读趣百科

(b) Explain the corporation tax and value added tax (VAT) implications of the following aspects of the proposed

restructuring of the Rapier Ltd group.

(i) The immediate tax implications of the restructuring. (6 marks)

(ii) State the taxation implications of both equity and loan finance from the point of view of a company.

(3 marks)

(iii) The effect of the restructuring on the group’s ability to recover directly and non-directly attributable input

tax. (6 marks)

You are required to prepare calculations in respect of part (ii) only of this part of this question.

Note: – You should assume that the corporation tax rates and allowances for the financial year 2006 apply

throughout this question.

(b) For this part, assume today’s date is 1 May 2010.

Bill and Ben decided not to sell their company, and instead expanded the business themselves. Ben, however,

is now pursuing other interests, and is no longer involved with the day to day activities of Flower Limited. Bill

believes that the company would be better off without Ben as a voting shareholder, and wishes to buy Ben’s

shares. However, Bill does not have sufficient funds to buy the shares himself, and so is wondering if the

company could acquire the shares instead.

The proposed price for Ben’s shares would be ￡500,000. Both Bill and Ben pay income tax at the higher rate.

Required:

Write a letter to Ben:

(1) stating the income tax (IT) and/or capital gains tax (CGT) implications for Ben if Flower Limited were to

repurchase his 50% holding of ordinary shares, immediately in May 2010; and

(2) advising him of any available planning options that might improve this tax position. Clearly explain any

conditions which must be satisfied and quantify the tax savings which may result.

(13 marks)

Assume that the corporation tax rates for the financial year 2005 and the income tax rates and allowances

for the tax year 2005/06 apply throughout this question.

(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)