读趣百科

(iii) Explain the potential corporation tax (CT) implications of Tay Limited transferring work to Trent Limited,

and suggest how these can be minimised or eliminated. (3 marks)

5 (a) Carver Ltd was incorporated and began trading in August 2002. It is a close company with no associated

companies. It has always prepared accounts to 31 December and will continue to do so in the future.

It has been decided that Carver Ltd will sell its business as a going concern to Blade Ltd, an unconnected

company, on 31 July 2007. Its premises and goodwill will be sold for ￡2,135,000 and ￡290,000 respectively

and its machinery and equipment for ￡187,000. The premises, which do not constitute an industrial building,

were acquired on 1 August 2002 for ￡1,808,000 and the goodwill has been generated internally by the

company. The machinery and equipment cost ￡294,000; no one item will be sold for more than its original cost.

The tax adjusted trading profit of Carver Ltd in 2007, before taking account of both capital allowances and the

sale of the business assets, is expected to be ￡81,000. The balance on the plant and machinery pool for the

purposes of capital allowances as at 31 December 2006 was ￡231,500. Machinery costing ￡38,000 was

purchased on 1 March 2007. Carver Ltd is classified as a small company for the purposes of capital allowances.

On 1 August 2007, the proceeds from the sale of the business will be invested in either an office building or a

portfolio of UK quoted company shares, as follows:

Office building

The office building would be acquired for ￡3,100,000; the vendor is not registered for value added tax (VAT).

Carver Ltd would borrow the additional funds required from a UK bank. The building is let to a number of

commercial tenants who are not connected with Carver Ltd and will pay rent, in total, of ￡54,000 per calendar

quarter, in advance, commencing on 1 August 2007. The company’s expenditure for the period from 1 August

2007 to 31 December 2007 is expected to be:

￡

Loan interest payable to UK bank 16,000

Building maintenance costs 7,500

Share portfolio

Shares would be purchased for the amount of the proceeds from the sale of the business with no need for further

loan finance. It is estimated that the share portfolio would generate dividends of ￡36,000 and capital gains, after

indexation allowance, of ￡10,000 in the period from 1 August 2007 to 31 December 2007.

All figures are stated exclusive of value added tax (VAT).

Required:

(i) Taking account of the proposed sale of the business on 31 July 2007, state with reasons the date(s) on

which Carver Ltd must submit its corporation tax return(s) for the year ending 31 December 2007.

(2 marks)

(c) (i) Explain the inheritance tax (IHT) implications and benefits of Alvaro Pelorus varying the terms of his

father’s will such that part of Ray Pelorus’s estate is left to Vito and Sophie. State the date by which a

deed of variation would need to be made in order for it to be valid; (3 marks)

(ii) Advise Clifford of the capital gains tax implications of the alternative of selling the Oxford house and

garden by means of two separate disposals as proposed. Calculations are not required for this part of

the question. (3 marks)

(c) Briefly outline the corporation tax (CT) issues that Tay Limited should consider when deciding whether to

acquire the shares or the assets of Tagus LDA. You are not required to discuss issues relating to transfer

pricing. (7 marks)