Blyth Engineering Ltd is a United Kingdom (UK) registered company that provides services to the offshore wind engineering industry.  The company has been trading for many years and has always been profitable.  For the past nine years, Blyth Engineering Ltd has been defined as a ‘large company’ for corporation tax purposes.  Blyth Engineering Ltd was incorporated in the UK and operates from two sites: a headquarters in Ashington (UK) and a facility at the Port of Tyne, Newcastle upon Tyne (UK).

 

Rishi Newton is the owner and chief executive of the company.  As owner and chief executive, Rishi has decided to reward himself for services provided to the company by paying myself using dividends rather than a salary.  Dividends of £200,000 were paid to Rishi; Blyth Engineering Ltd also paid dividends of £19,000 to other shareholders.

 

The company’s main source of income is from the manufacture, maintenance and repair of offshore wind turbines in the North Sea.  Income is also generated from the letting of industrial property to tenants: this letting activity is not related to the company’s main trading activity.

 

Blyth Engineering Ltd invests in financial products and shares in other companies: these activities generate additional income.  Income is also generated from the provision of loan finance to other companies: this activity is not related to the company’s main trading activity.

 

Financial statements for Blyth Engineering Ltd are prepared to 31 March.  Net profit per the financial statements for the year ended 31 March 2021 was £4,006,000.  This figure was stated after the addition and deduction, respectively, of the following items of income and expenditure:

Item	(£000)
Depreciation	3,790
Dividends receivable	203
Profit from property letting activity	1,071
Interest receivable (a)	401
Interest payable (b)	1,060
Losses (c)	11
Repairs and maintenance (d)	4,052
Professional fees (e)	125
Charitable donations (f)	17

 

Capital allowances for 2020/21 were £2,990,000.

 

Notes

1. Interest receivable

All of this interest receivable relates to income from investments in financial products.

 

2. Interest payable

£780,000 relates to interest payable due to non-trade loan relationships; £280,000 relates to loan relationships for trade purposes.

 

3. Losses

Losses of £11,000 were incurred due to the actions of Rishi Newton.  Following an investigation by UK police, a court determined that Rishi had acted dishonestly and that his actions had caused the losses to be incurred.

 

4. Repairs and maintenance

£1,400,000 relates to expenditure to modify a facility at the company’s site at the Port of Tyne, Newcastle upon Tyne: this expenditure enhanced the functionality of the facility.  £2,652,000 relates to expenditure on repairs and maintenance that did not result in a material improvement to or enhancement of the functionality of the company’s non-current assets.

 

5. Professional fees

Blyth Engineering Ltd raised debt finance via an issue of corporate bonds on 1 January 2021.  Professional fees of £70,000 were incurred because of this bond issue.  The company also paid professional fees of £55,000 to an investment bank in respect of advice regarding the raising of equity finance via a potential initial public offering (IPO) of equity share capital.  Following advice from the investment bank, it has been decided that the IPO will not take place.

 

6. Charitable donations

A qualifying charitable donation of £10,000 was made on 1 January 2021.  Another qualifying charitable donation of £7,000 was made on 18 April 2021.  Both donations were made using the Gift Aid scheme.

 

Profit from the letting of industrial property to tenants for the year ended 31 March 2021 was £1,071,000.  This figure was stated after the deduction of the following items of expenditure:

Item	(£000)
Depreciation	134
Services provided to tenants (a)	134
Administrative and management expenses (b)	225
Repairs and maintenance (c)	7,730
Water rates paid on behalf of tenants	120
Subscriptions (d)	4

 

Notes

1. Services provided to tenants

£106,000 relates to security services; £28,000 relates to reception services.

 

2. Administrative and management expenses

All of this expenditure relates to administrative and management expenses that were incurred due to the letting of industrial property.

 

3. Repairs and maintenance

£6,010,000 relates to expenditure on the construction of an extension to an industrial building; £1,010,000 relates to repairs to existing industrial buildings; £710,000 relates to expenditure that did not materially improve the company’s stock of industrial property.

 

4. Subscriptions

Blyth Engineering Ltd subscribes to a professional body that represents organisations in the industrial property letting sector: this subscription cost £3,000.  £1,000 relates to a subscription to a political party: this subscription did not result in any definite benefit to the company’s industrial property letting activity.

 

Required: 

1. Calculate Blyth Engineering Ltd’s corporation tax liability for the year ended 31 March 2021. (48 marks)

 

2. Determine the dates by which the corporation tax return must be submitted and the dates by which any payments of corporation tax must be paid. (10 marks)

 

3. Calculate the total amount of National Insurance contributions (NICs) payable by Rishi Newton in the contribution period 2020/21 if he had accepted a salary of £200,000 from the company (rather than dividends).  Ignore the timing of the receipt of income in the calculation of NICs. (23 marks)

 

4. Critically discuss the corporation tax effects of Rishi Newton’s decision to pay himself using dividends rather than accept a salary for his role as chief executive of Blyth Engineering Ltd. (19 marks)

Answer rating: 100% (QA)

To calculate Blyth Engineering Ltds corporation tax liability for the year ended 31 March 2021 w... View the full answer