Plug-In Ltd is a UK resident company that manufactures computer peripherals. The company’s summarized profit and loss account for the year ended 31 December 2020 is as follows:

                                                                                                    £                              £

Gross Profit                                                                                                          2,404,890

Operating expenses

Irrecoverable debts                                                [1]         18,950

Depreciation                                                                           93,770

Gifts and donations                                                [2]           4,250

Patent royalties                                                       [3]         14,800

Professional fees                                                     [4]         20,040

Rent and Rates                                                         [5]         112,000

Other expenses                                                     [6]         148,790

                                                                                                                               (412,600)

Operating profit                                                                                         1,992,290

Bank interest                                                            [7]                                       16,600

                                                                                                                        2,008,890

Interest payable                                                       [8]                                    (120,000)

Profit before taxation                                                                                    1,888,890

Notes to the profit and loss account

[1] -Irrecoverable Debts

Irrecoverable debts are as follows:                                                                 £

        Trade debts recovered from previous years                                    (1,350)

         Increase in allowance for trade debtors                                                     20,300

                                                                                                                           18,950

[2] -Gifts and donations

Gifts and donations are as follows:

Gifts to customers (diaries costing £30 each and displaying

Plug-in Ltd’s name)                                                                                                    2,400

Gifts to customers (hampers of food costing £100 each)                                   1,100

Donation to national charity (made under the Gift Aid scheme)                               750

                                                                                                                                       4,250

[3] -Patent Royalties

Patent royalties of £11,200 were paid on 31 October 2020, and £3,600 was accrued at 31 December 2020. There was no accrual at December 2019. The figures for patent royalties are trade related.

[4] -Professional Fees

Accountancy and audit fee                                                                                8,040

Legal fees in connection with the issue of share capital                    10,600

Legal fees in connection with the issue of a Debenture Loan              8,400

The cost of registering the company’s trademark                                1,400

                                                                                                                      28,440

The share capital and debentures were raised for non-trading purposes.

[5] -Rent and rates

      Rent and rates includes a premium of £60,000 that was paid on 1 January 2019 for the 

      grant of a 15-year lease on an office building.     

[6] -Other Expenses

Other expenses include £29,740 for entertaining customers, £4,780 for entertaining employees, and the cost of seconding an employee to a charity of £3,600. The remaining expenses are all allowable.

 

[7] -Bank interest received

The bank interest was received on 31 December 2020. The bank deposits are held for non-trading purposes.

[8] -Interest payable

The interest has been used for trading purposes. Interest of £60,000 was paid on 30 June 2020 and again on 31 December 2020.

[9] Capital allowance for the period amounts to £235,604

[10] -Other information

Plug-In Ltd has no associated or subsidiary companies. For the year ended 31 December 2019 Plug-In Ltd had profits chargeable to corporation tax of £1,800,000.

Required:

(a)     Calculate Plug-In Ltd’s tax trading adjusted profit for the year ended 31 December 2020.

(b)    Calculate Plug-In Ltd’s corporation tax liability for the year ended 31 December 2020.           

(c) (i) Explain why Plug-In Ltd would have been required to make quarterly installment payments in respect of its corporation tax liability for the year ended 31 December 2020.    

    

Answer rating: 100% (QA)

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