Tony Tape, a self-employed tailor and dressmaker, started a new business called Tape
and Co. on 1 February 2016.
His tax-adjusted trading profits after capital allowances have been as follows:
£
Period to 31 August 2017 22,590
Year ended 31 August 2018 40,920
For the year ended 31 August 2019, Tony sent you the following statement of profit or
loss and some additional notes:
Notes £ £
Sales revenue 232,650
Less: Expenditure
Legal and professional fees 1 2,565
Donations and gifts 2 6,105
Staff costs 3 28,100
Travel expenses 4 13,369
Motor expenses 5 15,270
Shop property running expenses 6 36,845
Sundry expenses 7 52,916
Depreciation 21,830
––––––– (177,000) ––––––––
Net profit 55,650 ========
Additional notes:
(1) Legal and professional fees consist of:
£
Bookkeeping and accounts preparation completed by Tony’s wife 950
Capital gains tax advice for Tony’s son 190
Legal fees in respect of:
– purchasing a 55 year property lease 750
– defending a claim made by a customer for breach of contract 675
(2) Donations and gifts made by the business are as follows:
£
Donation to the Conservative Party 800
Electronic diaries gifted to key suppliers
(Cost £42.50 each, embossed with business name and logo) 3,230
Small loose chocolates wrapped in foil bearing the business logo
left at the till and outside the changing rooms for all customers 2,075
Final Page 4 of 14
EC3085
All Candidates
(3) Staff costs relate to two employees:
£
Shop manager (his 30 year old daughter, Rosemarie) 20,000
Part time shop assistant (his 19 year old niece, Adele) 8,100
Tony could employ a shop assistant for the same hours as Adele for £7,000.
(4) Travel expenses relate to Tony’s train and taxi expenses incurred when attending
business meetings. It also includes:
– a speeding fine of £200 incurred by Tony’s daughter whilst travelling to a
training course, and
– a parking fine of £70 incurred by Tony while shopping for items for the
business.
(5) Motor expenses are as follows:
£
Tony’s car – running costs 7,760
Daughter’s car – leasing costs 6,000
Daughter’s car – running costs 1,510
Tony took out the car lease to provide his daughter with a car on 1 June 2018. The
car has CO2 emissions of 110 g/km and Tony’s daughter used the car 30% for
private use.
Tony has agreed with HMRC that he uses his car 80% for business use.
(6) For security reasons, the manager (Rosemarie) lives in a flat situated above the
shop premises as part of her remuneration package. One fifth of the property
running expenses charged to the accounts relate to the apartment.
(7) Tony thinks that the ‘sundry expenses’ of £52,916 are tax allowable except he is
unsure about the following items:
£
Penalty charged due to Tony’s late payment of his 2016/17
income tax 295
Subscription to ‘International Tailoring’ magazine
– a specialist magazine for tailors and dressmakers 95
Cost of billboard advertisement for November and December 690
Amount stolen from the till by a former employee 250
Bank overdraft interest 320
Allowances of £1,000 each for Tony, Rosemarie and Adele to buy
designer clothes to wear whilst serving in the shop 3,000
(8) The capital allowances available for the year ended 31 August 2019 total £15,167.
Apart from his business income above, Tony’s only other source of taxable income in
2019/20 is £1,560 of interest on bank and building society accounts and dividend
income of £2,350 from his portfolio of shareholdings.
Final Page 5 of 14
EC3085
All Candidates
Required
(a) Calculate Tony Tape’s tax adjusted trading profit after capital allowances for the
year ended 31 August 2019.
Your computation should commence with the net profit figure of £55,650 and
should list all the items referred to in Notes (1) to (7), indicating with the use of a
zero (0) any items that do not require adjustment.
Where you feel it is necessary, state any assumptions you have made.
(15 marks)
(b) Determine Tony Tape’s trading income assessments for the tax years 2015/16 to
2019/20 inclusive, and state the amount of overlap profits generated in the opening
years.
(9 marks)
(c) Compute Tony Tape’s income tax liability, and his class 2 and class 4 national
insurance payable for 2019/20.
State the due dates for payment and the consequences of not paying on time.
(11 marks)
Ignore VAT in this question.
Total: (35 marks)