proceeds under both the options:-
Option- 1
Particulars Proceeds Tax
Sale of shares 450000 42270
Salary income 75000 17500
Sale of residential property 20000 1386
Total 545000 61156
Net proceeds after tax 483844

Option- 2
Particulars Proceeds Tax
Sale of shares 412500 38520
Salary income 100000 27500
Sale of residential property 20000 1386
Total 532500 67406
Net proceeds after tax 465094
 The total net proceeds of the option 1 are greater than the option 2. So, we suggest
that the assesse must go for option 1 of selling the shares so that he can maximize the
net proceeds in order to finance the holiday trip.
 The capital gains tax is applicable @ 10% due to the entrepreneurs relief that is
applicable on the assesse as he is selling the shares of the trading company in which
he works and also holds the shares more than the minimum limit prescribed of 5%.
2) Sale of residential property
The value of property that is inherited from father= 570000
Sale value to the third party= 630000
If the assesse will gift the house property to the spouse it shall not be attracting the
inheritance tax.
So if the half of the property is transferred and post that it is sold then in that case the annual
exemption shall be doubled.
Proceeds= 630000
Cost= 570000
Net income= 60000
Annual exemption= 12300 * 2= 24600
Taxable income= 35400
Tax amount= 35400 * 18%= 6372
Total tax charged
Particulars Leanne Daniel
Income 90000 15000
Tax 12500 exempt
37500 * 20%= 7500
40000 * 40%= 16000
Total = 23500
12500 exempt
2500 * 20%=500
House property 3186 3186
Total tax 26686 3686

QUESTION- 7
Merits and demerits of the corporate tax incentives as a means of promoting business growth,
investment and entrepreneurship
The corporate tax incentives that are provided to the entrepreneurs so that they execute
the business growth, innovation and entrepreneurship have led to both pros and cons for the
economy as a whole. The tax department have executed generous policies in the form of tax
incentives to the companies so that they can encourage the businesses to invest in the areas
like the research and development. There are some merits as well as demerits of these
corporate tax incentives:-
Merits
 This can be helpful in developing the competitive tax regime in the country by
reducing the tax on the capital. This shall thereby increase the amount of capital
invested and attract more taxable profits to build the reserves of the government.
 Another major benefit is that it shall be leading to the fulfilment of the long term plans
and objectives that are developed by the government. This is because the tax incentives
shall be provided in the areas where the government wishes the company to feature
investments and growth and this shall be executed if the attractive tax incentives are
provided to the entrepreneurs.
 It can be used to generate any types of reforms and also can be used for increasing the
multinational activities by providing incentives on the foreign trade.
 It shall also be increasing the mobility of capital resources of the individual businesses
and this is the reason that shall increase the growth and development of the national
economy of the country.
Demerits
 These tax incentives are exposed to the abuse of these businessman as the
professional experts of the tax are indulged in finding the loopholes so that they can
capitalize over the tax incentives and gain on the reliefs and exemptions that are
provided.
 It cannot also be assured that what level of income or benefit these tax incentives will
provide to the assesse. So this makes it further difficult for the regulators to monitor
the activities of the business in relation to the tax benefits as extended.

 Another major disadvantage is that the businesses are not sure about the earnings they
shall be getting on the investments made in the new projects, so these incentives
might not encourage them to make the necessary decisions for the welfare of the
economy.

REFERENCES
Books and Journals
Online
15 Ethical Principles in Business. 2021. [Online]. Available Through:<
https://www.indeed.com/career-advice/career-development/ethical-principles-in-business>.