Potter need guidance on tax implications of to trade , the choice of accounting date for his
Question:
Potter need guidance on tax implications of to trade , the choice of accounting date for his business,
and whether or not to register voluntarily for value added tax (VAT) purposes. Ines, his wife, requires advice on the
tax implications of selling shares in respect of which relief has been obtained under the enterprise investment scheme
(EIS).
Potter;
Is UK resident and domiciled.
– Uses his capital gains tax (CGT) annual exempt amount every year.
– Receives dividends of £2,000 every year
Potter started selling items of sporting memorabilia from his collection during the tax year 2018/19.
– HM Revenue and Customs (HMRC) agreed that these sales should be subject to CGT in the tax year 2018/19.
– In April 2019, Potter started purchasing and selling more items of sporting memorabilia, such that HMRC have
said that he will be regarded as trading with effect from 6 April 2019.
– Potter will not be required to register for value added tax (VAT) for the foreseeable future.
– Potter will, however, consider registering voluntarily for VAT if it is financially beneficial for him to do so.
Potter – expected trading results from the sale of sporting memorabilia:
– Potter is considering either a 31 March or 30 April year end for his business.
– Potter estimates that his total income less expenditure for the 12 months ending 31 March 2020 will be £11,500.
– Each item of memorabilia is purchased and sold for no more than £1,000.
– All of the costs he incurs are deductible for tax purposes.
– Potter expects his profits to increase steadily after 1 April 2020.
Ines:
– Is UK resident and domiciled.
– Is a higher rate taxpayer.
– Has made/will make no disposals for CGT purposes, other than as described below.
Ines – sale of painting:
– Ines sold a painting on 4 July 2017 for proceeds of £196,000.
– The sale gave rise to a gain of £86,000.
Ines – acquisition of shares in Tavira Ltd:
– Ines subscribed £72,000 for 20,000 shares in Tavira Ltd on 8 October 2017.
– These shares are qualifying enterprise investment scheme (EIS) shares.
– Ines elected to defer the maximum possible amount of the gain on the sale of the painting against the acquisition
of these shares.
– Ines obtained EIS relief of £18,600 against her income tax liability for the tax year 2017/18.
– Ines intends to sell all of the shares in Tavira Ltd for £95,000 on 1 June 2020.
– If undertaken, this sale would qualify for entrepreneurs’ relief.
on the basis of assumption that potter prepared his first set of financial accounts to 31 March 2020, explain with supporting calculations the difference in tax payable by him for 2019/20 for profit on sale of sporting memorabilia as being trading income? 20Marks
Also calculate tax payable as per F.A2019 U.K
Financial Accounting Theory and Analysis Text and Cases
ISBN: 978-0470646281
10th edition
Authors: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey