BSB 7401 TAX Group Case

study

Report Regarding
Mr.Abrahim
Tax Affairs In The Period
Ended 28th Of February ,
2015.

Written by:
Ali Sarhan
201101119
Khaled Ebrahim 201101318
Ali Yusuf 201201237
Husain Alasmaskh2012011783

Table of Contents
1.0 Introduction.............................................................................2
2.0 Business cessation...................................................................3
2.1 VAT Implication in case of business cessation.........................3
2.2 Income Tax............................................................................6
2.2.1 Taxable income................................................................................. 6
1.2.2 Tax liability and tax payable...........................................................10
2.3 National Insurance Contribution (NIC)...................................11
3.0 Capital gain transactions........................................................13
3.1 Capital Gain Tax (CGT) liability.............................................13
3.1.1 Calculation of Capital Gain Tax.......................................................13
3.1.2 Advices regarding the CGT................................................17
3.1.2 Fall in All Over Inc. Shares...............................................................21
3.2 Bubbles Inc. Shares.............................................................25
3.2.1 Bubbles Inc. Dividends Tax treatment in the UK.............................25
3.2.2 Advise on the capital gains tax implications of a future disposal of
the shares................................................................................................ 28
3.2.3 Treatment of Eric Sloanes expenses under CGT purposes.............31
4.0 Conclusion.............................................................................32
5.0 References.............................................................................33
6.0 Appendices............................................................................38
Appendix 1: Claim for Entrepreneurs Relief form........................................38
Appendix 2: Capital Gain Summary Form...................................................39
Appendix 3: Post Transaction Valuation Checks..........................................40

Page 1 of 45

1.0 Introduction
To: Mr. Abrahim
From: The manager
Date: 7th of May 2015.
Subject: Cessation of Abrahims business and his capital gain transaction for
the tax year of 2014/2015.
This report is to provide a thorough analysis over the effects of cessation of
Abrahims business and other capital gain transaction. The report will start by
stating the effect of VAT on the cessation of the business then it will move to
calculate the taxable income for the period ended of 28 th February 2015.
Afterwards, advice regarding Abrahim capital gain liability for tax year of
2014/15 accompanied with supporting calculations. Finally, full explanation
regarding the tax treatments of dividends paid from Bubble, Inc. in the UK.

Page 2 of 45

2.0

Business cessation.

2.1 VAT Implication in case of business cessation.

VAT, or value added tax is a form of indirect taxes charged to taxable goods.
Goods are to be supplied when their ownership is transferred, meaning that it
can be traded. While supplies of services occur by delivering service in
exchange of monetary amount or other services. Thus, the buyer will pay the
tax but the seller has the obligation to deliver it to the government. VAT is
calculated by adding a percentage of the sales price, either with standard
rated at 20%, which can be reduced to 5% for goods such as oil products. The
taxable supply can be or Zero-Rated which charge zero percent of VAT, which
applies to things such as books. That said some goods are also exempt from
VAT as stated by the HMRC such as financial transaction.
Your business, Mr. Abrahim, sells books, gifts and cards. All of these are
considered to be printed materials and therefore has Zero rate VAT meaning
that for them, you have not taken any VAT rate. (BPP Learning Media, 2014A)

VAT Implication in case of cessation.

The main VAT implication is the need to deregister and file a final VAT returns.
The Business is liable and registered to the VAT according to the information
attached. As a result, you must deregister from VAT or else he will be liable
and face financial penalties. The VAT implication is therefore your obligation
to deregister. Added to that, you must also file a final VAT returns and
penalties for not meeting the HMRC requirements regarding VAT.
(Government UK, 2014A)
Deregistration from VAT.
The trader can deregister if the taxable supplies are not expected to exceed
79,000 within the next 12 months. At the same time, the reason behind this
expectation must not be the termination of the taxable supply or their
temporary suspension of 30 days. That said, the HMRC also allow for
voluntary deregister if the trader stops his trading and does not have any
intention to continue.
One point to note is that if the business is being sold as a going concern, as in
selling the whole business to another person who intends to continue with the
same business activity, then there is no change in VAT and thus no need to
deregister. However, as stated by the email, since you are ceasing trading
after 28th of February, 2015 and thus his profits after that date will be zero
Page 3 of 45

and you must deregister from VAT. As a result, you must Apply for
deregistration within 30 days from the reason of causing cession, thus you
must apply for deregistration no longer than 30 th March 2015. Your VAT
registration will be cancelled effectively from 28 th of February 2016
(Government UK, 2014B).

Final VAT Return.

Another implication is that you have to file for a final VAT returns. This
includes the total sales and purchases, VAT owned, VAT reclaimed and VAT
Refunded in the period. The sales will include the sales of assets and stocks.
It should be noted that if the VAT that rises obligation to pay, only if that
amount exceeds 1000. Otherwise, you will have no obligation or liability to
file the final VAT returns to the HMRC. The sales that will be included on the
final vat returns are. Note that the VAT rate is the rate published by HMRC.
(Government UK, 2014E).

1) Stocks: there three type of stocks books, cards and small gifts. As for
the books they are zero rated and no need to charge to VAT for
customers. As for the cards and small gifts, then you will charge 20%
on them. If that amount exceeds 1000, then it will be included in the
final VAT return report.
2) Painting: As you intend to sell the painting inherited from your aunt,
there will no VAT Charged on them as they are exempt from VAT.
3) Building: buildings sales are exempt from VAT since it is older than 3
years old. (Buildings and constructions, 2014)
4) Equipment, shelves and fittings: the sales of these assets are 820
and 1500 respectively. Likewise these items are also chargeable with
20% when sold and thus must be paid to the HMRC. However, since the
amount is 164 and 300 respectively. Thus, there is no need to file
final VAT return on them.
Payment of VAT reclaimed.
The trader can apply to reclaim the VAT paid when purchasing. However,
when ceasing trading, he/she must pay that amount back. Thus, you must
pay back the amount reclaimed to the HMRC on the non-current and
inventory on hands the business currently own. It should be noted that the
repayments on assets applies only for those who are used for business
purposes only and thus any personal asset he has will not be affected. Based

Page 4 of 45

on that, you must pay VAT he has reclaimed on these assets:

Government, 2014C)

(UK

A) Shelves and shops fittings: these items are considered noncurrent assets, as they arent expecting to be consumed within a
year. Therefore, they will be affecting the reclaim repayments.
They have cost, of 1,500; therefore the amount reclaimed was
20% of that amount (about 300), which you must repay back to
the HMRC.
B) Equipment: Originally costing 820, the equipment also is
charged with a standard 20%. This means you have claimed 164
(20% of 820), which must be paid back.
C) Stock: the books are zero rated thus you could not reclaim any
VAT paid. However, the cards and small gifts are rated with 20%
and thus any VAT you reclaimed on that you must repay back.
D) Building: Buildings are exempt from the VAT because they are
older than three years period. Therefore, the building is exempt
from tax purposes and you cannot reclaim anything.

Added to that any refunds made in the period by the HMRC must also be
included in the final VAT return. Other assets such as stocks (shares) and
painting will not be affected by the cessation of the business and are not
used for business purposes. Therefore, they will not increase the amount of
VAT reclaim that must be repaid for the HMRC (Government UK, 2014A) .

Penalties:
However, penalties are still part of VAT consequences when ceasing the
business if you do not follow the above deregistration steps. The following
are list of these penalties:
1) Errors in VAT return calculation: if you make an error in calculating
the amount of VAT returns or amount of reclaim he must repay then he
will be chargeable for a penalty. If the error is due to carelessness, then
he will be charged 30% of the amount of VAT lost, this amount can be
decreased to zero if he submit a discourser take responsibility of the
error. If you make an error deliberately but does not take measurement
to conceal it then this percentage will increase to 70%, however, this
can also be reduced to 20% by submitting a disclosure. That said, if
you try to conceal the error by submitting false VAT returns report to
Page 5 of 45

the HMRC than he will Pay 100% of the amount of VAT revenue lost
which can be also decreased by taking responsibility with a disclosure
to 30%.
2) Late VAT Returns filing: should you fails to file his VAT return within
the specified time, he would be liable for 100. If you fail to submit the
returns after 30 months of the date of filing, then this amount will
increase by 10 per day for a maximum of 90 days (3 months.)
Furthermore, not submitting even after the 6 months will result of a
penalty of the 300 or 5% of the VAT liability whichever is higher.
Moreover, if you still do not submit the returns report after 12 months
then the penalty is based on your actions. If you are deliberate in be
being late but do not try to hide it then he will pay 300 or 70% of the
VAT liability that should be shown in the VAT returns report. If you are
deliberate and try to conceal it then will be pay 300 or 100% of the
VAT liability that should be shown in the VAT returns report. In case of
any other behavior such as being careless then it is the highest of
300 or 5% of the VAT liability that should be shown in the VAT returns
report.
3) Late in VAT payment: if you are late more than 30 days of the date
you should pay the VAT or the reclaims to the HMRC then you will pay
5% of the VAT payments if he is late more than one month but no more
than 5 months. If is late more than 5 but less than 11 months he will
pay additional 5% to the previous penalty. If he is late in paying more
than 11 months then he will pay another 5%.
4) Failing to maintaining records: After deregistration, you must keep
his records for 6 years. If he fails to do so, he will pay 3000 for each
accounting period affected by the missing records. (BPP Learning Media,
2014B).

To summarize, the VAT consequences in case of business cessation is the

liability of the trader to deregister from VAT program and filing a final VAT
return to the HMRC. The consequences can translate into penalties as well if
you not follow all the steps relating to deregistration within the specified
deadlines.

2.2 Income Tax

To calculate Income tax, you must follow these steps:
1) Calculate the total taxable income.
2) Calculate the tax liability and tax payable.

Page 6 of 45

2.2.1 Taxable income.

The taxable income is calculated using the following Performa. Working for
specific items are disclosed below.
Non-Saving
()
49,075

Saving
()
-

Total
()
49,075

Property
business
income
Bank interest (Note 2)

4,300

4,300

16,875

16,875

Total/Net income
Personal
allowance
(Note 4)
Taxable income

53,375
(10,000)

16,875
-

70,250
(10,000)

43,375

16,875

60250

Trading income (Note 1)

The above Performa is essential approach to determine the total taxable

income and as it can be seen that your income will be calculated on the basis
of the following categories; Non-Saving, and Saving income which were
selected according to the type of incomes. Each item considered was
explained in the separate notes below, with the exception of property
business income as it requires no calculation and was put under the nonsaving column using the figure provided with the email as per with taxable
calculation rules. (BPP Learning Media, 2014C) (BPP Learning Media, 2014D).
Overall, the total net income 70,250 will be found after the aggregation of
Non-saving, Saving and Dividends amounts. Finally, personal allowance;
10000 must be deducted from the net income as your income falls within
the limit this will result in the total income tax of 60,250.

Note 1: Trading income and capital allowance

Capital allowance
The first step is to calculated total trading income at the period end February
2015. To do that, however, it is essential to calculate the capital allowance
(BPP Learning Media, 2014E).

Page 7 of 45

General
Pool ()
Brought 4050

WDV
Forward
Addition:
Equipment

Van
85%
4130

() Allowance
s ()

820
4870

4130
(4700)

Disposal of Van
Disposal
of (1500)
fittings
Disposal
of (820)
Equipment
TWDV
2550
(570)
Balancing
(2550)
2550
allowance
Note Balancing
that
570
(484.5)
Charge
TWDV
carried 0
0
2065.5
forward
Annual Investment Allowance (AIA) and the WDA rates cannot be used in the
final year when ceasing trade as balances should be closed due to cessation.
First and foremost, the above table was created using general pool and
Van in separate columns; which is needed, as the van is not used 100% for
business purposes. The calculation to find the amount to be taxed is done
using this formula:

amount brought forward +additionsless disposals

The amount brought forward was provided with the email. The addition for
the period included equipment worth 820.
As for the disposal, the
information provided state that the shelving and non-current assets (which
are part of the general pool) will be sold for 1500 while the equipment would
also be sold, assumingly with 820. Over, all the balance of the general pool
is 4870 with a disposal of 2320, meaning that there is a loss of 2550.
According to tax rules, since the whole pool was disposed of with a loss, then
a balancing allowance equal to the loss will rise that is negative in the pool
column to bring the balance to zero but is treated as a positive capital
allowance.
As for the van, the balance brought forward is 4130, with no additions; the
van will be disposed of with 4800, meaning that there is a gain of 570. In
case of gain on disposal, balancing charge will rise with the same gain value.
This charge is written as positive amount in the van column to bring the
Page 8 of 45

balance to zero and is treated as negative capital allowance. However, only

85% of the balancing charge will be transferred to the capital allowance
column as only 85% is used for business use and 25% is for privet use; which
should not be accounted for when calculating the allowance. It should be
noted that in the case of the van, it will not be sold, as you will keep it,
however, it is treated as a disposal since the business will dispose it. The
disposal value will equal to the van fair value when you will use it completely
for his personal affairs.
Overall, the total amount of capital allowance for the period is 2065.5 with
no carrying forward balancing for the general pool or the van.
The second step is to determine the trading income to be transferred to the
Performa for the calculation of the total income tax by calculating the
adjusted trading profit (BPP Learning Media, 2014F).

Profit and loss adjustment Performa

Net profit
11,500
Add: Sales of inventory 8300
revenue
Add: expenses to Mr. 0
Sloane.
Less: Gain on sales of (0)
assets.
Less: Cost of goods sold
(7905)
Less: capital allowance
(2065.5
)
Adjusted trading profit
(28/2/2015)
Add:
Adjusted
trading
profit (31/10/2014)
Trading
income
(31/10/2014 28/2/2015)

9830
39,245
49,075

The forecasted trading profit for the period ended in February 28, 2015 since
this will be the cessation date and this will be 11,500. However, adding the
taxable revenue and expenses and removing deductible revenues and
expenses must adjust this amount. The first thing to add is to add the sales
revenue of 8300, as it has not been recorded. The advice expense 300 to
Mr. Eric Sloane as this is a personal expense and should not be deducted from
the net profit, however, there is no adjustment needed as the 11,500 figure is
already adjusted for profit. The last this to add as per with tax rules is any
Page 9 of 45

losses made on sales of assets as this is a not deductible expense. Any

Losses due to the disposal of assets should not be deducted as it is a not an
allowable expense ( this is disused further in the capital transaction section).
However, since the expected net profit figure did not account for the final
sales of assets, then there is no adjustment needed.
As for the deduction, firstly any gain realized from sales of assets must be
deducted as they are not taxable as part of the income tax. For example, a
gain of 7,100 on the sales of painting and 80,000 ( to be discussed
in the Capital transaction section further below) is expected. However,
no adjustments are needed here as well because the net profit did not
include the gain from the sales. Furthermore, the cost of goods sold must be
deducted from the net profit as they are considered to be deductible
expense. The sale figure is 8300 cost plus 5 % thus the COGS is 7905
(8300 x 100/105). Finally, the capital allowance 2065.5 will be deducted
from the sum of the trading income and the added expenses and revenues
the reach to the total adjusted profit of the adjusted trading profit 9829.
However, this is not the final trading profit for the period ended 28 February,
2015 as the trading profit for the year ended October, 2014, is 39245
resulting in to the adjusted trading profit for the period ended 28 th February
2015 to be 49,070.
Note 2: Bank Interest
Within the tax year 2014/15, you have received a bank net interest of
13,500 credited to his account, this should be considered in the Performa
while calculating total income tax, and thus, the gross up value of the interest
will be considered in the Performa:
The interest gross-up formula

Grossedup bank interest =13,500

Net Interest

100
80

100
80

= 16,875

Note 4: Personal Allowance

Personal allowances are tax relief given to individuals depending on their age;
the older the person the higher is the allowance. (BPP Learning Media,
2014C) Within the tax year 2014/15, your age will turn to 56 that will result in
personal allowance of 10,000 to be deducted from the Net income. This is
because your birth date is after 6 th April 1948 (born in 1960). People who are
born after this year have personal allowance of 10,000 as long as their total
net income is less than 100,000. This amount of personal allowance is
Page 10 of 45

deducted from the non-saving income first and any remaining will be
deducted from the saving income. As a result of this, the non-saving income
became 43,375 and the total taxable income is 70,250.

Note
Dividends:

According
information
All
Over,

Tax liability ()
Non-Saving (43,375)
31865 At Basic Rate of
20%
Remaining limit of basic
Rate
11510 At Higher Rate
of 40%
Remaining limit of Higher
rate
Saving (16875)
16,875 at Higher Rate
of 40%
Remaining limit of Higher
Rate
Total Tax Liability

Regarding

6373
0
4604

to
the
provided,
Inc. is on

106,80
5
6750
89,930

1772
7
receivership meaning that they are liquidating their company. The 3 pence
you receive is actually not dividends but a reimbursement of the shares
17,500 shares. As a result, this will be dealt with a part of capital gain tax and
not within income tax. Thus, the dividends income received for the period
ended 28 February 2015 is zero.

1.2.2 Tax liability and tax payable.

After the calculation of the non-saving, saving and dividends taxable incomes
in the Performa, the total tax liability will be computed to reach the amount of
tax liability and eventually the amount of tax still due (tax payable) to the
HMRC. (BPP Learning Media, 2014D)

Page 11 of 45

Tax Payable ()
Total Tax liability

17,727

Less advancement
Interest (16875 at 20%)

(3375)

Total Tax Payable

14,352

First, the non-saving value (43,375), it will satisfy the basic rate limit
(31865), thus, (31865) will be multiplied into the basic rate (20%) leading
to a tax liability of then, the tax liability of 6373 and the remaining balance
of the basic rate limit is 0. Moreover, the remaining 11510 of non-saving
income will be taxed at the higher rate (40%) adding 4604 to the tax
liability. With this the liability for non-saving income has been calculated and
as the basic rate limit has been satisfied and the remaining balance of the
higher rate is (106,805) as a result of deduction of (11510) from the higher
rate limit 118,315. Second section deals with income classified as saving,
since the higher rate limit is still not completely satisfied, the saving income
will be taxed at a rate of 40% leading to tax liability of 6750 (16,875 x
40%). All that will lead to a total tax liability of 17727 and the remaining
balance of higher tax is 89,930

Note: The rates used in the above calculations are official rate of the HMRC
for the tax year 2014/15.

After computing the total tax liability, the next step is to deduct the
advancement taxes paid for the interest (earned saving) to reach the amount
of tax still due. The total tax liability is derived from the tax liability table
above, and the advancement paid is 20% of the saving income. Thus, the

Page 12 of 45

total tax payable will be 14,352 as your tax payable for the period ended
28 February 2015.

2.3 National Insurance Contribution (NIC)

Any person that satisfy the below conditions must contribute to the HMRC to
qualify benefits such as pensions:

The contributors age must be 16 years old or more

An employee earning 155 per week or self-employed with trading
income 5965 or over per year. (Government UK, 2014G)

There are 4 classes in the payment of NIC:

Class 1 (A and B) Contribution by Employees

Class 2 and 4 Contributions by Self-employed
Class 3 voluntary contributions

In accordance to your case, you satisfy all the conditions, as you are 55 years
old and a self-employed earning more than 5965 per year (49,075 as
trading income). Thus, you are obliged to contribute to the HMRC upon the
above information. In addition, Classes 2 and 4 are considered initially as you
are self-employed. (BPP Learning Media, 2014G).

Class 2 NIC:
To calculate the class 2 national insurance liability, the rate of 2.75 per week
will be used. It is recommended that the trader can pay either monthly or biannually. On the assumption that NIC was last paid on 5 th April 2014, the NIC
Class 2 liability will be:

2.75 x 52 w eeks= 143

For the period from 6th, April 2014 to 28th February 2015 is
143 X

11
= 131.
12

Class 4 NIC calculations:

National Insurance Contribution ()
Trading profit
41865
Page 13 of 45

Less: Tax free low limit

NIC Main rate (33909x 9%)
NIC Additional rate (4907541865) x 2%
Total NIC

(7956)
33909
3052
144
3196

First, the trading profit is derived from the Performa and since it is more the
limit (41865), all the limits lower, upper and additional will be deducted from
the trading profit. Then, the lower limit will be deducted from the upper profit
limit (41865 7956), then, the fixed rate 9% will be applied on result
(33909) to give the NIC for the main rate 3051.8 rounded to 3052. In
addition, the exceeding amount upon the upper profit limit is 7210 (4907541865) will be multiplied into the additional rate 2%; thus, the NIC for the
additional rate will be 144. As a result, the NIC liability for class 4 will be
3196

Total national insurance contribution liability

The total from class two and class 4 NIC liability is 131+3196=
3327.

Bottom line
Overall, your taxable income for the period ended 28th February 2015 is
60,250, tax liability is 17727 and 14,352 is the tax payable. As for you
national insurance contribution liability, it is valued at 3827.

Page 14 of 45

3.0 Capital gain transactions

3.1 Capital Gain Tax (CGT) liability.
3.1.1 Calculation of Capital Gain Tax
This part will be covering your capital gain tax (CGT) for the year 2014/15.
The process and main points needed in calculating it along with detailed
calculations and the process taken to identifying and calculating the CGT is as
follows concluded with brief points of advice:
Process:
Step 1: Indicate if person is a chargeable person.
Step 2: Identify transactions that qualify as a chargeable disposal.
Step 3: Identify assets that qualify as chargeable assets.
Step 4: Find and calculate if there is a gain "profit" or a loss on those
transactions.
Step 5: Calculate Total Capital gain tax liability according to gains identified
-using Performa.

STEP 1
The first step is to find out if you are chargeable for capital gain tax or not.
According to the information given, you are a chargeable person for capital
gain tax as you fall in the category of being an individual who is a UK resident
regardless of whether you are domiciled or not. You are also eligible for any
capital gain tax exemption, as you do not fall in the category of remittance
basis. Note that you being a non-domiciled UK resident is not important when
calculating your CGT for this year as you are not disposing any overseas
assets. (Lymer & Oats, 2014) (BPP Learning Media, 2014I).

STEP 2

Page 15 of 45

Most assets disposals qualify for being a chargeable disposal including sales
and gifting of assets, loss or destruction and more. But certain exemptions
are there which include:

Asset transfer on death

Asset transfer for purpose of being or coverage of a security of loan or
mortgage
Assets gifted to national heritage bodies and charities
Assets sold in normal course of business -i.e. trading disposal
transaction-.

This explains why selling stock on hand cannot be tax as a capital gain
because it is in the normal course of business and already taxed as an
income. However, other assets can qualify for capital gain tax if they are
chargeable assets and this will be figured in the next step. (Lymer & Oats,
2014) (BPP Learning Media, 2014I). (Government UK, 2015A).

STEP 3: Clarifying the chargeable asset concept

Firstly, an overall understanding for the capital gain tax(CGT) is needed. A
capital gain tax is levied on any disposal -selling- of property, business
assets, shares and similar chargeable assets; also gifting a chargeable asset
or loss/destruction occurring to it . However, there are some exemptions and
they include:

Motor vehicles suitable for private use

National Savings and Investments certificates and premium bonds
Gilt-edged securities (treasury stock)
Qualifying corporate bonds (QCBs) and more.

Transact
ion

Reason

Eligible
to
Capital
Gain Tax

Disposal of
shop
YES
premises
Disposal of
shop
YES
fittings
Selling
NO
Stock
on
hand

This is your property and is sold to Abdullah in a

regular selling of business property transaction.
This is a chargeable disposal and shop fittings
are considered to be chargeable assets and part
of property.
Stock on hand includes finished goods, materials
and other goods. Any sale of these inventories is
noted as trade sales and calculated in the
trading income. Therefore, this is not a capital
disposal qualifying to capital gain tax but to
Page 16 of 45

income tax.
As mentioned above motor vehicles including
Withdrawal
NO
Vans -which is suitable for private use- is
of Van
exempted from CGT.
Painting is a chargeable business asset and an
Disposal of
YES
inherited property disposed that means it
Painting
qualifies for CGT.
As per this information it is clear that the Van transaction is exempted from
Capital Gain Tax due to the Van being a Motor vehicle which is not a
chargeable asset. While the rest assets disposals are all chargeable assets.
(Lymer & Oats, 2014) (Government UK, 2015A) (BPP Learning Media, 2014I)

STEP: 4
Therefore, as shown in the table below the transactions you made are noted
and its specified with reason(s) if they as a chargeable asset transaction
elect to capital gain tax in the first or no

STEP 5: Calculations.
Based on the above table, the gain/ loss and the capital gain tax are
calculated, if possible. On the assets is calculated
Calculating gains
Gain Calculations on Building
Gain on Shop premises is calculated by finding the difference between both
cost of premises and revenue from disposal:
Cost of premises = 265,000

Revenue from disposal = 345,000

Therefore gain equals as shown in below working (Working 1)
345,000 265,000= 80,000
Calculating Total Gain on
disposal
Proceeds
Less: Incidental Costs
Net Proceeds
Less: Allowable Costs

Page 17 of 45

345,000
345,000
(265,00
0)

Total Gain

80,000
(BPP Learning Media, 2014I)

Gain Calculations on Shop fitting

There is no gain on shop fittings due to two reasons; the first is that shop
fittings are sold at no more than cost so there is no gain on it. The second
reason is that the shop fittings qualifies to be a Non-Wasting Chattel,
therefore it will have no gain as the disposal proceeds are less than 6,000.
Nevertheless, with the information available it is impossible to calculate if
there is any capital loss that can be offset against capital gains. Therefore, we
will go on assuming that there is no loss made. However, you are advised to
provide us with any incidental cost of disposal and any allowable cost to
calculate if there is any loss to be used for offset purpose.
Gain Calculations on Paintings
Gain is already calculated and figure is stated as 7,100. (Government UK,
2015A)

Considering Reliefs
Finally, in this step we will consider advising you on the relief(s) available for
you.
Entrepreneurs' Relief
You are entitled for Entrepreneurs' Relief if you satisfy the following
requirements:
For shares, they should be of qualifying company satisfying the
following:

5% of voting rights
Director or employee
Main activity is trading

For assets;

Sole trader or partnership

Owned business for at least one year
Dispose asset within three years of closing the business
Page 18 of 45

Asset being a business asset (Used in business by individual or

by employee in performing duties)

The entrepreneurs' relief leads to capital gain taxed at rate of 10%

instead of normal rates on assets or shares that qualify for this relief.
The only asset qualifying for this relief is the shop premise as you and
the asset both satisfy the categories and it is a business asset. While
the painting does not satisfy as it is not a business asset. Therefore,
you are also advised to claim this relief to decrease tax paid. (Lymer &
Oats, 2014) (BPP Learning Media, 2014J) (Young, McKnight & Stewart,
2014) (Power, 2012)
You can claim the relief through your self-assessment tax return or by
filling Section A of the entrepreneurs' relief help sheet (appendix 1).
This claim should be made by the deadline of on or before 31 January
of the following year to the tax year that disposal or business selling
occurred, which is 31 January 2017 in your case.
Annual exemption
Capital Gains Tax annual exemption is a Tax-free allowance of 11,000 as per
rates of tax year 2014/2015. Therefore, you are advised to use it on the gains
that do not qualify for entrepreneurs' relief as they have a higher tax rate on
them. (BPP Learning Media, 2014I) (Government UK, 2015A)

Capital loss
As stated in your previous year records brought forward, you have an unused
capital loss of 31,400. This capital loss can be used to decrease capital gains
and thus reduce the CGT. But it should be used in the best way and so
decrease the Gains that do not qualify for entrepreneurs' relief first as they
have the higher rate. However, if all gains can be offset by the annual
exemption of 11,000 then it should be used and capital loss kept. (BPP
Learning Media, 2014I) (Harrowven, 2014).
STEP 5: CGT liability.
The amount of CGT payable for capital transaction is calculated
using this Performa (Lee, 2012) (BPP Learning Media, 2014I) (BPP
Learning Media, 2014J)
Gain
Page 19 of 45

CGT

Gain not qualifying for

entrepreneurs' relief
Painting Total Gain
Less:
Capital
losses
carried
forward
from
2013/14
Chargeable
gain
for
painting
Gain
qualifying
for
entrepreneurs' relief
Premises
Total
Gain
(Working 1
Remaining capital loss
c/f (31,400 - 7,100)
Less:
annual
Exempt
amount
Premises
chargeable
gain
Capital Gain Tax for
2014/15(44,700 @ 10%)

7100
(31,400)

80,000
(24,300)
(11,000)
44700
4470

Therefore the total capital gain tax charge for the period ended is 4470.

3.1.2 Advices regarding the CGT

After the calculation of your CGT for this tax year 2014/15 we would like to
advise you about certain points which we might have already mentioned but
to sum it up and mention all applicable advices:
A) You should watch out for deadlines of claiming reliefs that are
available for you and mentioned to you, in order to benefit from those
reliefs. The deadline being so as mentioned above, you are advised to
claim entrepreneurs' relief now and as it can be used now to reduce
the CGT liability. Assuming this relief was not claimed the CGT will be
calculated using the rates of 28% rather than 10%! Note that the rate
of 28% will be used because you already utilized your basic band rate
which is 31,865 when calculating the income tax liability. Concluding,
this relief should be claimed as soon as possible for this year or the
CGT liability will increase as shown below in the extract from CGT
liability calculation above:
Premises
chargeable gain
Capital Gain Tax for
2014/15(44,700 @

Gain
44,700

Page 20 of 45

CGT

12,516

28%)
As shown there will be an increase of 8,046 (12,516 - 4470) if
entrepreneurs' relief was not claimed therefore it should be claimed to
avoid higher tax liability.
B) Use the capital loss carried forward from previous year to decrease
the Capital Chargeable Gains and the Capital gain tax. The capital loss
of 31,400 carried forward took a huge role in reducing the CGT
liability and therefore you should be using it for this year especially
that you are ceasing trade and shutting down your business which will
be a good time due to possibility of having higher disposals now than
later. To give you an idea about the importance of using the carried
forward capital loss; the following CGT liability calculation Performa is
implemented without using the capital loss:
Gain
Gain not qualifying for
entrepreneurs' relief
Painting Total Gain
Less: annual exemption
(best use)
Chargeable
gain
for
painting
Gain
qualifying
for
entrepreneurs' relief
Premises
Total
Gain
(Working 1)
Remaining
annual
exemption
(11,000 7,100)
Premises
chargeable
gain
Capital Gain Tax for
2014/15(76,100 @ 10%)

CGT

7100
(11,000)
0

80,000
(3,900)

76,100
7,610

Hence, without the capital loss c/f being used the CGT liability increase
by 3,140 (7610 - 4470) which could have been saved. Therefore,
you are advised to use the capital loss to reduce the CGT liability.
C) Make sure the annual exemption is used to decrease the capital
gain. For instance, if the annual exemption was not used and only the
capital loss was used the CGT liability will increase and the extract
below shows that:
Page 21 of 45

Gain
Gain not qualifying for
entrepreneurs' relief
Painting Total Gain
Less:
Capital
losses
carried
forward
from
2013/14
Chargeable
gain
for
painting
Gain
qualifying
for
entrepreneurs' relief
Premises
Total
Gain
(Working 1
Remaining capital loss
c/f (31,400 - 7,100)
Premises
chargeable
gain
Capital Gain Tax for
2014/15(55,700 @ 10%)

CGT

7100
(31,400)

80,000
(24,300)
55700
5570

Therefore, this will lead to an increase of CGT liability by 1100

(5570-4470). Hence, the annual exemption should be used to pay
less tax.
D) Elaborating on the previous point the annual exemption amount should
be used in its best use, which is first on non-qualifying relief gains and
then on the qualifying relief. The reason behind this is to reduce the
gains which are taxed on a higher rate and which are the nonqualifying gains for relief. But, in your case you have a capital loss that
is carried forward and can be used, thus, can be used to offset the nonqualifying for relief gains. However, you should keep in mind for future
that the capital loss c/f can be saved if the annual exemption can cover
the whole total chargeable gains because the capital loss can be used
for coming years unlike the annual exemption which cannot be carried
forward. For future purposes we would like to make the best use of
annual exemption clear by showing how it would affect if not used in
the best way. We will be using as an example your CGT for this year
keeping aside the capital loss and the numbers from previous advice
number two can be used for comparison as it shows the CGT liability
calculated without capital loss in consideration and using the best use
of annual exemption. In the following Performa the best use will not be
taken in consideration:

Page 22 of 45

Gain
Gain
qualifying
for
entrepreneurs' relief
Premises
Total
Gain
(Working 1)
Less: annual exemption
(not in best use)
Chargeable
gain
for
premises
Capital
gain
tax
on
premises
(69,000 @ 10%)
Gain not qualifying for
entrepreneurs' relief
Painting
Total/
Chargeable Gain
Capital
gain
tax
on
painting (7,100 @ 28%)
Capital Gain Tax for
2014/15

CGT

80,000
(11,000)
69,000
6,900

7100
1,988
8,888

Note that the 28% higher rate is applied due to basic band rate of
31,865 being used by the income tax liability as mentioned in
previous advices and also as clear from the income tax liability
calculation previously in this memo.
As you see the CGT liability increase when not using the annual
exemption in its best use (excluding capital loss in both) by 1,278
(8888-7610). Accordingly, in future annual exemption should always
be used in its best use to reduce CGT liability.
E) If you have any fees and incidental costs of disposal of assets you
can use them to reduce your capital gain. As mentioned above if
assets disposed have fees or any other incidental costs then the net
proceeds can be reduced. This is shown in the Performa (Working 1),
when calculating the gain on disposal of shop premises and it is clear
how the total gain can be reduced using those incidental costs and
thus reducing capital gain tax. An example on effect of incidental cost
can be illustrated as follows using the Performa mentioned earlier and
using the disposal of shop premises:
Assuming that you had a 10,000 incidental cost on the disposal of the
shop premises, this will change the Performa in to the following
reducing the total gain:
Page 23 of 45

Calculating Total Gain

on disposal
Proceeds
Less: Incidental Costs
Net Proceeds
Less: Allowable Costs
Total Gain

345,000
(10,000)
335,000
(265,000)
70,000

With this incidental cost, when calculating the CGT it will be less now.
Therefore, you can submit for capital gain adjustment any incidental
costs to reduce your CGT liability.
F) Further cost information of shop fittings can be used to calculate any
capital loss if there is one because as you mentioned to us there is no
shelve or shop fitting that is disposed for more than cost. Therefore,
there is no gain but a loss might be therefore if proceeds are less than
costs as mentioned previously. This will lead to a capital loss that can
be offset against gains as explained above.

3.1.2 Fall in All Over Inc. Shares

Chargeable assets and disposal

The first thing to note is that that quoted trading company shares are
chargeable assets as they fulfill the criteria we mentioned above of being a
chargeable asset. Furthermore, these shares will form a chargeable disposal,
as they are not mentioned in any of the exempted disposals. Thus, these
shares are subjected to reliefs and capital gain tax if they qualify for any
criteria of both. (Kaplan, 2014A)

Negligible value claim

Negligible value claim is a claim made when assets fall in value to be
worthless or next to worthless. The worthlessness of it will be decided by the
local tax inspector according to the documents & information submitted to
him with the values. This claim can occur on shares when a business
liquidates and is available upon certain conditions which are:

Shares are ordinary shares

Subscribed for them (or are second-hand but subscribed for by spouse
or civil partner)
Company is a trading company or an eligible one throughout the years
of active existence or for the previous six years
Page 24 of 45

Therefore, we look at if All Over plc & the shares satisfy these conditions. As
stated from the information sent by you, we can assume that these shares
are ordinary shares and that you have subscribed to them once you inherited
them following the sad pass away of your aunt. Moreover, as you mentioned
and as our records say about All Over plc; it is a quoted trading company and
have been like that throughout its years of active existence and the previous
6 years. Combining that information we can say that these shares can be
claimed as being of negligible value. (Lymer & Oats, 2014) (Tallon, 2012)
(Government UK, 2015A).
In relation to a trading company, not all trading company shares qualify for
relief. In your case All Over plc will not qualify if it mainly deals in shares,
securities, land, trades or commodity futures or if it does not pursue
commercial basis in a way that it would not be expected to make any profit.
We have assumed according to the information you gave us that All Over plc
qualifies and is a trading company. In addition, this share disposal will be
qualifying as it satisfies conditions of dissolution that All Over plc goes
through and also negligible value claim conditions. (UK Government, 2013A)
(Kaplan, 2014B)
The loss made by the shares should now be set off against capital gain. Only
in the case where shares are in an unquoted trading company loss can be
offset against income creating an income relief according to criteria and
respecting the limits of relief mentioned by the Venture Capital Scheme
Manual. But in your case here any capital loss will be offset with capital gains
in order to reduce capital gain tax. (Tallon, 2012)
As we mentioned to you above the claim you make might be accepted or
rejected. Therefore, you should keep all possibilities in mind and the chance
that it is just treated as a capital loss if valuation is accepted by tax office.
But you have a strong argument which is the amount of shares which fell to
525 (0.03 x 17,500) and which is low as it fell by more than 95%.
Accordingly, these shares can be claimed of negligible value and the local tax
inspector is only one able to give relief or no as per information submitted.
Therefore, detailed documents and information needs to be submitted to
influence decision and this will be mentioned in the following paragraphs.
("Disposals where assets lost or destroyed", 2015)

How and when to claim relief

Now after knowing the possibility of acceptance for negligible value claim we
would like to guide you in the following paragraphs on how to apply for the
claim and when you can apply and what important documents you need to
submit along with claim information. (Government UK, 2013A).

Page 25 of 45

Firstly, the period to apply for the loss claim is within one year of 31 January
following the year loss was made. In your case you have to claim loss relief
on or before 31 January 2017. Relief could be claimed for the current tax year
2014/2015 or for previous one 2013/2014.
Secondly, claiming losses. The claim can be made through the Capital gain
summary sheet (appendix 2) submitted to the local tax inspector this can
happen in two ways either applying for relief for this year or previous year, as
mentioned below:

For Current Year 2014/2015: You should fill in box 12 on the first page
of the summary. Capital loss on shares should also be mentioned in box
6 and details about it stated in the "Any other information" box
numbered 37 on the second page of the summary.

For Previous Year 2013/2014: You should fill in box 14 on the first page
of the summary. Capital loss on shares should also be mentioned in box
6 and details about it stated in the "Any other information" box
numbered 37 on the second page of the summary

Relief normally takes from 6-8 weeks to be approved and then you will be
refunded then or if it is offset against current year then you will get a reduced
capital gain tax. ("Negligible Value Claims", 2015)
Thirdly, fill list shares and securities part. You need to fill in boxes 18 to 23,
which are applicable mentioning the number of disposals, proceeds,
allowable cost and that you are making claim and valuation. Look at appendix
(2).
Fourthly, as All Over plc is in receivership and most probably liquidation then
the following documents and information should be provided to the tax office:

A statement of affairs for All Over plc and any subsidiaries.

A letter showing if any return will be made for you from All Over plc.
Details of how this decision was reached, for example, a balance sheet
showing significantly more debts than assets. Here it will be a good
thing to submit reasons for receivership and list of debts All Over plc
fall in.
Any evidence that no recovery or rescue of the company is likely, for
example, a statement that the company has ceased trading.
(Government UK, 2014F)

Fifthly, in your case All Over plc is a quoted trading company and it is listed
on the London Stock Exchange and therefore you should check for the
negligible value list if All Over plc is listed there or not. You are advised to
send this list with your claims and make a note to the tax office about the
Page 26 of 45

company being on the list. The list is referenced below. (Government UK,
2014F) (Government UK, 2014G)

Valuation of Shares
The shares valuation will need to be calculated as there is a dispose due to
liquidation and cessation of trade. Therefore, below valuation will be made
and capital loss will be calculated to be used in adjusting the Capital gain tax
for the year and also so you can have the numbers and calculations ready
when you claim negligible value.
As mentioned, these shares have fallen in value and it is understood that All
Over plc is in liquidation and therefore the amount of 3 pence per share that
will be received is the quoted price for shares after receivership. Now, as the
company will liquidate and cease trading the shares will be disposed and
therefore the chargeable gain or allowable loss should be calculated. To
calculate this gain or loss the quoted shares should be evaluated and
proceeds should be calculated first.
The "quarter up" value formula is used and it is;
the lower quoted price + 1/4 (higher

quoted price lower quoted price).

The lower quoted price is stated as 3 pence per share while the higher
quoted price is calculated using the number of shares and their total value as
shown below:
Number of shares: 17,500
Value of shares: 11,400
therefore,

11,400 17,500= 0.65 per share

Applying the quarter up formula;
Lower quoted price = 0.03
Higher quoted price = 0.65
therefore,

0.03+ ( 0.25 ( 0.65 0.03 )) = 0.19

Total value (proceeds from shares) = 17,500 x 0.19 = 3,325
Page 27 of 45

Accordingly, the capital loss or gain can be calculated and it will be the
difference between Proceeds and Costs.
Cost of shares is 11,400 while the proceeds are calculated above as
approximately 3,325.
Therefore capital (loss)/gain is equal to:
3,325 - 11,400 = (8,075)
This capital loss should be adjusted and set off against the capital gains of
the year in order to reduce capital gain tax. (BPP Learning Media, 2014K)
(Harrowven, 2014) (Kaplan, 2014B)
Disposal of quoted shares is a chargeable disposal of a chargeable asset as
mentioned by the UK tax law. Therefore, its capital loss should be set off
against capital gains as mentioned previously.
Note that you are advised to fill the Post-transaction valuation checks for
capital gains referenced below in order to check that amount of valuation of
shares and thus now that proceeds are calculated correctly. (Appendix 3)
(Government UK ,2015C)

Adjusted CGT Performa

After calculating the loss on the disposal of shares, the CGT can be adjusted
to reflect the disposal of All Over Inc. shares for the period ended 28
February, 2015
Gain
Gain not qualifying for
entrepreneurs' relief
Painting Total Gain
Less:
Capital
losses
carried
forward
from
2013/14
Chargeable
gain
for
painting
Gain
qualifying
for
entrepreneurs' relief

CGT

7100
(8075)

Page 28 of 45

Premises
Total
Gain
(Working 1)
Less: Remaining capital
loss c/f (8,075 - 7,100)
Less Capital loss c/f from
previous year
Less:
annual
Exempt
amount
Premises
chargeable
gain
Capital Gain Tax for
2014/15(44,700 @ 10%)

80,000
(975)
(31,400)
(11,000)
36,625
3663

(Finney, 2012) (BPP Learning Media, 2014I) (BPP Learning Media, 2014J)

3.2 Bubbles Inc. Shares

3.2.1 Bubbles Inc. Dividends Tax treatment in the UK
The method in which you would be taxed in the UK on the dividends paid to
you by Bubble Inc. depends on the tax treatment you choose/claim, whether
it is the arising basis tax treatment or the remittance basis tax treatment.
Those treatments and how the dividends would be taxed under them are
illustrated below:

1) Arising Basis:
If you are (UK resident, non-domiciled in the UK) and you choose the
arising basis tax treatment, you will normally be liable for paying tax
on your worldwide income and gains, wherever those arise or accrued
(Government UK, 2013B). In your case, regarding the dividends paid
to you by Bubble Inc., the dividends is considered as an overseas
dividend because Bubble Inc. is an overseas company because it is
located in Oceania which is outside the UK.
Therefore, according to the arising basis you will be taxed in the UK on
the overseas dividends paid by Bubble Inc. even if they are not
unremitted to the UK. Moreover, the overseas dividend paid by Bubble
Inc. to you will be treated similar to UK dividends in which the overseas
dividends are entitled to a deemed 10% tax credit and are further
grossed up at 100/90. (BPP Learning Media, 2012)

Page 29 of 45

Nevertheless, the tax rates are the same rates as Dividends in the UK
and remains unchanged as follows (BPP Learning Media, 2012) (BPP
Learning Media, 2014C)
A) Basic rate: 10%
B) Higher rate: 32.5%
C) Additional rate: 37.5%.
The dividends will be first taxed at the basic rate; however, if the basic
rate limit of 31,865 is satisfied then the higher rate will be used. If the
higher rate limit of 118135 is satisfied then the additional rate will be
used.

2) Remittance Basis:
Since Bubble Inc. is a company located in Oceania, it is therefore an
overseas company and the dividend paid by Bubble Inc. is considered as
overseas dividends. Taking that into account that you are a UK resident
who happens to be non-domiciled in UK, this makes you eligible and
qualified for choosing the remittance basis tax treatment. This basis is
explained below:

Utilization of remittance basis tax treatment:

The Usage of remittance basis depends on the value of overseas
dividends received:
When the unremitted amount of overseas dividends received
is 2,000 and more: you will have to make a claim for SelfAssessment tax return to be treated under the remittance basis.
When the unremitted amount of overseas dividends paid by
Bubble Inc. are less than 2,000: then you are automatically
treated under Remittance basis tax treatment without having to
complete a self-assessment tax return. You will also not lose your
qualification for personal tax allowances and annual exempt amount
for capital gain tax. Moreover, you may not have to pay Remittance
Basis Charge. (Government UK, 2013B) (BPP Learning Media, 2012)
(Government UK, 2015D)
Thus, if you (as a UK resident, non-domiciled in the UK) choose and have
claimed or will claim or the remittance basis tax treatment automatically
applies to you, you will be liable for taxation on:

Page 30 of 45

All of your UK income and gains when they arise or accrue each tax year
within UK.
Foreign income and gains if and when you bring (remit) them to
the UK, including any property, which derives from those income and
gains.

In case of the amount of overseas dividends paid to you is less than 2,000
and it is not remitted (brought) to the UK, then you are not entitled to pay UK
tax on that particular foreign income or gains. (Government UK, 2013D) (BPP
Learning Media, 2012) (Government UK, 2015D)

Consequences of choosing remittance basis tax treatment:

You should put in mind that if you choose remittance basis tax treatment you
would not normally qualify for:

Personal allowances and reliefs for Income Tax

The annual exempt amount for Capital Gains Tax.

And will liable for a charge of:

Remittance basis charge of 50,000 due to you choosing remittance

basis tax treatment and your residency for twelve of the fourteen tax
years preceding the tax year of 2014/2015.

Note: you have been a resident since 1995 and that is why your remittance
basis charge is 50,000. (BPP Learning Media, 2012) (UK Government,
2015E)

Assessment of the overseas dividends under remittance basis:

If the overseas dividends paid is taxed under remittance basis:

The overseas dividend paid by Bubble Inc. to you are treated similar to
UK dividends in which the overseas dividends are entitled to a deemed
10% tax credit and are further grossed up at

100
90

However, the tax rates for the overseas dividends, unlike the arising
basis will be different from normal UK dividends. The rates will be
changed to the same as the non-savings income rates (BPP Learning
Media, 2012) (BPP Learning Media, 2014C):
A) Basic rate: 20%
B) Higher rate: 40%
Page 31 of 45

C) Additional rate: 45%.

3.2.2 Advise on the capital gains tax implications of a future
disposal of the shares
Capital gains tax is a tax usually charged on the gains of a chargeable person
which arises from a chargeable disposal of a chargeable asset (whether
situated in the UK or overseas). (Hoskin, 2015E) (BPP Learning Media, 2014I).
In case you are going to dispose your overseas shares (overseas shares due
to the fact that Bubbles Inc. is an oversea company because it is located in
Oceania) in Bubbles Inc., then you will be deemed liable for paying capital
gains tax due to the facts that you are:

An individual (chargeable person).

Selling shares (chargeable disposal).
Shares to be sold (chargeable asset).
Profit/gain arising from the disposal of those shares to be sold.

Capital gains tax computation/calculation

The computation of your capital gains tax will be as follows:
Step
1
Step
2
Step
3
Step
4
Step
5
Step
6

Determine the sales proceeds

Consider the availability of any capital gains tax reliefs
Calculate the Net proceeds through deducting the
incidental costs of disposal from the sales proceeds
Calculate the total gain through deducting allowable
losses from net proceeds
Calculate taxable gain through deducting the annual
exempt amount from the total gain
Calculate the capital gains tax payable for the tax year.

Capital gains tax payable is calculating using the rate of 18% for basic band
(31,865) and 28% for higher rate for amounts that exceeds the basic band.
(BPP Learning Media, 2014I)
Proceeds
Less: Incidental cost
Net proceeds
Less: Allowable cost
Total gain
Less:
Annual
exemption amount
Chargeable gain

XX
(XX)
XX
(XX)
XX
(XX)
XX

Page 32 of 45

The annual exempt amount entitled to individuals per year is 11,000. (BPP
Learning Media, 2014K) Hence you are a non-domiciled UK resident makes
the option of choosing to be treated under the remittance basis tax treatment
is available for you.

Utilization of remittance basis tax treatment:

Similarity to what is stated regarding remittance basis treatment for
dividends:
1) In the case when the unremitted amount of overseas gains
received is 2,000 and more, you will have to make a claim for
Self-Assessment tax return to be treated under the remittance
basis. Doing so, will you make ineligible to claim the annual
emptied amount.
2) In the case when the unremitted amount of overseas gains
paid by Bubble Inc. is less than 2,000, then you are
automatically treated under Remittance basis tax treatment without
having to complete a self-assessment tax return. You will also not
lose your qualification for personal tax allowances and annual
exempt amount for capital gain tax. Moreover, you may not have to
pay Remittance Basis Charge. (Government UK, 2013D) ; (BPP
Learning Media, 2012) ( UK Government, 2015E)

So, if you choose and have claimed or will claim or the remittance basis tax
treatment automatically applies to you, you will be liable for taxation on:

All of your UK income and gains when they arise or accrue

each tax year within UK.

Foreign income and gains if and when you bring (remit)

them to the UK, including any property which derives from those
income and gains.

In case of the amount of overseas gains you receive is less than

2,000 and it is not remitted (brought) to the UK, then you are not
entitled to pay UK tax on that particular gains. (Government UK,
2013B) ; (BPP Learning Media, 2012) ( UK Government, 2015B).

Page 33 of 45

Consequences of choosing remittance basis tax treatment:

If you claim the remittance basis tax treatment, then you are no longer
entitled to an annual exempt amount (11,000) against chargeable gains.
(BPP Learning Media, 2012)

Shares and securities exempted from capital gains tax:

In case the shares and securities that are going to be disposed of are either
gilt-edged securities or qualifying corporate bonds, then they are exempted
from capital gains tax purposes. (BPP Learning Media, 2014K)
Nevertheless, a number of ways that you should consider and that
will benefit you in reducing your capital gains tax exists and are
illustrated below:

a. Transfer of shares to spouse

If your spouse has not made any significant capital gains in the current tax
year, it would be tax efficient that you ensure that your spouse uses her
annual exemption for the tax year in which the your disposal of shares
takes place.
Moreover, if you give the shares to your spouse, there is no tax to pay as
it is consider a gift. In this case, your spouse will be treated as if she
bought the shares for the price and at the same time in which you bought
them.
The transfer to the spouse needs to be a genuine gift, which in other
words means that once the shares are given to your spouse, you will no
longer have right to have the shares or the proceeds of the sale back.
(Hoskin, 2015)
b. Gifts to charity
Similar to transfer of shares to spouse, gifting shares to charity will not
require you to pay capital gains tax. (government UK, n.d)
c. Reinvestment in small companies
This has to do with the impact that is made on the effective tax rates on
the disposal of shares when you have plans to reinvest your sale proceeds
in other small private companies. (Hoskin, 2015)
Page 34 of 45

The annual exemption amount is also considered as another way that

reduce the amount of capital gains tax that you will pay, however, if you
claimed or will claim or even automatically qualify for the remittance basis
tax treatment due to your UK residency but non-domiciliary in the UK,
then you are no longer entitled to an annual exempt amount against
chargeable gains. (Hoskin, 2015)
The annual exempt amount against chargeable gains is 11,000 pounds
and If the chargeable gain computation of the disposal of shares ended up
showing a total gain that happens to be lower than the annual exempt
amount, then you will not be taxed on the gains you make as a result of
disposal of the shares of Bubble Inc.
Accordingly, it is preferable and advisable you consider the ways of
reducing your capital gains tax discussed above and also do put in mind
that when disposing of shares, it is preferable you are under arising basis
tax treatment rather than remittance basis because you would pay less
UK tax by having your overseas gains taxed on the arising basis if the
chargeable gains happens to be lower than the annual exempt amount.

3.2.3 Treatment of Eric Sloanes expenses under CGT purposes.

As per what the Taxation of Chargeable Gains Act 1992 (TCGA 1992)
section 38 (Government UK. n.d), which deals with the acquisition and
disposal costs that can be deducted from the proceeds of sale of any
asset in computing the amount of the chargeable gain arising and the
incidental costs of acquisition and disposal, it is stated that:
1) The costs must be incurred wholly and exclusively for the purposes
of acquiring the asset (making the investment in this case).
2) The expenditure must be fees, commission or remuneration paid
for the professional services of any surveyor, valuer, auctioneer,
accountant, agent, or legal adviser, or be transfer costs (including
stamp duty) or costs of advertising to find a seller. (Government UK.
n.d)
Based on the assumption that you will invest in Bubbles Inc. shares and will
dispose it, the conclusion reached in this case regarding the payment made
by you to Eric is that the advice fee is partially allowable for capital gains
purposes because the amount paid is a fee for an advice by a business
associate. The reason for it being partially allowable is because the amount
Page 35 of 45

paid by you to Eric is for details about a number of investments and Bubble
Inc. is only one of those investments, one investment that is acquired by you.
Thus, the amount that will be allowable for capital gains tax purposes
will be the cost allocated for Bubble Inc. investment only and not the
whole 300 amount because the cost allocated for Bubble Inc. represent the
"costs must be incurred wholly and exclusively for the purpose of acquiring
the asset (making the investment in this case)" aspect stated in TCGA 1992
section 38. (Male, 2014)

4.0 Conclusion
This report examined the implication of VAT on the sales and cessation of
business and the total income tax was calculated. Then, analysis and advices
regarding the capital transaction and bubbles share dividends were provided.
It is my sincerest hope that the information provided are useful for you to
understand and make decisions regarding your tax affairs.

The Tax Manager.

Page 36 of 45

5.0 References
Building and construction. (2014). Retrieve from:
https://www.gov.uk/government/publications/vat-notice-708-buildingsand-construction/vat-notice-708-buildings-and-construction
BPP Learning Media. (2014A). Paper F6: Taxation UK (FA2014): An
introduction to VAT (Ch. 26). United Kingdom: London.
BPP Learning Media. (2014B). Paper F6: Taxation UK (FA2014): Selfassessment and payment of tax by individuals (Ch. 18). United
Kingdom: London
BPP Learning Media. (2014C). Paper F6: Taxation UK (FA2014): Computing
Taxable income (Ch.2). United Kingdom: London
BPP Learning Media. (2014D). Paper F6: Taxation UK (FA2014): Computing the
income tax liability (Ch.4). United Kingdom: London
BPP Learning Media. (2014E). Paper F6: Taxation UK (FA2014): Capital
allowances (Ch.9). United Kingdom: London.
BPP Learning Media. (2014F). Paper F6: Taxation UK (FA2014): Assessable
Trading income (Ch.10). United Kingdom: London.

Page 37 of 45

BPP Learning Media. (2014G). Paper F6: Taxation UK (FA2014): National

insurance contribution (Ch.13). United Kingdom: London.
BPP Learning Media. (2014H). Paper F6: Taxation UK (FA2014): shares and
securities (Ch.12). United Kingdom: London.
BPP Learning Media.(2014I). Paper F6:Taxation UK (FA2014). Computing
Chargeable Gains (Ch. 14). United Kingdom: London.
BPP Learning Media.(2014J). Paper F6:Taxation UK (FA2014). Business Reliefs
(Ch. 16). United Kingdom: London.
BPP Learning Media.(2014K). Paper F6:Taxation UK (FA2014). Shares and
Securities (Ch. 17). United Kingdom: London.
Disposals where assets lost or destroyed. (2015). Retrieved from:
https://www.google.com.bh/url?
sa=t&rct=j&q=&esrc=s&source=web&cd=6&cad=rja&uact=8&ved=0
CDoQFjAF&url=http://www.revenue.ie/en/about/foi/s16/income-taxcapital-gains-tax-corporation-tax/part-19/19-0109.pdf&ei=dUtKVbikGMbFogSm4YHoCw&usg=
Entrepreneurs' Relief. (2015). Retrieved from
https://www.gov.uk/entrepreneurs-relief/how-to-claim
Finney, M. (2012). Using capital losses and the annual CGT exemption.
Retrieved from http://www.lawpack.co.uk/tax/taxmagazines/articles/article7653.asp
Government UK. (2015A). Capital Gains Tax. (2015). Retrieved from:
https://www.gov.uk/capital-gains-tax/allowances
Government UK. (2015B). Personal tax Capital Gains Tax. Retrieved from:
https://www.gov.uk/personal-tax/capital-gains-tax
Government UK. (2015C). Tax when you sell shares. Retrieved from:
https://www.gov.uk/tax-sell-shares/investment-clubs
Government UK. (2015D). Tax on foreign income. Retrieved from:
https://www.gov.uk/tax-foreign-income/non-domiciled-residents
Government UK. (2015E). Capital Gains Tax. Retrieved from:
https://www.gov.uk/capital-gains-tax/what-you-pay-it-on
Government UK. (2015F). Self-Assessment tax returns. Retrieved from
https://www.gov.uk/self-assessment-tax-returns

Page 38 of 45

Government UK. (2013A). UK Negligible value claims and Income Tax losses
on disposals of shares you have subscribed for in qualifying trading
companies. Retrieved from:
https://www.gov.uk/government/uploads/system/uploads/attachment_d
ata/file/323692/hs286.pdf
Government UK. (2013B). Guidance Note: Residence, Domicile and the
Remittance Basis. Retrieved from:
https://www.gov.uk/government/uploads/system/uploads/attachment_d
ata/file/423877/rdr1.pdf.
Government UK. (2014A). VAT registration. Retrieved from:
https://www.gov.uk/vat-registration/cancel-registration
Government UK. (2014B). VAT registration. Retrieved from:
https://www.gov.uk/vat-registration/cancel-registration
Government UK. (2014C). VAT registration. Retrieved from:
https://www.gov.uk/vat-registration/cancel-registration
Government UK. (2014D). VAT rates on different goods and services.
Retrieved from: https://www.gov.uk/rates-of-vat-on-different-goods-andservices
Government UK. (2014E). National insurance. Retrieved from:
https://www.gov.uk/national-insurance/overview
Government UK. (2014F) HMRC Shares and Assets Valuations (SAV).
Retrieved from: https://www.gov.uk/government/publications/hmrcshares-and-assets-valuations-sav/hmrc-shares-and-assets-valuationssav
Government UK. (2014G). Negligible Value agreements. Retrieved from:
https://www.gov.uk/negligible-value-agreements-to-30-june-2014
Government UK. (n.d). Taxation of Chargeable Gains Act 1992, 1992.
Allowable deductions. Retrieved from:
http://www.legislation.gov.uk/ukpga/1992/12/section/38/enacted
Hoskin J. (2015). Capital gains tax for individuals on the disposal of shares.
Retrieved from: http://www.out-law.com/en/topics/tax/tax-forentrepreneurs/capital-gains-tax-for-individuals-on-the-disposal-ofshares/
Kaplan. (2014A). CGT: Computations and stamp duty land tax (Ch. 6). In
Advanced taxation. Workingham, Berkshire.

Page 39 of 45

Kaplan. (2014B). CGT: Shares and Securities for individuals and stamp duty
(Ch. 8). In Advanced taxation. Workingham, Berkshire.
Lee, B. (2012). How Small Businesses Can Dispose Assets. Retrieved from
http://smallbusiness.foxbusiness.com/financeaccounting/2012/05/10/how-small-businesses-can-dispose-assets/
Lymer, A., & Oats, L. (2014). Chapter 8: Capital taxes. In Taxation: Policy &
practice (21st ed., pp. 268-315). London: Fisical Publications.
Male. (2014). Incidental costs. Retrieved from:
http://www.taxation.co.uk/taxation/Articles/2014/05/27/325621/inciden
tal-costs
Negligible Value Claims. (2015). Retrieved from
http://www.sealyshaw.co.uk/negligible-value-claims.htm
Power, R. (2012). Entrepreneurs' Relief: What you need to know. Retrieved
from http://www.accountingweb.co.uk/article/entrepreneurs-relief-whatyou-need-know/534338
Tallon, P. (2012). Back to basics: Relief for Capital loss. Retrieved from
http://www.gabelletax.com/media/Relief-for-capital-losses.pdf
Young, R., McKnight, N., & Stewart, J. (2014). Retrieved from
https://www.taylorwessing.com/uploads/tx_siruplawyermanagement/en
trepreneurs_relief.pdf

Page 40 of 45

6.0

Appendices

Appendix 1: Claim for Entrepreneurs Relief form

Page 41 of 45

Appendix 2: Capital Gain Summary Form

Page 42 of 45

Appendix 3: Post Transaction Valuation Checks.

Page 43 of 45

Page 44 of 45