6 Assume today’s date is 16 April 2005.Henry, aged 48, is the managing director of Happy Home Ltd, an unquoted UK company specialising in interiordesign. He is wealthy in his own right and is married to Helen, who is 45 years old. They have two children –

4 Assume today’s date is 15 May 2005.

In March 1999, Bob was made redundant from his job as a furniture salesman. He decided to travel round the world,

and did so, returning to the UK in May 2001. Bob then decided to set up his own business selling furniture. He

started trading on 1 October 2001. After some initial success, the business made losses as Bob tried to win more

customers. However, he was eventually successful, and the business subsequently made profits.

The results for Bob’s business were as follows:

Period Schedule D Case I

Trading Profits/(losses)

￡

1 October 2001 – 30 April 2002 13,500

1 May 2002 – 30 April 2003 (18,000)

1 May 2003 – 30 April 2004 28,000

Bob required funds to help start his business, so he raised money in three ways:

(1) Bob is a keen cricket fan, and in the 1990s, he collected many books on cricket players. To raise money, Bob

started selling books from his collection. These had risen considerably in value and sold for between ￡150 and

￡300 per book. None of the books forms part of a set. Bob created an internet website to advertise the books.

Bob has not declared this income, as he believes that the proceeds from selling the books are non-taxable.

(2) He disposed of two paintings and an antique silver coffee set at auction on 1 December 2004, realising

chargeable gains totalling ￡23,720.

(3) Bob took a part time job in a furniture store on 1 January 2003. His annual salary has remained at ￡12,600

per year since he started this employment.

Bob has 5,000 shares in Willis Ltd, an unquoted trading company based in the UK. He subscribed for these shares

in August 2000, paying ￡3 per share. On 1 December 2004, Bob received a letter informing him that the company

had gone into receivership. As a result, his shares were almost worthless. The receivers dealing with the company

estimated that on the liquidation of the company, he would receive no more than 10p per share for his shareholding.

He has not yet received any money.

Required:

(a) Write a letter to Bob advising him on whether or not he is correct in believing that his book sales are nontaxable.

Your advice should include reference to the badges of trade and their application to this case.

(9 marks)

1 Alvaro Pelorus is 47 years old and married to Maria. The couple have two children, Vito and Sophie, aged 22 and

19 years respectively. Alvaro and Maria have lived in the country of Koruba since 1982. On 1 July 2005 the family

moved to the UK to be near Alvaro’s father, Ray, who was very ill. Alvaro and Maria are UK resident, but not ordinarily

resident in the tax years 2005/06 and 2006/07. They are both domiciled in the country of Koruba.

On 1 February 2007 Ray Pelorus died. He was UK domiciled, having lived in the UK for the whole of his life. For the

purposes of inheritance tax, his death estate consisted of UK assets, valued at ￡870,000 after deduction of all

available reliefs, and a house in the country of Pacifica valued at ￡94,000. The executors of Ray’s estate have paid

Pacifican inheritance tax of ￡1,800 and legal fees of ￡7,700 in respect of the sale of the Pacifican house. Ray left

the whole of his estate to Alvaro.

Ray had made two gifts during his lifetime:

(i) 1 May 2003: He gave Alvaro 95 acres of farm land situated in the UK. The market value of the land was

￡245,000, although its agricultural value was only ￡120,000. Ray had acquired the land on

1 January 1996 and granted an agricultural tenancy on that date. Alvaro continues to own the

land as at today’s date and it is still subject to the agricultural tenancy.

(ii) 1 August 2005: He gave Alvaro 6,000 shares valued at ￡183,000 in Pinger Ltd, a UK resident trading

company. Gift relief was claimed in respect of this gift. Ray had acquired 14,000 shares in

Pinger Ltd on 1 April 1997 for ￡54,600.

You may assume that Alvaro is a higher rate taxpayer for the tax years 2005/06 and 2006/07. In 2006/07 he made

the following disposals of assets:

(i) On 1 July 2006 he sold the 6,000 shares in Pinger Ltd for ￡228,000.

(ii) On 1 September 2006 he sold 2,350 shares in Lapis Inc, a company resident in Koruba, for ￡8,270. Alvaro

had purchased 5,500 shares in the company on 1 September 2002 for ￡25,950.

(iii) On 1 December 2006 he transferred shares with a market value of ￡74,000 in Quad plc, a UK quoted company,

to a UK resident discretionary trust for the benefit of Vito and Sophie. Alvaro had purchased these shares on

1 January 2006 for ￡59,500.

Alvaro has not made any other transfers of value for the purposes of UK inheritance tax. He owns the family house

in the UK as well as shares in UK and Koruban companies and commercial rental property in the country of Koruba.

Maria has not made any transfers of value for the purposes of UK inheritance tax. Her only significant asset is the

family home in the country of Koruba.

Alvaro and his family expect to return to their home in the country of Koruba in October 2007 once Ray’s affairs have

been settled. There is no double taxation agreement between the UK and Koruba.

Required:

(a) Calculate the inheritance tax (IHT) payable as a result of the death of Ray Pelorus. Explain the availability

or otherwise of agricultural property relief and business property relief on the two lifetime gifts made by Ray.

(8 marks)

Children of divorce who marry ______.

A. have their marriages fail as often as others

B. stay married two times as long

C. are two times as likely to have their marriage fail

D. are usually happy

2 Assume that today’s date is 1 July 2005.

Jan is aged 45 and single. He is of Danish domicile but has been working in the United Kingdom since 1 May 2004

and intends to remain in the UK for the medium to long term. Although Jan worked briefly in the UK in 1986, he

has forgotten how UK taxation works and needs some assistance before preparing his UK income tax return.

Jan’s salary from 1 May 2004 was ￡74,760 per annum. Jan also has a company car – a Jaguar XJ8 with a list price

of ￡42,550 including extras, and CO2 emissions of 242g/km. The car was available to him from 1 July 2004. Free

petrol is provided by the company. Jan has other taxable benefits amounting to ￡3,965.

Jan’s other 2004/05 income comprises:

￡

Dividend income from UK companies (cash received) 3,240

Interest received on an ISA account 230

Interest received on a UK bank account 740

Interest remitted from an offshore account (net of 15% withholding tax) 5,100

Income remitted from a villa in Portugal (net of 45% withholding tax) 4,598

The total interest arising on the offshore account was ￡9,000 (gross). In addition, Jan has not remitted other

Portuguese rental income arising in the year, totalling a further ￡1,500 (gross).

Jan informs you that his employer is thinking of providing him with rented accommodation while he looks for a house

to buy. The accommodation would be a two bedroom flat, valued at ￡155,000 with an annual value of ￡6,000. It

would be made available from 6 August 2005. The company will pay the rent of ￡600 per month for the first six

months. All other bills will be paid by Jan.

Jan also informs you that he has 25,000 ordinary shares in Gilet Ltd (‘Gilet’), an unquoted UK trading company. He

has held these shares since August 1986 when he bought 2,500 shares at ￡4.07 per share. In January 1994, a

bonus issue gave each shareholder nine shares for each ordinary share held. In the last week all Gilet’s shareholders

have received an offer from Jumper plc (‘Jumper’) who wishes to acquire the shares. Jumper has offered the following:

– 3 shares in Jumper (currently trading at ￡3.55 per share) for every 5 shares in Gilet, and

– 25p cash per share

Required:

(a) Calculate Jan’s 2004/05 income tax (IT) payable. (11 marks)

3 The Stiletto Partnership consisted of three partners, Clint, Ben and Amy, who shared the profits of the business

equally. On 28 February 2007 the partners sold the business to Razor Ltd, in exchange for shares in Razor Ltd, with

each former partner owning one third of the new company.

The recent, tax adjusted, trading profits of the Stiletto Partnership have been as follows:

￡

Year ended 30 June 2006 92,124

1 July 2006 to 28 February 2007 81,795

Clint, who was 65 on 5 October 2006, retired when the business was sold to Razor Ltd. He is now suggesting that

if the sale of the partnership, and his retirement, had been delayed until 30 April 2007, his total tax liability would

have been reduced. Clint’s only other income is gross pension income of ￡6,100 per year, which he began receiving

in the tax year 2005/06. Clint did not receive any salary or dividends from Razor Ltd. It is estimated that the

partnership’s tax adjusted trading profits for the period from 1 March 2007 to 30 April 2007 would have been

￡20,760. Clint has overlap profits of ￡14,250 brought forward from when the partnership began trading.

Razor Ltd manufactures industrial cutting tools. On 1 July 2007, Razor Ltd will subscribe for the whole of the ordinary

share capital of Cutlass Inc, a company newly incorporated in the country of Sharpenia. It is intended that Cutlass

Inc will purchase partly finished tools from Razor Ltd and customise them in Sharpenia. It is anticipated that Cutlass

Inc’s annual profits chargeable to corporation tax will be approximately ￡120,000.

Ben and Amy will be the directors of Cutlass Inc, although Ben will not be involved in the company’s business on a

day-to-day basis. Amy intends to spend one or two weeks each month in the country of Sharpenia looking after the

company’s affairs. The remainder of her time will be spent in the UK. Amy has employment contracts with both Razor

Ltd and Cutlass Inc and her duties for Cutlass Inc will be carried out wholly in Sharpenia. Cutlass Inc will pay for

Amy’s flights to and from Sharpenia and for her husband and baby to visit her there twice a year. Amy is currently

UK resident and ordinarily resident.

The system of income tax and corporation tax in the country of Sharpenia is broadly similar to that in the UK although

the rate of corporation tax is 38% regardless of the level of profits. There is a double tax treaty between the UK and

Sharpenia based on the OECD model treaty. The clause in the treaty dealing with company residency states that a

company resident in both countries under domestic law will be regarded under the treaty as being resident only in the

country where it is effectively managed and controlled. Sharpenia is not a member of the European Union.

Required:

(a) (i) Calculate Clint’s taxable trading profits for the tax years 2006/07 and 2007/08 for both of the

alternative retirement dates (28 February 2007 and 30 April 2007). (3 marks)

A: What's the date today? B: It's April 1st.()

(b) Peter, one of Linden Limited’s non-executive directors, having lived and worked in the UK for most of his adult

life, sold his home near London on 22 March 2006 and, together with his wife (a French citizen), moved to live

in a villa which she owns in the south of France. Peter is now demanding that the tax deducted from his director’s

fees, for the board meetings held on 18 April and 16 May 2006, be refunded, on the grounds that, as he is no

longer resident in the UK, he is no longer liable to UK income tax. All of the company’s board meetings are held

at its offices in Cambridge.

Despite Peter’s assurance that none of the other companies of which he is a director has disputed his change of

tax status, Damian is uncertain whether he should make the refunds requested. However, as Peter is a friend of

the company’s founder, Linden Limited’s managing director is urging him to do so, stating that if the tax does

have to be paid, then Linden Limited could always bear the cost.

Required:

Advise Damian whether Peter is correct in his assertion regarding his tax position and in the case that there

is a UK tax liability the implications of the managing director’s suggestion. You are not required to consider

national insurance (NIC) issues. (4 marks)

5 Gagarin wishes to persuade a number of wealthy individuals who are business contacts to invest in his company,

Vostok Ltd. He also requires advice on the recoverability of input tax relating to the purchase of new premises.

The following information has been obtained from a meeting with Gagarin.

Vostok Ltd:

– An unquoted UK resident company.

– Gagarin owns 100% of the company’s ordinary share capital.

– Has 18 employees.

– Provides computer based services to commercial companies.

– Requires additional funds to finance its expansion.

Funds required by Vostok Ltd:

– Vostok Ltd needs to raise ￡420,000.

– Vostok Ltd will issue 20,000 shares at ￡21 per share on 31 August 2008.

– The new shareholder(s) will own 40% of the company.

– Part of the money raised will contribute towards the purchase of new premises for use by Vostok Ltd.

Gagarin’s initial thoughts:

– The minimum investment will be 5,000 shares and payment will be made in full on subscription.

– Gagarin has a number of wealthy business contacts who may be interested in investing.

– Gagarin has heard that it may be possible to obtain tax relief for up to 60% of the investment via the enterprise

investment scheme.

Wealthy business contacts:

– Are all UK resident higher rate taxpayers.

– May wish to borrow the funds to invest in Vostok Ltd if there is a tax incentive to do so.

New premises:

– Will cost ￡446,500 including value added tax (VAT).

– Will be used in connection with all aspects of Vostok Ltd’s business.

– Will be sold for ￡600,000 plus VAT in six years time.

– Vostok Ltd will waive the VAT exemption on the sale of the building.

The VAT position of Vostok Ltd:

– In the year ending 31 March 2009, 28% of Vostok Ltd’s supplies will be exempt for the purposes of VAT.

– This percentage is expected to reduce over the next few years.

– Irrecoverable input tax due to the company’s partially exempt status exceeds the de minimis limits.

Required:

(a) Prepare notes for Gagarin to use when speaking to potential investors. The notes should include:

(i) The tax incentives immediately available in respect of the amount invested in shares issued in

accordance with the enterprise investment scheme; (5 marks)

Passage Four

Equal pay for equal work is a phrase used by the American women who feel that they are looked down upon by the society. They say it is not right for women to be paid less than men for the same work.

People who hold the opposite opinion(mainly men)have an answer to this. They say that men have more responsibility than women; a married man is expected to earn money to support his family and to make important decisions, and therefore it is right for men to be paid more. There are some people who hold even stronger opinion than this and are against married women working at all. When wives go out to work, they say, the home and children are given no attention to. If women are encouraged by equal pay to take full-time job, they will be unable to do the things they are supposed to. Women are best at making a comfortable home and bringing up children. They will have to give up their present position in society.

"This is exactly what they want to give up, "the women who disagree say. "They want to escape from the limited place which society expects them to fill, and to have freedom to choose between a job and home life, or a mixture of the two. Women have the right of equal pay and equal opportunities."

These women have expressed their opinions forcefully by using the famous saying, "All men are created equal." They point out that the meaning of this sentence is "all human beings are created equal."

48. The women use the phrase "equal pay for equal work" to demand that______.

A. women's work shouldn't be harder than men's

B. men should be paid less than women

C. people doing harder work should earn more

D. men and women should be paid the same amount of money for the same work

6 Charles and Jane Miro, aged 31 and 34 years respectively, have been married for ten years and have two children

aged six and eight years. Charles is a teacher but for the last five years he has stayed at home to look after their

children. Jane works as a translator for Speak Write Ltd.

Speak Write Ltd was formed and began trading on 6 April 2006. It provides translation services to universities. Jane,

who ceased employment with Barnham University to found the company, owns 100% of its ordinary share capital

and is its only employee.

Speak Write Ltd has translated documents for four different universities since it began trading. Its biggest client is

Barnham University which represents 70% of the company’s gross income. It is estimated that the company’s gross

fee income for its first 12 months of trading will be ￡110,000. Speak Write Ltd usually agrees fixed fees in advance

with its clients although it charges for some projects by reference to the number of days taken to do the work. None

of the universities makes any payment to Speak Write Ltd in respect of Jane being on holiday or sick.

All of the universities insist that Jane does the work herself. Jane carries out the work for three of the universities in

her office at home using a computer and specialised software owned by Speak Write Ltd. The work she does for

Barnham University is done in the university’s library on one of its computers as the documents concerned are too

delicate to move.

The first set of accounts for Speak Write Ltd will be drawn up for the year ending 5 April 2007. It is estimated that

the company’s tax adjusted trading profit for this period will be ￡52,500. This figure is after deducting Jane’s salary

of ￡4,000 per month and the related national insurance contributions but before any adjustments required by the

application of the personal service companies (IR 35) legislation. The company has no other sources of income or

capital gains.

Jane has not entered into any communication with HM Revenue and Customs (HMRC) with respect to the company

and wants to know:

– When the corporation tax computation should be submitted and when the tax is due.

– When the corporation tax computation can be regarded as having been agreed by HMRC.

Charles and Jane have requested a meeting to discuss the family’s finances. In particular, they wish to consider the

shortfall in the family’s annual income and any other related issues if Jane were to die. Their mortgage is covered

by a term assurance policy but neither of them have made any pension contributions or carried out any other long

term financial planning.

Jane has estimated that her annual after tax income from Speak Write Ltd, on the assumption that she extracts all of

the company’s profits, will be ￡58,000. Charles owns two investment properties that together generate after tax

income of ￡8,500. He estimates that he could earn ￡28,000 after tax if he were to return to work.

The couple’s annual surplus income, after payment of all household expenditure including mortgage payments of

￡900 per month, is ￡21,000. Charles and Jane have no other sources of income.

Required:

(a) Write a letter to Jane setting out:

(i) the arguments that HMRC could put forward, based only on the facts set out above, in support of

applying the IR 35 legislation to Speak Write Ltd; and

(ii) the additional income tax and national insurance contributions that would be payable, together with

their due date of payment, if HMRC applied the IR 35 legislation to all of the company’s income in

2006/07. (11 marks)

Helen’s husband is Mark. Mark and Helen have got two children: a son and a daughter. The son’s name is Andrew and the daughter’s name is Joyce. Joyce has got two children, a son and a daughter. So Helen and Mark have got two grandchildren. Helen’s granddaughter’s name is Pam and her grandson’s name is Dan. Andrew isn’t married and he hasn’t got any children. Pam and Dan like playing on the computer with their uncle. Andrew also likes playing football with his brother-in-law, Tom.

1.Andrew is Dan’s uncle. ()

A.Right

B.Wrong

2.Mark is Dan’s father. ()

A.Right

B.Wrong

3.Tom is Dan’s grandfather. ()

A.Right

B.Wrong

4.Joyce is Tom’s wife. ()

A.Right

B.Wrong

5.Pam is Andrew’s niece. ()

A.Right

B.Wrong

In the USA children start school when they are five years old． In some states they must stay in school (11) they are sixteen． Most students are seventeen or eighteen years old when they (12) school． There are two kinds of schools in the United States: public schools and pri-cate(私立)schools．(13)children go to public schools． Their parents do not have to(14)

their education because the schools (15) money from the government． If a child goes to a private school，his parents have to get enough money for his schooling ． Some parents still (16) private schools，though they are much more expensive．

Today about half of the high school students(17) unwersities after they finish the secondary school． A student at a state university does not have to pay very much if his parents (18 in that state． But many students(19) while they are studying at universities．In this way they (20)good working habits and live by their own hands．

( )11．

A．and

B．though

C．until

D．since