Taxation: Policy and Practice (2023/24 – 30th Edition)

by A Lymer and L Oats – Corporation Tax solutions

Chapter 9 Question 4
(a) Burgundy Ltd

Office block proceeds 300,000

Indexed gain 125,400

a) Amount reinvested £380,000

Since all the proceeds were reinvested the entire gain of £125,400 can be
rolled over. The cost of the new office block for capital gains purposes will
then be £254,600 (£380,000 - £125,400)

b) Amount reinvested £280,000

£20,000 (£300,000 - £280,000) is not reinvested and so £20,000 of the gain
becomes chargeable. The cost of the new office block for capital gains
purposes will then be £174,600 (£280,000 - £105,400)

c) Amount reinvested £120,000

£180,000 (£300,000 - £120,000) is not reinvested and so the entire gain of
£125,400 becomes chargeable

(b) Navy Ltd

a) The gain held over becomes chargeable when the replacement asset is sold so
the gain of £50,000 becomes chargeable in January 2025.

b) The gain becomes chargeable 10 years after it is held over i.e. in November
2024.

c) The gain is rolled over in December 2014 and used to reduce the base cost of
the new warehouse which becomes £170,000 (£220,000 – £50,000)

d) The gain is rolled over in December 2014 against the cost of the warehouse.
Since not all of the proceeds are reinvested, the £15,000 (£200,000 -
£185,000) not eligible to be rolled over continues to be held over until the
gain crystallises. The remaining £35,000 (£50,000 - £15,000) is used to reduce
the base cost of the new warehouse which becomes £150,000 (£185,000 -
£35,000).

©Fiscal Publications 2023 – permission is granted for non-profit-based uses only. Written permission for
other users must be sought from the publisher.
Chapter 9 Question 5

Retro Ltd
1. Trading loss for the year ended 31 March 2024
£
Loss before taxation (120,000)
Adjustments:
Depreciation 27,240
Gifts to employees 0
Gifts to customers (cost <£50 and has company logo) 0
Political donations 420
Qualifying charitable donations 680
Impairment loss 0
Lease of motor car (CO2 > 50g/km) (4,400 x 15%) 660
Health and safety fine 5,100
Legal fees – internet domain name 0
Interest payable 0
Capital allowances (working 1) (50,420)
Trading loss (136,320)

Workings:
1 Capital allowances
Main pool Allowances
£ £ £
WDV brought forward 39,300
Additions qualifying for full expensing relief:
Delivery van (main pool) 28,300
100% write off (28,300) 28,300
Addition – Motor car (1) (<50g/km) 14,700
54,000
WDA 18% (9,720) 9,720
Addition qualifying for ECA:
Motor car (2) (0g/km) 12,400
FYA 100% (12,400) 12,400
WDV carried forward 44,280
Total allowances 50,420

©Fiscal Publications 2023 – permission is granted for non-profit-based uses only. Written permission for
other users must be sought from the publisher.
 2. Losses
y/e 31/8/22 p/e 31/3/23
£ £
Trading profit 56,600 47,900
Bank interest 1,300 0
57,900 47,900
Trading loss (working) (24,125) (47,900)
33,775 0
Qualifying charitable donations (540)
Taxable total profits 33,235 0

Working:
Losses would first need to be relieved against other income in the year to 31 March
2024, however, there is no other income.
After a current year loss relief claim, trading losses could be carried back against total
income, before donations, in the previous 12 months – so 7 months to 31 March 2023
and 5 months to 31 August 2022. So, for the year ended 31 August 2022 loss relief is
restricted to £24,125 (57,900 x 5/12)

3. Loss carried forward

The amount of unrelieved trading loss at 31 March 2024 is £64,295 (136,320 –
47,900 – 24,125).
The unrelieved trading loss can be carried forward and relieved against future
taxable total profits before donations.

Chapter 9 Question 6

Gastron Ltd – Trading Profit for the year ended 31 March 2024
£ £
Profit before taxation 640,000
Depreciation 85,660
Amortization of leasehold property 6,000
Deduction for lease premium (W1) 4,920
Gifts of pens to customers (>£50 each) 1,200
Gifts of alcohol to customers 1,100
Donation to local charity 0
Legal fees re renewal of lease 0
Legal fees re issue of debentures 0
Entertaining suppliers 1,300
Income from property 20,600
Bank interest 12,400
Dividends 54,000
Profit on disposal of shares 80,700
Interest payable 0
Capital allowances (W2) 50,297
735,260 222,917
(222,917)
Trading profit 512,343
©Fiscal Publications 2023 – permission is granted for non-profit-based uses only. Written permission for
other users must be sought from the publisher.
Working 1: deduction for lease premium

1.The office building has been used for business purposes, and so the proportion of
the lease premium assessed on the landlord can be deducted, spread over the life
of the lease.
2.The amount assessed on the landlord is £49,600 calculated as follows:
£
premium received 60,000
less 60,000 x 2% x (10-1) (10,800)
49,200
3.This is deductible over the life of the lease, so the deduction for the year ended 31
March 2024 is £49,200/10 = £4,920.

Working 2 – Capital Allowances

Main PoolSp rate pool allowances
£ £ £ £
WDV brought forward 16,700 18,400
Car (2) addition qualifying for FYA 16,200
FYA 100% (16,200) 16,200
Additions qualifying for AIA:
Equipment 12,793
Lorry 17,200

Balance to the main pool nil

Other additions:
Car (1) >50g/km (Sp rate pool) 9,800
28,200
Proceeds – equipment (3,300)
13,400
WDA 18% (2,412) 2,412
WDA 6% (1,692) 1,692
10,988 26,508
50,297
Notes:
1.Gifts to customers are only an allowable deduction if they cost less than £50 per
recipient per year, are not food, drink or tobacco, or vouchers for exchangeable
goods, and carry a conspicuous advertisement for the company making the gift.
2.The cost of renewing a short less (less than 50 years) and of obtaining loan finance
are allowable.
3.The only exception to the non-deductibility of entertainment expenditure is when it
is in respect of employees.
4.Interest on a loan used for trading purposes is deductible in calculating the trading
loss on an accruals basis.
5.The equipment and lorry will not qualify for full expensing relief because they were
not new assets when purchased. They will however qualify for the annual
investment allowance because total expenditure is below the annual limit of
£1million.
6.The cost of the equipment sold will have originally been added to the pool, so the
disposal proceeds of £3,300 are deducted from the pool.
7.Cars do not qualify for the special rate pool 50% FYA, AIA or full expensing relief.
©Fiscal Publications 2023 – permission is granted for non-profit-based uses only. Written permission for
other users must be sought from the publisher.
Gastron Ltd – Corporation Tax Computation for the year ended 31 March 2024.

£
Trade profit 512,343
Property business profit (Note 1) 12,800
Bank interest 12,400
Chargeable gain 74,800
Taxable Total Profit 612,343

Corporation Tax £612,343 @ 25% 153,085.75

As TTP is less than £750,000 Gastron Ltd is small for tax payments purposes (see note 2
below) so the corporation tax will be due in one payment on 1 January 2025.

Notes
1.property business profit of £12,800 is calculated as follows:
£ £
Rent receivable:
First tenant (1,800 x 9) 16,200
Second tenant (1,950 x 2) 3,900
20,100
Impairment loss (1,800 x 2) 3,600
Decorating 3,700
7,300
12,800
2.Gastron Ltd has one related company (Culinary), so the upper limit for payments is
reduced to £750,000 (£1,500,000/2).

©Fiscal Publications 2023 – permission is granted for non-profit-based uses only. Written permission for
other users must be sought from the publisher.