QUESTION 3
Tielemans Limited has a twelve-month chargeable accounting period (‘CAP’) running from 1 April 2020 to 31 March 2021.
The adjusted trading profit for this CAP has already been calculated at £1,800,000 before deduction of capital allowances for plant and machinery. The capital allowance computation for the last CAP closed with written down values as follows:
- Main Pool £140,000
- Special Rate Pool* £70,000
- Short life single asset pool** £24,000
- Balance brought forward for Range Rover (199g/km)
- Machine bought to use for short term contract of 18 months
During the CAP the following assets were acquired or disposed of:
- 30 April 2020: 5 Mercedes articulated trucks were bought for £960,000
- 31 July 2020: a new Mitsubishi i-MiEV (zero emissions) was bought for £30,000
- 31 July 2020: a BMW 330i (emission 134g/km) car was bought for £40,000
- 31 August 2020: a manufacturing system was bought for £180,000
- 31 October 2020: the machine in the short life pool was sold for £15,000
- 31 December, 2020: a machine in the main pool was sold for £16,000
- 31 January, 2021: a Mercedes van was bought for £30,000
All disposal proceeds were less than the original cost.
Required: write a letter to the directors of Tielemans Limited (you are their tax advisor) outlining the UK tax policy motivation for capital allowances and their importance in tax planning and then providing an explanation of the detailed tax computation (marks will be allocated as follows):
a) Outline of the UK tax policy motivation for capital allowances and the calculation of the allowances for the CAP y/e 31 March 2021 (in order to do this please use a plant and machinery capital allowances computation table that you should include as the Appendix 1 to the letter).
(20 marks)
b) Calculation of the assessable trading income for the CAP and the Corporation Tax payable on the assumption that the company had no further profits chargeable to Corporation Tax for the y/e 31 March 2021 – this should be referred to in the letter and the detailed computation may be shown as Appendix 2 to the letter.
(5 marks)
(Total 25 marks)
