GoMo Ltd is a UK registered company which commenced trading in the UK on 1 March...

 

 

 

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GoMo Ltd is a UK registered company which commenced trading in the UK on 1 March 2020 as a manufacturer of mopeds (small motorbikes). GoMo Ltd prepared its first accounts for the period 1 March 2020 to 31 December 2020. The following information is available: PART A i. Trading profit The tax adjusted trading profit based on the draft accounts for the ten-month period ended December 2020 is £944,291. This figure is before making any adjustments required for: 1. Capital allowances; 2. Tax adjustments required for research & development which included payroll expenses of £3,256 and capital expenditure as shown in plant and machinery below (the company is considered small for R&D purposes); 3. Advertising expenditure of £10,280 incurred during February 2020, just before the trade commenced. This expenditure has not been deducted in arriving at the tax adjusted trading profit for the period ended 31 December 2020; 4. Non-trade loan relationships. ii. Plant and machinery The financial accounts for the period ended 31 December 2020 show the following tangible fixed asset additions: 2 March 2020 6 October 2020 8 November 2020 Manufacturing machine Equipment for R&D purposes Petrol motor car Cost £ 62,500 1,600 13,200 The motor car has emissions of 125g/km and is to be used by the managing director of the company to travel 10,000 business miles and 4,000 miles of private travel. iii. Building GoMo Ltd purchased a factory on 1 March 2020 for £320,000 (including £100,000 for the land). At the time of purchase the company knew it would need to spend an additional £20,400 to repair a hole in the building's roof to make it usable for manufacturing purposes. These repairs are included as an expense in reaching the adjusted trading profit of £944,291 above. The company also paid for the construction of a new storage building at a cost of £60,000. The building contract was signed on 1 April 2020, with the building brought into use from 1 November 2020. iv. Interest expense During the first trading period GoMo Ltd received two separate loans: o £250,000 secured loan to help finance the purchase of the factory building. • £22,980 interest was paid during the accounting period to service the loan to 31 December 2020 and is included as an expense in reaching £944,291 tax adjusted trading profit. o £160,000 loan to finance the purchase of shares in 'MoFin Ltd' (see note vili below). • Tax adjusted trading profit included an expense of £1,600 for interest on this loan, of this £400 related to interest paid and £1,200 to an accrual for interest owed in respect of the accounting period. v. Dividends On 16 December 2020, GoMo Ltd received a £14,500 dividend from Flat-Out plc, an unconnected United Kingdom company. This is not included in the tax trading profit of £944,291. No dividends were received in the accounting period from MoFin Ltd, a subsidiary company. PART B vi. VAT GoMo Ltd registered for VAT from 1 March 2020, all its sales were standard rated. GoMo Ltd's outputs and inputs for the VAT quarter to 30 November 200 were as follows: £ 845,400 Figures stated are exclusive of value added tax (VAT). Stock purchased 456,250 Services incurred Outputs Sales Inputs 45,350 At the end of November, GoMo Ltd held £194,500 stock (exclusive of VAT). Capital purchases made during the quarter also exclude VAT as detailed in note (ii) PART C vii. MoFin Ltd On 10 November 2020, GoMo Ltd purchased 80% (800 shares) of the issued share capital in a new UK company called 'MoFin Ltd". GoMo Ltd paid £160,000 for the issued share capital. MoFin" was originally run as a sole-trade by Mr Smith. On 10 November 2020, Mr Smith transferred the business assets in to a newly incorporated company "MoFin Ltd, in return he received £160,000 cash and a 20% shareholding in the company (200 shares). The market value of the net assets Mr Smith transferred to "MoFin Ltd" on incorporation was: Market value £ 60,000 127,000 25,000 (12,000) 200,000 Internally generated goodwill Freehold office Debtors Creditors Total net assets *The freehold office was bought March 2011 for £50,000 Mr Smith, (who is 63 and a higher rate taxpayer), remains involved with the business as a part- time director of MoFin Ltd. SECTION B REQUIREMENT: PART A - Corporation Tax (Questions 1-4 based on information included in paragraphs i-v) B1) Required: Calculate the maximum capital allowances that GoMo Ltd will be able to claim on the capital expenditures made during the ten-month period of account ended 31 December 2020; B2) Required: Calculate GoMo Ltd's corporation tax liability for the period of account ended 31 December 2020; B3) Required: Analyse if the company will need to make corporation tax payments by instalments for the ten-month period ended 31 December 2020 and state the corporation tax due date(s); B4) Required: State the date by which GoMo Ltd must file its CT600 corporation tax return with HMRC and specify the documents that need to be submitted with the CT600 for a complete filing. PART B-VAT (For question 5 use information from paragraphs vi and ii) B5) Calculate the net VAT GoMo Ltd will need to pay for the VAT quarter ended 30 November 2020 and state the date by which this VAT should have been paid. PART C - Capital Gains (For question 6 use information from paragraph vii) B6) Calculate the capital gains tax Mr Smith will owe to HMRC following the incorporation of 'MoFin Ltd' in the tax year 2020/21. Your answer should take into consideration any incorporation and business asset disposal (entrepreneur's) relief which are available to Mr Smith; PART D- Ethics B7) Your tax firm has acted on behalf of Mr Smith for many years and was approached by GoMo Limited to provide advice on the company's purchase of shares in MoFin Ltd. In accordance with the Accounting Profession's "professional code of conduct", explain the steps your firm should have taken when agreeing to act for GoMo Limited and explain how your firm should manage any conflicts of interest. GoMo Ltd is a UK registered company which commenced trading in the UK on 1 March 2020 as a manufacturer of mopeds (small motorbikes). GoMo Ltd prepared its first accounts for the period 1 March 2020 to 31 December 2020. The following information is available: PART A i. Trading profit The tax adjusted trading profit based on the draft accounts for the ten-month period ended December 2020 is £944,291. This figure is before making any adjustments required for: 1. Capital allowances; 2. Tax adjustments required for research & development which included payroll expenses of £3,256 and capital expenditure as shown in plant and machinery below (the company is considered small for R&D purposes); 3. Advertising expenditure of £10,280 incurred during February 2020, just before the trade commenced. This expenditure has not been deducted in arriving at the tax adjusted trading profit for the period ended 31 December 2020; 4. Non-trade loan relationships. ii. Plant and machinery The financial accounts for the period ended 31 December 2020 show the following tangible fixed asset additions: 2 March 2020 6 October 2020 8 November 2020 Manufacturing machine Equipment for R&D purposes Petrol motor car Cost £ 62,500 1,600 13,200 The motor car has emissions of 125g/km and is to be used by the managing director of the company to travel 10,000 business miles and 4,000 miles of private travel. iii. Building GoMo Ltd purchased a factory on 1 March 2020 for £320,000 (including £100,000 for the land). At the time of purchase the company knew it would need to spend an additional £20,400 to repair a hole in the building's roof to make it usable for manufacturing purposes. These repairs are included as an expense in reaching the adjusted trading profit of £944,291 above. The company also paid for the construction of a new storage building at a cost of £60,000. The building contract was signed on 1 April 2020, with the building brought into use from 1 November 2020. iv. Interest expense During the first trading period GoMo Ltd received two separate loans: o £250,000 secured loan to help finance the purchase of the factory building. • £22,980 interest was paid during the accounting period to service the loan to 31 December 2020 and is included as an expense in reaching £944,291 tax adjusted trading profit. o £160,000 loan to finance the purchase of shares in 'MoFin Ltd' (see note vili below). • Tax adjusted trading profit included an expense of £1,600 for interest on this loan, of this £400 related to interest paid and £1,200 to an accrual for interest owed in respect of the accounting period. v. Dividends On 16 December 2020, GoMo Ltd received a £14,500 dividend from Flat-Out plc, an unconnected United Kingdom company. This is not included in the tax trading profit of £944,291. No dividends were received in the accounting period from MoFin Ltd, a subsidiary company. PART B vi. VAT GoMo Ltd registered for VAT from 1 March 2020, all its sales were standard rated. GoMo Ltd's outputs and inputs for the VAT quarter to 30 November 200 were as follows: £ 845,400 Figures stated are exclusive of value added tax (VAT). Stock purchased 456,250 Services incurred Outputs Sales Inputs 45,350 At the end of November, GoMo Ltd held £194,500 stock (exclusive of VAT). Capital purchases made during the quarter also exclude VAT as detailed in note (ii) PART C vii. MoFin Ltd On 10 November 2020, GoMo Ltd purchased 80% (800 shares) of the issued share capital in a new UK company called 'MoFin Ltd". GoMo Ltd paid £160,000 for the issued share capital. MoFin" was originally run as a sole-trade by Mr Smith. On 10 November 2020, Mr Smith transferred the business assets in to a newly incorporated company "MoFin Ltd, in return he received £160,000 cash and a 20% shareholding in the company (200 shares). The market value of the net assets Mr Smith transferred to "MoFin Ltd" on incorporation was: Market value £ 60,000 127,000 25,000 (12,000) 200,000 Internally generated goodwill Freehold office Debtors Creditors Total net assets *The freehold office was bought March 2011 for £50,000 Mr Smith, (who is 63 and a higher rate taxpayer), remains involved with the business as a part- time director of MoFin Ltd. SECTION B REQUIREMENT: PART A - Corporation Tax (Questions 1-4 based on information included in paragraphs i-v) B1) Required: Calculate the maximum capital allowances that GoMo Ltd will be able to claim on the capital expenditures made during the ten-month period of account ended 31 December 2020; B2) Required: Calculate GoMo Ltd's corporation tax liability for the period of account ended 31 December 2020; B3) Required: Analyse if the company will need to make corporation tax payments by instalments for the ten-month period ended 31 December 2020 and state the corporation tax due date(s); B4) Required: State the date by which GoMo Ltd must file its CT600 corporation tax return with HMRC and specify the documents that need to be submitted with the CT600 for a complete filing. PART B-VAT (For question 5 use information from paragraphs vi and ii) B5) Calculate the net VAT GoMo Ltd will need to pay for the VAT quarter ended 30 November 2020 and state the date by which this VAT should have been paid. PART C - Capital Gains (For question 6 use information from paragraph vii) B6) Calculate the capital gains tax Mr Smith will owe to HMRC following the incorporation of 'MoFin Ltd' in the tax year 2020/21. Your answer should take into consideration any incorporation and business asset disposal (entrepreneur's) relief which are available to Mr Smith; PART D- Ethics B7) Your tax firm has acted on behalf of Mr Smith for many years and was approached by GoMo Limited to provide advice on the company's purchase of shares in MoFin Ltd. In accordance with the Accounting Profession's "professional code of conduct", explain the steps your firm should have taken when agreeing to act for GoMo Limited and explain how your firm should manage any conflicts of interest.

Answer rating: 100% (QA)

PART A i The maximum capital allowances that GoMo Lid will be able to claim on the capital expenditures made during the tenmonth period of account end... View the full answer