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Personal Allowance £11,850
Income limit for standard personal allowance £100,000
Transferable amount of personal Allowance £1,190
Income Tax Rates Normal Dividend
Basic Rate - £1 to £35,500 20% 7.5%
High Rate - £34,501 to £150,000 40% 32.5%
Additional Rate - £150,000 above 45% 38.1%

Savings income Nil Rate Band – BRTP £1,000

– HRTP £500
Dividend Income Nil Rate Band £2,000
Starting Rate of 0% applies to savings income where it falls within first £5,000 of taxable income.
Exempt Benefits
1. Small loans totaling not more than £10,000 in one year
2. Employers contribution to a registered Pension Scheme
3. Use of Free or Subsidized canteen, if available to all employees
4. Gifts from third parties, costing not more than £250 in a year from one source. If exceed, whole amount is
taxable.
5. Entertainment (seats to sporting/cultural) events provided by third parties.
6. Free car parking space near office (including reimbursements)
7. One mobile phone
8. Work buses, subsidies to public transport, bicycle and its safety equipment (aimed to encourage
employees not to use cars)
9. Employer funded training – both full time and part time, to increase employees’ skills. For full time £15,000
limit. If exceeds whole is taxable
10. Festival parties, annual dinners for staff up to £150 per person. If exceed whole is taxable.
11. First £8,000 of removal / relocation expenses.
12. Medical insurance when employee is working abroad
13. Welfare counseling, assistance in finding another job
14. Free pension advice for employees not costing more than £150
15. Expenses on overnight stay on company business exempt up to £5 per night in UK, and £10 on
international travel. If exceed, whole is taxable.
16. Employee liability insurance
17. Work place nurseries for children (without any limit)
18. The exemption limit where childcare is provided by an employer is £55 per week for basic rate
taxpayers, £28 per week for higher rate taxpayers, and £25 per week for additional rate taxpayers
19. The weekly allowance an employer can pay to an employee who works from home is £4/week
(£18/month) to covers the extra light and heat costs incurred due to home working.
20. An annual £500 exemption per employee where an employer pays for medical treatment
21. Trivial benefits (cost less than £50/employee, not cash nor cash voucher)

Mileage Allowance:
 Cars – 45 pence a mile for the first 10,000 miles and 25 pence a mile after that
 Motorcycles – 24 pence a mile
 Cycles – 20 pence a mile.
 Passenger Rate – 5 pence a mile (can reduce benefit, cannot create deduction)

CO2 emission less than 50 g/km 13%

51 - 75 g/km 16%
76 - 94 g/km 19%
95 g/km above 20%

Fuel scale charge £23,400

Official Rate of Interest 2.5%

Company Van Benefit £3,250 pa

Company Van fuel Benefit £633 pa

Exempt Partially exempt Taxable

 Statutory redundancy  Ex-gratia payments, compensation  Regular Emoluments
payment for loss of office, damages for breach  Notice pay/contractual pay
 Payments due to sickness, death of contract/wrongful dismissal,  Paymentfor restrictive
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Redundancypayments including
 Lump-sum payment from covenants
benefits
approved Pension
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First 30,000 exempt (reduced by

statutory redundancy payment)
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Question 1
Duncan McByte is a computer programmer living in Scotland. He has recently accepted offer of a contract
of employment with Mainframe plc (a large company worth over £50 million) for a period of three years
commencing on 1 July 2018. Duncan will be based in London during the period of the contract. The
remuneration package comprise of;

a) A salary of £108,000 pa, together with a termination bonus of £40,000 upon satisfactory
completion of the contract.

b) Mainframe plc will provide a flat for Duncan in London. It was purchased in year 2006 for £135,000
and was improved at a cost of £45,000 during 2008. It has a rateable value of £36,000 and is
currently valued at £320,000. The furniture in the apartment has cost Mainframe £21,000 and the
company will also bear running costs of £6,000 pa.

c) Duncan used his private motor car for business mileage till December 2018. The motor car is leased at
a cost of £980 per month, and annual running costs including fuel of £5,600. He drives a total of 1,700
miles per month, of which 1,500 miles are for business purposes. Mainframe plc pays a mileage
allowance of 30 pence per mile for business mileage. Statutory m ileage allowance is 45 pence per
mile for first 10,000 miles and 25 pence thereafter.

d) From January 2019, Duncan was provided a new diesel powered car along with fuel for official and
personal use. The car has official CO2 emission of 143 g/km and company had purchased it at a 10%
discounted value paying £28,800. Duncan had to make a capital contribution of £7,000 for the
purchase of the car, and was further required to pay £300 monthly for personal use of the car, and
£100 monthly for fuel.

e) On 1st July 2018, Mainframe provided Duncan with a loan of £60,000 to purchase a holiday cottage
in France. The loan is on 1% interest pa, and will be repaid in six half yearly installments of £10,000
each.

f) An allowance of £14 per night was given to Duncan for 35 nights, to cover miscellaneous
expenses while he was away on business trips to other cities within the country.

g) The company had negotiated group membership of a nearby gymnasium. Duncan availed himself of this
benefit paying £350 per month compared with a normal monthly membership fee of £750.

h) Mainframe will pay for Duncan’s annual subscription of £125 pa to the Institute of Chartered
Computer Consultants, an approved professional body. Duncan will pay £200 per month riding club
membership starting from July 2018. Mainframe will pay £1,200 for liability insurance of Duncan, and
£1,800 for his golf club subscription (which costs £2,200 if he had taken it himself).

i) On 1st July 2018 Duncan was granted options to purchase 15,000 £1 ordinary shares of
Mainframe plc at their value of that date. The options were provided free of cost and will be
exercised by Duncan upon termination of his contract. Mainframe’s shares are quoted at £1.70 on 1 s t
July 2018 and are estimated to be worth £5 at termination of his contract. These options are approved
by HMRC.

j) Duncan was provided child benefit of £100/week by his employer during the year for 20 weeks.

Required: Income tax Implications for Duncan for tax year 2018/19 will be?

Question 2
Zara is employed as Finance Manager in Newco Ltd since 2008 at annual salary of £60,000. She paid
£350 per month to the company’s occupational pension scheme and tax of £12,165 under the PAYE
system during 2018/19

She is provided a rent free flat since 2008 with annual rental value of £30,000. Newco Ltd. had bought the flat
in July 2008 for £178,000, and incurred a subsequent capital expense of £12,000 in August 2009 to improve
the flat. Market value of the flat was £425,000 in early 2018. She is also provided a laptop computer costing
£2,500 for personal use.

During the year Newco Ltd paid £3,500 into her occupational pension plan. Zara had agreed with her
employer that the company would deduct £90 a month during the whole of 2018/19 in respect of
charitable payments under the payroll deduction scheme. In December 2018 she paid £215 membership
fees to ACCA, a HMRC approved professional body. In addition, the company also paid £750 to the local golf
16

club in respect of her yearly membership. She was provided a new diesel car for personal and official use
with fuel having cost of £32,600 with official CO2 emission of 157 g/km from 1 October 2018. Newco Ltd
gave her a mileage allowance of 55p per mile for the 6,000 business miles traveled by her in her own car
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till September 2018. Calculate her income tax liability for the year?
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Class 1 Employee £1 – £8,424 per year Nil
£8,425 – £46,350 per year 12.0%
£46,350 and above per year 2.0%

Class 1 Employer £1 – £8,424 per year Nil

£8,425 and above per year 13.8%
Employment allowance £3,000

Class 1A 13.8%

Question 3
Peter Pan was employed by Flick plc, an unquoted company, at an annual gross salary of £60,000. He
was dismissed on 15 February 2019, and on that day was paid salary for the remaining days of February,
along with advance salary for next month, as per his contract. Additionally he received redundancy
payments of £65,000. This amount included statutory redundancy payment of £2,800, holiday pay of
£1,800 and £6,000 for agreeing not to work for a rival company. The b a l a nc e of paym ent w a s
compensation for loss of office; £10,000 out of the amount was not paid till 31 May 2019.
During his employment, he was provided with petrol driven car costing £22,000 with official CO2 emission of
th
167 g/km with Fuel. On his dismissal, he was allowed to keep the car till 30 June 2019 with fuel
provided by Flick plc. Calculate his Income tax liability of 2018/19 and 19/20, assuming he has no other
income and rates of tax for both years are the same as of 2018/19

Question 4: CSOP or unapproved

Adrian Black, an employee, is granetd an option in October 2013 to acquire 1000 shares in his employing
company,a quoted trading company, before 1 October 2019 at £8 each. When the option is exercised in
November 2019 the shares are worth £20 each. Adrian buys and sells the shares on the same day at same price.
Adrian is a higher rate tax payer who atleast earns £50,000 pa and has no other capital gains in 2019/20.
Requirements
Calculate the tax charges on the exercise of the option and on the disposal of the sharess assuming:
a) The share optionn scheme is an approved share option plan; or
b) The scheme is unapproved
Question 5 : Approved share option Scheme
Compubuy Ltd is a trading company breaking into the e-commerce market. Its gross assets are £20 million. The
market value of its ordinary shares is 125p each on 31 August 2018, at which time the company grants to Alison
an option over 80,000 shares under a Enterprise Management Incentive(EMI) scheme. The cost of the shares
under the option is fixed at 125p per share.
Alison is a full time employee of Compubuy Ltd and currently holds no other share options. Compubuy Lad has
£2million of such share options in issue.
Requirements
Show the taxation consequence for Alison if:
a) The option is erercised on 31st August 2021 when the market value of the shares is 350p; and
b) The shares are then sold on 30th June 2022 for £750,000.
Question 6 (Exam Question - December 2011) (Extract)
Morice is the finance director of Babeen plc. Babeen plc is a non-close quoted trading company. Morice wants to
provide information to the company’s employees on a proposed approved Save As You Earn (SAYE) share
option scheme.
The following information has been obtained from a telephone conversation with Morice.
Proposed approved SAYE scheme rules:
– Employees will invest in the scheme for five years.
– The scheme will permit monthly investments of between £5 and £600.
– The scheme will be open to all employees and directors who are at least 21 years old and have worked full-time
for the company for at least three years.
– The share options granted under the scheme will enable employees to purchase shares for £2·48 each.
Detailed explanations, with supporting calculations, requested by Morice:
– Whether or not each of the proposed rules will be acceptable for an approved SAYE scheme.
– The tax and national insurance liabilities for the employee in the illustrative example below in respect of the
grant and exercise of the share options, the receipt of the bonus and the sale of the shares on the assumption
that the scheme referred to meets all of the conditions for approval.
Illustrative example – SAYE scheme that has been approved by HMRC:
– The share options will be granted on 1 January 2020 to purchase shares at £2·48 each.
– The employee will invest £250 each month for five years.
– A bonus equal to 90% of a single monthly payment will be paid at the end of the five-year period.
– The amount invested, together with the bonus, will be used to exercise share options.
– The share options will be exercised on 31 December 2024 and the shares will be sold on the same day.
– The employee’s interest in the employing company will be less than 1%.
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– A share in the employing company will be worth: £3·00 on 1 January 2020

4·00 on 31 December 2024
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Required: Prepare the DETAILED explanations, with supporting calculations, as requested by Morice in respect
of the proposed SAYE scheme.
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Share Options Scheme
CSOP EMI SAYE SIP
Qualifying Restrict to Key Restrict to key Must be open to Must be open to all
employees employees only employees only (must all
own ≤ 30% & work for
substantial amount of
time for the company)
Maximum total £30K £250K (reduced by £5 - £500 per Free = £3.6k pa
Value at grant value of any shares month maybe Partnership =£1.8k pa
per employee held under SCOP) saved per (max 10% salary)
employee from
Company may only net income Matching 2:1
have £3m in issue at
any one time
Conditions No discount at May issue at discount Max 20% Hold for atleast 3yrs
Grant discount at time (except partnership
Exercisable ≥3 yrs Exercisable ≤ 10yrs of issue shares)
and ≤ 10 yrs And 5 yrs for maximum
Company must have benefit
If own >30% of gross assets ≤£30m,
company be trading, maybe
=excluded from quoted or unquoted
scheme
Company group must
have less <250
employees at time of
grant
Tax treatment at No Income Tax or No Income Tax or NIC No Income Tax No Income Tax or NIC
Grant NIC or NIC on issue of free or
matching shares

Partnership shares are

purchased out of
income, no income tax
on dividends used to
buy partnership
shares
Tax Treatment at No Income Tax or If issue at discount, the No Income Tax If withdrawn in 3 yrs,
Exercise NIC discount is taxable or NIC Income Tax and class
employment income 1 NIC is payable,
£ based on the MV when
Exercise Price X withdrawn.
MV at Grant (X)
Taxable X If withdrawn 3-5 yrs,
Income Tax and class
Or the difference 1 NIC is payable,
between the exercise based on lower of:
price or MV of shares (1) MV when first
at exercise, if lower awarded, and
(2) MV when
withdrawn from the
SIP

If withdrawn after 5
yrs, no Income tax/NIC
Tax treatment at Normal Capital gain Normal Capital gain Normal Capital If withdrawn after 5
disposal based on proceeds based on: gain based on yrs, no CGT
less exercise price £ proceeds less
Proceeds X exercise price If withdrawn within 5
Exercise price (X) yrs,
Amount taxable £
at exercise (X) Proceeds X
Taxable Gain X Amount taxable
at withdrawal (X)
Entrepreneurs' relief Taxable Gain X
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period of ownership
runs from date of
grant, and no need to
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own > 5%
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Question 7
For the tax year 2018/19, Joe has a salary of £42,000, savings income of £2,000 and dividend income of £9,000.
During the year, he paid interest of £300 which was for a qualifying purpose. Joe’s employer deducted £6,100 in
PAYE from his earnings.
The income tax payable by Joe will be?

Question 8 (Tax planning advise)

Samuel and Samantha are married couple. For the tax year 2018/19, Samuel will have a salary of £90,000.
Samantha will have a salary of £30,000 and savings income of £1,500.
Advise for the tax planning to the couple.

Question 9 (Tax planning advise)

Nigel and Nook are married couple. For the tax year 2018/19, Nigel will have a salary of £160,000 and savings
income of £400. Nook will have a salary of £60,000 and dividend income of £3,000.
Advise for the tax planning to the couple.

Question 10 (Different allocation of Personal Allowance)

For the tax year 2018/19, Able has pension income of £8,000, savings income of £4,500 and dividend income of
£9,000. His income tax liability will be?

Question 11 (Transferable amount of Personal Allowance)

Paul and Rai are a married couple. For the tax year 2018/19, Rai has a salary of £35,000 and Paul has a trading
profit of £8,000.
Advise for the tax planning to the couple.

Question 12
Michael Selby (aged 45) and Josie Selby (age 47) received the following income in 2018/19.
Michael Josie
£ £
Salary (gross) 163,540 100,000
PAYE tax deducted 57,400 33,000
Dividends (amount received) 10,900 5,538
Interest from Loan notes (amount received) 6,000 760
Building society interest (amount received) 5,920 4,200

Josie made a gift aid donation of £1,600 in December 2018.

Required
Compute the tax payable by Michael Selby and by Josie Selby for 2018/19.

Annual allowance £40,000

Minimum allowance £10,000
Threshold income limit £110,000
Income limit £150,000
Lifetime allowance £1,000,000

Question 13 (limit of annual allowance)

Edith has the following income and benefits in the tax year 2018/19; Salary £100,000 Company car £5,000
Dividends £4,000 Employer pension contribution £50,000
Edith annual allowance limit will be?

Question 14 (limit of annual allowance)

Gary has the following income and benefits in the tax year 2018/19; Salary £100,000 Employee occupational
pension contribution (net pay) £10,000 Dividends £10,000 Interest £5,000 Company car £10,000 Employer
pension contribution £30,000. Gary annual allowance limit will be?

Question 15
Ted is a sole trader. His gross contributions to his personal pension scheme have been as follows:
2014/15 £21,000
2015/16 £26,000
2016/17 £46,000
2017/18 £35,000
In 2018/19 Ted has a good trading year and wishes to make a large pension contribution. Ted income is below
income threshold for annual allowance purposes.
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(a) What is the maximum gross pension contribution Ted can make in 2018/19 without incurring an annual
allowance charge, taking into account any brought forward annual allowance?
(b) If Ted makes a gross personal pension contribution of £53,000 in 2018/19, what are the unused annual
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allowances he can carry forward to 2019/20?

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Question 16 (Bond washing)
Ahmed sold £15,000 6% loan stock cum interest on 31 October 2018 for proceeds of £20,000. He originally
acquired the loan stock on 1 May 2018. Interest is payable on 30 June and 31 December each year.
Calculate the amount assessed on Ahmed as interest income for 2018/19.
Question 17
Harry invested £40,000 in a qualifying EIS company on 1 August 2018.
Requirement
Calculate the tax reduction he is entitled to if he:
(a) Subscribes for qualifying EIS company shares, or (b) Subscribes for qualifying SEIS company shares.
Question 18
In June 2018 Joe won £60,000 on the National Lottery. He wished to invest this money tax efficiently and,
following professional advice, he subscribed £40,000 to an EIS investment in June 2019. He wishes to carry
back the investment to 2018/19. Joe also subscribed £20,000 to a VCT in August 2019.
Joe has asked you to calculate his tax liabilities for 2018/19 and 2019/20 and has given you the following
information:
2018/19 2019/20
Salary 60,000 60,000
Dividends received from EIS investment 6,600
Distribution from VCT 7,800
Requirements
(a) Calculate Joe’s income tax liabilities for 2018/19 and 2019/20.
(b) Explain the effect of selling his EIS and VCT shares in either May or Sep2022.
Assume tax rates and allowances for 2018/19 apply in future years.
Question 19
Matthew has the following investment income in addition to a salary of £90,000:
• Dividends from VCT investment of £7,000
• Dividend from REIT of £4,992
He also invested £50,000 in a qualifying EIS scheme during the tax year.
He also sold 11% £10,000 Government stock on 31 May 2018 which he originally acquired on 1 July 2017.
Interest is payable on 31 December and 30 June each year and the proceeds were £12,000.
He has paid private pension contributions during the period of £13,260.
Requirement
Calculate the income tax liability for 2018/19.
Question 20 (EIS reinvestment Relief)
Alex sold a painting in November 2018 for £275,000 realising a capital gain of £150,000.
Alex subscribes for qualifying EIS shares in Milan Ltd, a trading company, the following month at a cost of
£268,000. She has no other capital transactions for 2018/19, but has capital losses brought forward from
2017/18 of £6,000
Three years later in 2021/22 Alex sells the EIS shares making a profit of £175,000.
Requirement
(a) Calculate the amount of reinvestment relief that Alex should claim.
(b) Explain the capital gains tax consequences of the sale of the EIS shares in 2021/22.
Question 21 (EIS deferral relief, planning)
Chris sold his 10% holding in Cracker Ltd in September 2018 for £750,000, realising a capital gain of
£250,000.
He acquired the shares in July 2017 and has been a director of Cracker Ltd throughout his period of
ownership.
In November 2018 he subscribed for qualifying EIS shares in Cream Ltd, a trading company, at a cost of
£375,000.
Chris had no other capital transactions in 2018/19 but has capital losses brought forward of £50,000.
Requirement: Calculate the amount of EIS reinvestment relief that Chris should claim in 2018/19 and
discuss the interaction with Entrepreneurs' relief.
Question 22 (SEIS reinvestment relief/Withdrawal of SEIS relief)
Zosia sold an antique vase in June 2018 for £150,000 realising a capital gain of £75,000. In August 2018 she
subscribed for qualifying SEIS shares in Browns Ltd.
She has no other capital transactions for 2018/19, but has a capital loss brought forward of £16,000.
Requirement
(a) Calculate Zosia’s taxable gains for 2018/19 assuming the SEIS shares cost:
(i) £60,000 (ii) £125,000
(b) Explain the capital gains tax consequences if Zosia sells the SEIS shares in 2023.
(c) Explain the capital gains tax consequences for Zosia, assuming that in 2020 she sells all of the SEIS
shares for £65,000:
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(i) To her sister, not in an arm's length transaction (ii) To her friend, in an arm's length transaction.
Note: Consider both of the scenarios where she originally subscribes for shares at a cost of £60,000, and at a cost of
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£125,000
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EIS SEIS VCT
Level of Risk High Not as high
- Only one company invested in & Unquoted - Risk spreads over a number
of investments & Quoted
Qualifying  Subscribe in Cash  Subscribe in cash
Individual  New Ordinary shares  Newly issued shares
 Qualifying company
 Owns ≤ 30% of OSC
 Not director or  Not Current Employee
employee (can be director or
current employee)
Qualifying  Unquoted trading company  VCT must be quoted on a
Company/VCT  Have a permanent establishment in UK stock exchange or EEA
 Full time employees  Full time employees  Qualifying investments =
≤250 ≤25 70% in EIS qualifying co,
 Gross assets ≤£15m  Gross assets ≤£0.2m no more than 15% in single
before and ≤£16m before subscription co.
after subscription  Not previously used  Approved by HMRC
 Funds must use to EIS or VCT  Less than 250 employees
develop/grow co (not  Carrying on a trade <2
to purchase of yrs old, or preparing to
company/trade) carry on trade
 Carrying on a trade
<7 yrs old, or raise
qual. funds in 7yrs
Max Funds  £5m in any 12 months £150,000 in any 3 yrs £5m in any 12 months
company can  Must not more than period
raise £12m via EIS/ SEIS/
VCT, lifetime
Max Investment £1million p.a £100,000 p.a £200,000 p.a
by Individual
Minimum 3years 5years
retention period
for IT relief
IT relief: deducted % of amount subscribed % of amount subscribed % of amount subscribed =
from IT liability = 30% = 50% 30%
Carry back Any amount invested but Any amount invested but No carry back
amount to cannot get relief on more cannot get relief on more
previous tax yr than £1million in any one than £100,000 in any
tax year one tax year
Dividend income Taxable Exempt
CGT on disposal  Gain – Exempt if held > 3yrs No gain or loss whenever sold
 Loss
 Allowable
 Can elect to convert into IT loss
CGT deferral relief  Gain on any  50% of gain on any Not available
chargeable asset = chargeable asset =
deferred if proceeds exempt if sale
reinvested in EIS proceeds reinvested in
shares SEIS shares
 Gain crystallizes
when EIS shares are
dispose off
IHT – BPR 100% if owned ≥ 2yrs No BPR

Question 23
Faisal, aged 53, is employed by UUL plc at annual salary of £80,000. He received interest from bank of
£24,000 in August 2018, and dividends of £22,500 .In January 2019 from a unit trust. He paid qualifying
interest of £1,500 during the tax year. PAYE for the year was £19,750.
He inherited £200,000 from his Uncle in May 2018, and plans to invest this amount in tax efficient
products with low risk. He would like to invest in personal pension, and have also identified certain shares
in a quoted company which qualifies for VCT relief. He estimates he will purchase about £100,000
worth of the shares in October 2018. He plans to invest the remaining inheritance in quoted shares of
21

trading companies having good repute. His income tax liability of 2017/18 was £19,875.
Required:
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Calculate his income tax liability for 2018/19, assuming he invests in pension an amount giving him
maximum benefit, and advise him on the investments?
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Question 24 (exam style)
It is late November 2018. You receive a phone call from Mr Glen Roberts who wishes you to complete his
self-assessment tax return for the year ended 5 April 2019. You arrange to meet Glen.

At the meeting you ascertain the following:

Glen Roberts was born on 26 August 1968. On 1 August 2018 he was appointed Managing Director of the
National Bus Company plc (NBC). Glen had previously been a director of the Global Despatch Company plc
(GDC). He left GDC by mutual consent on 29 March 2018. Glen was awarded a severance package by GDC
as follows:

(i) a lump sum ex-gratia termination payment of £36,000. £28,000 of the payment was made on 5 April 2018
with the balance being paid on 30 June 2018. No deductions were made from either of these payments.

(ii) the continued use of his company car with the provision of petrol until 30 June 2018. The list price of the
car, a Mercedes, was £33,500. The car had first been registered on 6 April 2017, the date Glen joined GDC.
Its carbon dioxide emissions were 143 g/km.

(iii) continued private medical insurance cover for him and his immediate family at an annual equivalent
premium of £1,400 until 30 June 2018.

Before his contract with NBC had been confirmed, Glen had taken employment with United Metals plc (UM).
He worked for UM from 1 to 31 July 2018. He was paid £5,400 gross from which £1,800 income tax was
deducted under PAYE.

Glen’s gross annual salary at NBC is £100,000. PAYE of £20,400 was deducted at source from this income.

On 1 August 2018 Glen purchased a Saab Convertible car at a cost of £28,000. This car has a petrol engine.
Glen travelled 7,600 miles during the period to 5 April 2019 while carrying out the duties of his employment
with NBC. His mileage log shows that 33% of his mileage relates to business. NBC do not reimburse for fuel.

Glen believes in providing for his retirement. On joining NBC, the company paid £100 for Glen to visit an
independent pension advisor to determine whether he should join the company’s occupational pension
scheme. This service is available to all the company’s employees. Glen decided to join the scheme and
contributed 6% of his salary into the NBC scheme and a further 5% of his relevant earnings from NBC into a
personal pension plan with Scottish Amiable, a private pension entity (this represents the gross contribution).

Required:
(a) Calculate Glen’s self-assessment liability and balancing payment for the tax year 2018/19.

As part of his employment package with NBC, on 1 August 2018 Glen was granted options to buy 15,000
shares in NBC at £2.50 each through the company’s unapproved scheme. The market value of the shares at
that time was £3. Glen plans to buy his shares on 1 August 2020, when the share price is expected to be £6,
and will then sell the shares immediately.
(b) Explain the income tax, NIC and CGT implications of the share options.

Transferable Amount of Personal Allowance £1,190

Child Benefit
– Income less than £50,000  Exempt
– Income More than £60,000  100% of Benefit will be included in ITL
– Income more than £50k but less than  For every £100 increase in income, 1% of benefit
£60K receive will be included in ITL
Individual Savings Account (ISA) £20,000
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Fouradjustments to be made to accounting profit:
1. Taxable Income not included in P&L account
a) Goods taken from business for personal use

2. Income included in P&L account which is not taxable business income

a) Interest received, dividends received etc.

3. Expenses not allowed to be deducted from P&L, which have been deducted
a) Expenditure not incurred wholly and exclusively for business
i. because it is too remote from purposes of business
ii. It has more than one purpose, and one of it is not trading
b) Capital expenses are not allowed to be deducted
c) Subscriptions to political parties are not allowed to be deducted
d) Trade of professional association subscriptions are allowed
e) Provisions / estimates are not allowed, including depreciation
f) Write off of trade debts is allowed expense.
g) Recovery of previously written off debt is taxable
h) Small gifts up to £50 to customers are allowed, provided that they carry conspicuous
advertisement. Food hampers and cash vouchers not allowed
i) Gifts to employees are allowed, but taxable as employment income for them
j) Cost of entertaining customers is not allowed. Cost relating to staff is allowed if for meals, food
etc.
k) Legal and professional charges for acquiring capital assets not allowed.
l) Legal charges relating to business are allowed (to collect bad debts, defending title to fixed
assets, renewal of short lease)
m) Cost relating to issue of shares is not allowed
n) Appropriations are not allowed (salary, other allowances).
o) Owner's personal expenses are not allowed
p) Qualifying interest is deducted from total income, so added back in the accounting profit.
q) Interest on borrowings and loans is allowed on accrual basis, if relating to business
r) Pre-trading expenditure is allowed as deduction on first day of business.
s) For lease of cars no adjustments where the CO2 emissions of a leased motor car do not exceed
130g per kilometre, regardless of the retail price. Where CO2 emissions are more than 130g per
kilometre then 15% of the leasing costs are disallowed in calculat ing taxable profits.
t) Cost of registering patents, trademarks, and fee to arrange bank loan is allowed
u) In fines/penalties, only parking fines of employees are allowed
v) Donation to local charity is allowed. Donation to national charity and charity under
gift aid scheme is not allowed.

4. Expenses not charged to P&L, which are allowed to be deducted

a) Capital allowances
b) Lease amortization of premium paid for business premises

Question 25
The following items have been charged against profit in the accounts of William Oakley, a shoe
manufacturer, for the year ended 31 March 2019:
1. In Repairs and Renewals an amount of £2,000 was included for the fitting of security bars over the factory
windows as a precaution against theft.
2. A loan of £100 to a former employee was written off.
3. Gifts of ‘Oakley’ calendars in December 2018 costing £12 each.
4. Incidental costs incurred in obtaining a bank loan, £350.
5. A donation of 5 pairs of running shoes, costing a total of £200, when sponsoring a local charity raising
money by organizing a marathon.
6. A lease rental of £4,000 per annum on a car provided for a senior employee. The car cost £14,000 and
has CO2 emission of 115g/km.
7. Registering a patent for a new shoe design, £1,275.
8. A parking fine of £100 incurred by an employee on a business trip to Manchester.
9. Payment of £6,000 re-location expenses to a new employee.
10.In Repairs and Renewals an amount of £2,000 to re-condition a second-hand stitching machine
bought for £10,000. The repairs were necessary before the machine could be used in the business.
11.Cost of a course in computer skills, costing £350, for William himself who had no previous computer
experience.
Required: State how you would deal with each of the items
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Plant and machinery includes:
 Office furniture and fittings (including carpets), furnishings
 Lifts and escalators, Office equipment (computers hardware / software)
 Motor vehicles, Commercial vehicles (ships, satellites, aircrafts, railways)
 Cost of complying with fire regulations, cost of security assets

First Year allowances for cars having CO2 emission lower than 50 g/km= 100%
Enhanced Capital Allowances(ECA) available for green technologies = 100%
Annual Investment Allowance (AIA) for first £200,000 of expense in a year (excluding cars) for a period of
12 months.

Capital Allowances
1) for plant & machinery = 18%
2) for special rate pool = 8%
3) for cars having CO2 emission between 51 to 110 g/km= 18%
4) for cars having CO2 emission more than 110 g/km= 8%

Question 26
Ming prepares accounts to 31st December. On 1st January 2018 the tax written down values of her plant and
machinery were as follows:
Main pool £16,700
The following transactions took place during the year ended 31st December 2018:
Cost/ (Proceeds)
£
8 April Purchased motor car (1) 15,600
14 April Purchased motor car (2) 10,100
12 August Purchased equipment 256,400
2 September Purchased motor car (3) 28,300
19 November Purchased motor car (4) 16,800
12 December Sold motor car (2) (8,300)
 Motor car (1) purchased on 8 April has CO2 emissions of 90 grams per kilometre. This motor car is used
by Ming, and 20% of the mileage is for private journeys.
 Motor car (2) purchased on 14 April and sold on 12 December has CO2 emissions of 155 grams per
kilometre.
 Motor car (3) purchased on 2 September has CO2 emissions of 85 grams per kilometre.
 Motor car (4) purchased on 19 November has CO2 emissions of 40 grams per kilometre.
Required: Ming’s capital allowance claim for the year ended 31st December 2018 will be?

Question 27 (Small balance on main pool)

Alan has traded for many years, making up accounts to 30 April each year. At 1 May 2017, the tax written
down value of his main pool was £15,000. On 1 October 2017, he sold some plant and machinery for
£14,200 (original cost £16,000).
Calculate the maximum capital allowances claim that Alan can make for the period ending 30 April 2018.

Question 28
Opening balance of P&M pool on 6th April 2018 is £120,000
Opening balance of Special Rate pool on 6th April 2018 is £40,000
Purchases:
 Machinery costing £184,000 purchased in May 2018
 Telecommunication equipment costing £20,000 purchased in June 2018
 Car-2 costing £28,600 purchased in August 2018 (CO2 emission of 125 g/km)
 Car-3 costing £32,000 purchased in September 2018 (CO2 emission of 185 g/km)
 Car-4 costing £22,000 purchased in January 2019 (CO2 emission of 60 g/km)
Disposals
 Car-2 sold in November 2019 for £22,500
 Car-3 sold in December 2019 for £27,500
Calculate capital allowances for the two years ending on 5th April 2019 and 5th April 2020 respectively?

Special Rate Pool (written down allowance at 8%)

a) Long Life Assets
b) Thermal insulations
c) Features integral to a building
 Electrical and lighting equipment
 Water (heating or cooling) system
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 Ventilation, cooling, or air-conditioning system

 Lifts and escalators
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Question 29 (special rate pool and short life asset)
Opening balance of P&M pool on 6th April 2018 is £80,000. Opening balance of special rate pool on 6th
April 2018 is £60,000
Purchases:
 Machinery costing £110,000 purchased in May 2018
 Computer equipment costing £80,000 purchased in June 2018
 Escalator costing £100,000 purchased in July 2018
 Car costing £21,000 purchased in August 2018, CO2 emission of 100g/km
Disposals
 Car sold in November 2019 for £13,500
 Computer equipment sold in March 2020 for £1,000

Computer equipment is claimed to be ‘short life asset’. Escalator will be part of ‘Special rate pool’.
Calculate capital allowances for the two years ending on 5thApril 2019 and 5thApril 2020 respectively.
Question 30
Business started on 1.05.18. A car was purchased on 1.9.18 costing £20,000 having CO2 emission of
80g/km, which is completely used in business. Adjusted profits (but before capital allowances) are:
1.05.18 – 30.09.19 = £38,250
1.10.19 - 30.09.20 = £39,000
Question 31 Question 32
Business started on 1.02.18. Taxable profits are: Business started and taxable profits are for:
1.02.18 – 30.09.18 = £16,000 21 months ending on 31.01.19 = £21,000
1.10.18 - 30.09.19 = £36,000 Year ending on 30.01.20 = £24,000

Question 33 Question 34
Business started and taxable profits are for: Sana started business on 1.10.14. Her taxable profits are:
21 months ending on 30.09.18 = £42,000 1.10.15 – 30.06.16 = £20,000
Year ending on 30.09.19 = £36,000 1.07.16 - 30.06.17 = £30,000
1.07.17 – 30.06.18 = £40,000
She closed business on 31.01.19. Taxable profits were:
1.07.18 – 31.01.19 = £45,000

Class 1 Employee £1 – £8,424 per year Nil

£8,424 – £46,350 per year 12.0%
£46,350 and above per year 2.0%

Class 1 Employer £1 – £8,424 per year Nil

£8,425 and above per year 13.8%
Employment allowance £3,000

Class 1A 13.8%

Class 2 £2.95/week
Small Profits limit £6,205
Class 4 £1 – £8,424 per year Nil
£8,425 – £46,350 per year 9.0%
£46,350 and above per year 2.0%
Question 35
Ali and Babar started business in a partnership on 1.1.16, with a profit sharing ratio of 1:3. On 1.7.18, Cyrus
joined the partnership. The new partnership ratio was 1:1:2. The financial results were:
1.1.16 – 31.12.16 = 20,000
1.1.17 – 31.12.17 = 40,000
1.1.18 – 31.12.18 = 60,000
1.1.19 – 31.12.19 = 80,000

Question 36
Cedric Ding and Eli Fong commenced in partnership on 6 April 2004, preparing accounts to 5 April. Cedric
resigned as a partner on 31 December 2018, and Gordon Hassan joined as a partner on 1 January 2019. The
partnership’s trading profit for the year ended 5 April 2019 is £90,000. Profits were shared as follows:
(1) Eli was paid an annual salary of £6,000.
(2) Interest was paid at the rate of 10% on the partners’ capital accounts, the balances on which were:
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Cedric £40,000
Eli £70,000
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Gordon (from 1 January 2019) £20,000

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(3) The balance of profits was shared: Cedric Eli Gordon
% % %
6 April to 31 December 2018 60 40
1 January to 5 April 2019 70 30
Required: Calculate the trading income assessments of Cedric, Eli and Gordon for the tax year 2018/19.

Question 37
Peter, Sam and Martha have been in partnership since early 2003. Due to a fall in demand for their services
Martha decided to leave the partnership on 30 September 2019. Profits for the partnership for the two most
recent accounting periods have been:

Year to 31 December 2018 £60,000 Year to 31 December 2019 £45,000

Up to 30 September 2019 each partner received a salary of £10,000 per year and shared the remaining profits
as follows: Peter 40%, Sam 40% and Martha 20%. Following Martha’s departure the salaries for Peter and
Sam remained the same and the remaining profits were shared equally.
Martha had unrelieved overlap profits of £4,000 from the start of the partnership.

Required: Compute the taxable profits for the three partners for the tax years 2018/19 and 2019/20.

Administration of Tax
Her Majesty’s Revenue and Customs (HMRC) collects tax.

The latest filing date for a personal tax return for a tax year is:
 31 October for a non-electronic return (eg a paper return).
 31 January for an electronic return (eg made via the internet).

There are two exceptions to this general rule.

 The first exception applies if the notice to file a tax return is issued by HMRC to the taxpayer after
31 July, but on or before 31 October. In this case, the latest filing date is:
 The end of 3 months following the notice, for a non-electronic return.
 31 January for an electronic return.
 The second exception applies if the notice to file the tax return is issued to the taxpayer after 31
October. In this case, the latest filing date is the end of 3 months following the notice.

Record Keeping: Records must be retained until 5 years after the 31 January following the tax year
The maximum penalty for each failure to keep and retain records is £3,000 per tax year/accounting
period. This penalty can be reduced by HMRC.

Late Filing of Returns

¤ There will be an initial £100 penalty if a self-assessment tax return is filed after the due date.
¤ If a return is more than 3 months late then there will be a daily penalty of £10 per day (for a maxi of 90 days)
¤ If a return is more than 6 months late a penalty of 5% of the tax due will be charged (subject to a min of £300)
¤ If a return is more than 12 months late a further penalty of 5% of the tax due can be charged, although a
higher percentage will be charged if the failure to submit is deliberate.

Penalty for late payment of tax

A penalty is chargeable where tax is paid after the penalty date. The penalty date is 30 days after the due date
for the tax. Therefore no penalty arises if the tax is paid within 30 days of the due date.

Date of payment Penalty

After 1 months from the penalty date 5% of unpaid tax
More than 5 months after the penalty 10% of unpaid tax
More than 11 months after the penalty date 15% of unpaid tax

The penalties only apply to the balancing payment, and not to payments on account. They therefore cover any
income tax, Class 4 NIC and capital gains tax paid late.

Penalties for Errors:

Maximum penalty Minimum penalty - Minimum penalty -
Taxpayer behavior unprompted disclosure prompted disclosure
% of Revenue lost to HMRC
Careless/Failure to take 30% 0% 15%
reasonable care
Deliberate but no concealment 70% 20% 35%
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Deliberate with concealment 100% 30% 50%

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Self-assessment is a calculation of the amount of taxable income and gains after deducting reliefs and
allowances, a calculation of income tax and capital gains tax payable after taking into account tax deducted at
source and tax credit of dividends.
 If tax payer is filing electronic tax return, calculation of tax liability is made automatically.
 If tax payer is filing a non-electronic tax return, and wants HMRC to make tax calculations on his behalf, he
should file the non-electronic tax return before 31 October

A tax return may be amended by the tax payer within 12 months after the filing date. Amendment may be made
by the HMRC also to remove any obvious error or omission (arithmetic error)

Payment on accounts and final payment:

31 January during the tax year 1st payment of account
31 July following the tax year 2nd payment of account
31 January following the tax year Final payment to settle balance

 Payment on account is not required if tax payer has paid 80% or more of his liability through PAYE or
relevant amount falls below £1,000.
 A taxpayer can claim to reduce POAs, at any time before 31 January following the tax year, if they expect
the actual income tax and Class 4 NIC liability (net of tax deducted at source) for 2018/19 to be lower than
2017/18.
 The claim must state the grounds for making the claim.
Following a claim:
 The POAs will be reduced.
 Each POA will be for half the reduced amount, unless the taxpayer claims that there is no tax liability at all.
 If POAs are paid before the claim, then HMRC will refund the overpayment

Interest on late payments:

Interest is payable on both payment on account and balancing payments if they are paid late.
Interest on underpaid tax = 3.00% Interest on overpaid tax = 0.5%

Dishonest conduct by tax agents

A single penalty regime has been introduced for dishonest conduct by tax agents. HM Revenue and Customs can
investigate dishonest conduct, and apply a penalty of up to £50,000 where there has been dishonest conduct and
the tax agent fails to supply the information or documents that HM Revenue and Customs has requested

Question 38
Rajesh is a sole trader. He correctly calculated his self-assessment payments on account for the tax year
2018/19 and paid these on the due dates.
Rajesh paid the correct balancing payment of £1,200 for the tax year 2018/19 on 30 June 2020.
What penalties and interest may Rajesh be charged as a result of his late balancing payment for the tax year
2018/19?
A Interest of £15 only C Interest of £36 and a penalty of £60
B Interest of £36 only D Interest of £15 and a penalty of £60

Question 39 (Exam Question)

Pi Casso has been a self-employed artist since 1990, making up her accounts to 30 June. Pi’s tax liabilities for
the tax years 2017/18, 2018/19 and 2019/20 are as follows:
2017/18 2018/19 2019/20
£ £ £
Income tax liability 3,240 4,100 2,730
Class 2 national insurance contributions 143 145 145
Class 4 national insurance contributions 1,240 1,480 990
Capital gains tax liability – 4,880 –

No income tax has been deducted at source.

Required:
(a) Prepare a schedule showing the payments on account and balancing payments that Pi will have made or will
have to make during the period from 1 July 2019 to 31 March 2021, assuming that Pi makes any appropriate
claims to reduce her payments on account.
Note: your answer should clearly identify the relevant due date of each payment.
(b) State the implications if Pi had made a wrong claim to reduce her POAs for the tax year 2019/20 to nil.
(c) Advise Pi of the latest date by which her self-assessment tax return for the tax year 2018/19 should be
submitted if she wants HM Revenue and Customs (HMRC) to prepare the self-assessment tax computation on
her behalf.
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(d) State the date by which HMRC will have to notify Pi if they intend to enquire into her self-assessment tax
return for the tax year 2018/19 and the possible reasons why such an enquiry would be made.
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Question 40
Edmond Brick owns five properties which are let out. The following information relates to the tax year 2018/19:
Property one
This is a freehold house that qualifies as a trade under the furnished holiday letting rules. The property was
purchased on 6 April 2018. During the tax year 2018/19 the property was let for eighteen weeks at £510 per
week. Edmond spent £5,700 on furniture and kitchen equipment during April 2018. Due to a serious flood
£7,400 was spent on repairs during November 2018. The damage was not covered by insurance. The other
expenditure on this property for the tax year 2018/19 amounted to £2,710, and this is all allowable. (Capital
Allowance may be claimed at the rate of 100%).
Property two
This is a freehold house that is let out furnished. The property was let throughout the tax year 2018/19 at a monthly
rent of £625, payable in advance. During the tax year 2018/19 Edmond paid council tax of £1,200 and
insurance of £340 in respect of this property.
Property three
This is a freehold house that is let out unfurnished. The property was purchased on 6 April 2018, and it was
empty until 30 June 2018. It was then let from 1 July 2018 to 31 January 2019 at a monthly rent of £710,
payable in advance. On 31 January 2019 the tenant left owing three months rent which Edmond was unable to
recover. The property was not re-let before 5 April 2019. During the tax year 2018/19
Edmond paid insurance of £290 for this property and spent £670 on advertising for tenants. He also paid loan
interest of £5,100 in respect of a loan that was taken out to purchase this property.
Property four
This is a leasehold office building that is let out unfurnished. Edmond pays an annual rent of £6,800 for this
property, and had paid a premium of £7,200 for a 15 years lease when he acquired it many years ago. On 6
April 2018 the property was sub-let to a tenant, with Edmond receiving a premium of £15,000 for the grant of a
five-year lease. He also received the annual rent of £4,600 which was payable in advance. During the tax year
2018/19 Edmond paid insurance of £360 in respect of this property.
Property five
On 6 April 2018, Edmond Brick purchased a freehold house. The property was then let throughout the tax year
2018/19 at a monthly rent of £800.
During April 2018, Edmond Brick furnished the property with a cooker costing £440, a washing machine costing
£330, and floor coverings costing £2,200. The cooker was sold during December 2018 for £110, and replaced with a
similar model costing £460. The washing machine was scrapped, with nil proceeds, during March 2019. It was
replaced by a washer-dryer costing £670, although the cost of a similar washing machine would have been £360.
The other expenditure on the property for the tax year 2018/19 amounted to £1,310, and this is all allowable.
Furnished room
During the tax year 2018/19 Edmond rented out one furnished room of his main residence. During the year he
received rent of £8,040, and incurred allowable expenditure of £8,140 in respect of the room. Edmond always
computes the taxable income for the furnished room on the most favorable basis.

Required: Calculate Edmond’s property business profit in respect of the properties and the furnished room for the
tax year 2018/19.

Question 41
Vernon, a married man aged 40, has owned three unfurnished investment properties Number 1, 2 and 3
Shercock Avenue, for many years. All leases are at full commercial rent. Rent for Number 1 and 3 is payable
quarterly in advance, on the usual quarter days, while rent on Number 2 is payable monthly in advance, on the
first day of the month. The receipts and expenditure statements in respect of each property are as follows:
Number 1 Number 2 Number 3
Year ended 5.4.18 5.4.19 5.4.18 5.4.19 5.4.18 5.4.19
Rent received (£) 23,000 29,000 - 84,000 38,000 42,000
Expenditure
- Maintenance (28,100) (7,300) (10,200) (12,100) (9,400) (8,700)
- Repairs - - (16,000) - (17,000) -
- Legal Fee - - (2,000) - - -
Notes:
a) The tenant of Number 1 did not pay all the rent due for the year ended 5 April 2018 and owed £1,000 at the end
of the year. This amount was paid in June 2018 and has been included in the figure of £29,000 above. The quarterly
rental was £6,000, increasing to £7,000 from the quarter commencing on 6 July 2018. In July 2017 the property
was decorated at the cost of £2,000. This is included in the maintenance cost of £28,100.

b) The tenant of Number 2 left the property on 30 April 2017, owing rent of £6,000 (for one month). Despite taking the
tenant to the court and incurring legal fee of £2,000, Vernon was unable to recover the unpaid rent. The repair
expenditure of £16,000 was for repairing damage to the premises caused by the defaulting tenant. Once the
repairs have been completed, Number 2 remained empty till 1 May 2018, when it was given at rent at the rate of
£7,000 per month.

c) The repairs carried out at Number 3 consisted of replacing three old fireplaces with a central heating system.
The quarterly rental was £9,500 increasing to £10,500 from the quarter commencing on 6th July 2018.
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You are required to explain clearly all items in the receipts and expenditure statement which require
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adjustment showing final adjusted income, and to compute his property income for the year 2018/19?
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Question 42 (Trading loss and property loss)
14/15 15/16 16/17 17/18 18/19
Property Income (15000) 10000 12500 12000 10000
Business Income 40000 95000 (10000) 23000 (45000)
Interest Income 5000 - 5000 - -
Employment Income 25000 20000 17500 30000 25000

Question 43 (Losses-capping concept)

For the year ended 5 April 2019 Gloria made a trading loss of £145,000, having made a trading profit of £30,000
for the year ended 5 April 2018. She has employment income of £125,000 in each of the tax years 2017/18 and
2018/19.

Question 44 (Losses-capping concept)

Paul has trade loss in 2018/19 of £300,000. Paul’s other income in the previous two tax years was as follows:
2017/18 profits from the same trade of £60,000, employment income £110,000
2018/19 employment income £110,000.
Paul has paid personal pension of 5000 and 10000 (gross) in 2017/18 and 2018/19 respectively.

Question 45 (Losses-capping concept)

Mary has losses from a business of £175,000 in 2017/18, and £100,000 in 2018/19. Mary’s other income in
2018/19 and 2017/18 is £600,000.
Mary’s loss relief claims in 2017/18 and 2018/19 will be?

Question 46 (Trading loss-extended current year)

14/15 15/16 16/17 17/18 18/19
Business Income 20000 (165000) 10000 45000 (75000)
Employment Income 15000 75000 75000 15000 95000
Capital Gains - 20000 22000 - 25000

Question 47 (opening year)

Business started in Tax year 18/19
15/16 16/17 17/18 18/19 19/20
Business Income - - - 45000 (65000)
Employment Income 48000 25000 35000 20000 -
Capital Gains - 5000 - - -

Question 48 (Losses-capping concept)

Thom started his business as a florist on 6 April 2018. Due to an annual investment allowance claim, his first year
loss is £100,000. Tom’s salary in the previous three tax years was as follows:
• 2015/16 – £25,000
• 2016/17 – £27,000 plus bonus £50,000: total £77,000
• 2017/18 – £30,000.
Thom wants to carry back the loss under opening year loss relief.

Question 49
Mr A is employed as a dustman until 1 January 2018. On that date he starts up his own business as a scrap
metal merchant, making up his accounts to 30 June each year. His earnings as a dustman are:
£
2014/15 5,000
2015/16 6,000
2016/17 7,000
2017/18 (nine months) 6,000
His trading results as a scrap metal merchant are:
Profit/ (Loss) £
Six months to 30 June 2018 (3,000)
Year to 30 June 2019 (1,500)
Year to 30 June 2020 (1,200)
Assuming that loss relief is claimed ASAP, show the net income for each of the years 14/15 to 20/21 inclusive

Question 50 (Terminal Loss)

Set out below are the results of a business up to its cessation on 30 September 2018.
Profit/ (loss) £
Year to 31 December 2015 2,000
Year to 31 December 2016 400
Year to 31 December 2017 300
Nine months to 30 September 2018 (1,950)
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Overlap profits on commencement were £450. These were all unrelieved on cessation.
Show the available terminal loss relief, and suggest an alternative claim if the trader had had other non-savings
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income of £12,000 in each of 2017/18 and 2018/19. Assume that 2018/19 tax rates and allowances apply to all
years.