[lakshmana iyer krishnan]

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lakshmana iyer krishnan

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Fantastic memory. You will score very high.
Are you sure the payable was 24 days, on the basis of cost of sale. I though they were paying late and hence if you take industry standard 30 the net working capital will be 589K less 134K.
For the first time we got the first question half solved and rest only we have to complete. Much easier than applying for the mobile license where similar probability and expected values were tested with a twist that you will get back 1 mil if current operators loses license – 2Tel. Overall a easy paper, only POPIT concept was unexpected.

[lakshmana iyer krishnan]

Fantastic memory. You will score very high.
Are you sure the payable was 24 days, on the basis of cost of sale. I though they were paying late and hence if you take industry standard 30 the net working capital will be 589K less 134K.
For the first time we got the first question half solved and rest only we have to complete. Much easier than applying for the mobile license where similar probability and expected values were tested with a twist that you will get back 1 mil if current operators loses license – 2Tel. Overall a easy paper, only POPIT concept was unexpected.

[lakshmana iyer krishnan]

In question one debentures issue of 5Mil and Overdraft of 13 Mil was there but interest has increased only by 1 Mil. So risk of interest understated and profit overstated.

[lakshmana iyer krishnan]

There was a question Chennai Co. about limited assurance report Vs Audit report, advantages and differences etc.

[lakshmana iyer krishnan]

Passed with 77%. The question on treatment of gifts and free sample in VAT was totally new. Thank you Open tuition for all the free resources and thanks to F6 tutor for being available always to clear doubts.

[lakshmana iyer krishnan]

Thanks to Tax Tutor sir, for all the help and guidance.
Wishing all the best for those who are going to appear for exam tomorrow.
Krishnan

[lakshmana iyer krishnan]

Thanks again. I presume for Individuals there is the option already to carry back trading loss to previous year, without first setting it off against current year profit from other sources including capital gains.

The doubt is only for corporations, since the tax rate is same for all income and the rule book is first you set off trading loss against income from other sources. So my doubt was in case you have only trading loss and no other income other than capital gain, can you carry back the loss without claim relief against the chargeable gain? Additionally can you claim the qualifying donation against the chargeable gain and carry back the loss to previous year’s trading profit?
Exam is just near and looking forward to your reply.
Regards

[lakshmana iyer krishnan]

Thanks a lot for clearing the doubt. For individual there is an option to carry back the loss without first setting off against current year total income, whereas companies first have to set off trading loss against other income like income from property, interest etc.

Now one more doubt arises, that in case there is also a chargeable gain, can that be kept separate and the set off of trading loss restricted to current year taxable income other than capital gains, before it can be carried back to previous 12 months?

[lakshmana iyer krishnan]

Dear tutor Sir,
For individuals it is not necessary to claim loss relief against current year total income, before its is claimed against previous year income, but is it so in the case of a company? Is there any difference?
Regards and thanks in advance.

[lakshmana iyer krishnan]

Thanks you sir for all the help and advice, next week is exam. Wish everybody all the best.
Regards

[lakshmana iyer krishnan]

Ema,
I am reluctant to enter this area reserved for Tutor, because sometime students reply will not be correct also. If there are errors, hope tutor will correct.

Lookout for hidden word “furnished” in the question!!!

1) In the case of unfurnished house letting, you can claim almost all expenses, except those that are capital in nature. Painting, repairs, ad. placed to get a guy to occupy property, insurance, interest on loan taken to buy property etc. will qualify. Repair to roof is not allowed. Mileage of car to buy the property is not allowed. Bad debt or if the guy walks out without paying rent is allowed expense. Deposit received is not taxed, since it has to be repaid.

2) In the case of furnished house letting apart from claiming all expenses (other than capital) you can claim 10% of rental income. Only council tax and water charges and also bad debt if any are deducted from the rental income to calculate the 10% wear and tear expense.

3) In case you let out a room in your house, you can either claim actual expenses or straight 4,250 as expenses in a year.

4) In case the property qualifies as FHL or Furnished Holiday Home then you can claim all capex also as AIA of 500K per year.

5) If the question gives 4/5 properties let out, you can club the income together and expsenses for all properties together, instead of calculating each property income separately. Furnished holiday home has to be always kept separate.

6) Rent received in advance – sometimes you may get 13 months rent, but only 12 months is to be considered.

7) Learn the formula to calculate value of the lease premium if any received for letting out the property. Total Premium less 2% of premium x (lease tenure – 1)

[lakshmana iyer krishnan]

Dear ema,
IHT liability at nil % refers to Nil Rate Band. For every individual upto 325K of estate is exempt from IHT. If spouse has not used this amount fully, then the balance accrues to the living spouse. So whenever you give a CLT, 325K and annual exemption if avilable can be deducted, and on the excess amount you have to pay tax immediately at 20%, which is called life time tax.

The working for 292K is as below.
The CLT was 620K. One annual exemption only is available, since the PET given earlier to CLT has taken the AE for previous year. (AE is carried forward for one year and in most problems it works out 3K+3K = 6,000).

The taxable CLT is thus 620K less Annual exemption of 3K = 617K less 325 Nil Rate Band (NRB) = 292K.

Normally tax tutor don’t want students to answer queries here. Since you helped me previously, I am pitching in with whatever I can.

[lakshmana iyer krishnan]

The rule is, whenever unutilised Nil Rate Band is calculated, latest threshold of Nil Rate Band is adopted, which is 325K. The 300K given in the question is just to confuse the student.

[lakshmana iyer krishnan]

IHT liable at Nil % refers to Nil Rate Band of 325K.
In this case CLT was 620K. One annual exemption of current tax year of 3K is available. Therefore net CLT = 617K less Nil Rate Band of 325K = 292K is the immediately taxable value of the CLT.

[lakshmana iyer krishnan]

First you can claim full amount of trading profit of 24,000. Loss relief against other income (other than trading profit) is restrcited to 25% of profit or 50,000. So the total relief 50+24 = 74,000.

[lakshmana iyer krishnan]

Thank you so much for the assurance.

[lakshmana iyer krishnan]

Thanks a lot for joining the discussion. Kaplan should be right.

Page 118 of Open tuition note says as below and it matches with Kaplan. It seems we can ignore the ACCA article, because OT note is updated for Dec’15 exam.

“3 Share matching rules for companies
Disposal of shares gives rise to a chargeable gain or allowable loss. It is difcult however to identify which shares are being sold,
and therefore establish the cost of those shares sold where it is only some of the shareholding being sold and the shares had been
acquired over a period of time at diferent costs. We need to identify the shares sold by using matching rules as laid down by HMRC
which, as you may expect, are not exactly the same as the matching rules that we used when dealing with the same problem for
individuals disposing of shares as we saw back in Chapter 13. Thus the shares sold are deemed disposed of in the following order::
t shares acquired on same day
t shares acquired in previous 9 days
t shares contained within the share pool which is made up of any shares acquired more than 9 days previous.
The share pool records the number and cost of shares for each acquisition and disposal as it did for individuals but also has to deal
with the fact that companies are entitled to indexation allowance. Thus whenever shares are purchased or sold a reindexation of
the indexed cost of the shares in the pool is added to the indexed cost total which is recorded in a separate Indexed Cost column
of the share pool. Follow the answer to example 2 below to see how the share pool is constructed”

[lakshmana iyer krishnan]

Dear Ema,
Thanks for your feedback. But it appears to me that you are not correct. The 30 day rule is applicabe to companies. Kindly see the ACCA article which says so.
https://www.accaglobal.com/ca/en/technical-activities/technical-resources-search/2014/december/share-matching-rules.html
Since I got confused and exam is nearing, I posted the doubt here.
Regards
Krishnan

The rules are as below. “What are the rules? The capital gains tax regime underwent a substantial revamp in 2008 and the share identification rules formed part of the reforms. The rules are therefore different for disposals occurring on or after 6 April 2008 than they were previously. This article just looks at the rules as they have applied since 6 April 2008.

Disposals of shares on or after 6 April 2008 are to be identified with acquisitions by the same person of shares of the same class in the same company in the following order:

acquisitions on the same day as the disposal;
acquisitions within 30 days after the day of disposal (thus countering ‘bed and breakfasting’);
shares comprised in the ‘section 104 holding’ (see below);
if the shares disposed of are still not exhausted, shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).

[lakshmana iyer krishnan]

Yes, the first transfer was a CLT. I was under wrong impression that any transfer once the period of 7 years has elapsed is exempt and can be ignored for all purposes.

But from the ACCA answer to this question, it turns out is that a CLT even after 7 years will have to be considered for the calculation of NRB (nil rate band), for the purpose of calculation of IHT on the PET which has become taxable on death, since 7 years has not elapsed.

However for the calculation of IHT on the estate, the CLT is ignored and the NRB considers only the PET.

I found one ACCA official article which also confirms (I found it after I raised the doubt to you), which reads as below.
Quote” Death tax on PETs – If a donor dies within seven years of making the gift, IHT is due on any amount above the nil rate band in force at the date of death. However, the nil rate band is reduced by any CLTs made by the donor in the seven years before the PET.

Accordingly, it is necessary not only to look back seven years from death, but also seven years from the date of the PET, in order to identify the balance of the nil rate band available”
https://www.accaglobal.com/vn/en/technical-activities/technical-resources-search/2013/october/gifts-inheritance-tax.html

Thanks again. I find f6 much more tougher than any other paper and am discovering new rules in every exam paper!!

[lakshmana iyer krishnan]

Thanks for the quick response, sir.
Dec 14 questions are not there in the Kit and I believe there are no changes except the threshold amount which got reduced from 50 to 40K.

I am still not able to understand as to why Tobias who was member of pension scheme in 2013, cannot pay for 2012, 2011 and 2010. So in the year 2014 he can pay up the 50K for 2012 or not?

[lakshmana iyer krishnan]

Thanks a lot for the reply. Yes, I am now doing a revision of only loss relief questions and the rules have now started sinking.
Kind regards.

[lakshmana iyer krishnan]

Thanks for the quick response. Regarding Item 3.
It never occurred to me that you can’t claim PA against chargeable gains.

The loss occurred in 2014-15. That year apart from trading loss there was interest income.
The loss relief method adopted in the answer was
1) Not to claim any relief in the current year against interest income, but claim the PA against that income
2) Carry back the loss to the previous to claim relief against trading income and chargeable gains and
3) Carry forward to 2015-16 to claim the balance of the loss.

The explanatory foot note to the question is as below
Quote ” Note. Loss relief has been claimed against general income and gains for 2013/14 since this gives relief at the earliest date and at the highest rates of tax. No claim should be made to set the loss against general income in 2014/15 since this is already covered by the personal allowance for that year”.

This left a doubt lingering in my mind that when you claim loss relief against previous year profit and you lose PA and AE, can you then opt not to claim relief against other income of the current year and claim PA and also carry forward the loss to the next year?

[lakshmana iyer krishnan]

Thanks a million for clearing the doubts.
Regards

[lakshmana iyer krishnan]

Dear sir,
In this June 2013 Greenzone Ltd question, the repainting was allowed and extension of office building was disallowed being capex. That is fine.

However in the capital allowance calculation the extension of office building could have been added to AIA and claimed the full amount or if not considered Plant & Machinery it could have been added to Main Pool as addition and claimed 18% allowance.

However the answer to the question has not considered this at all, in capital allowance calculations. Could you please explain this. (I googled and found that business premises renovation qualifies for capital allowance)

Another aspect which I will request your help in this question is.
There was sale of a motor car from the Main Pool, Selling price – 9,100 and cost 8,500. The gain of 600 is not considered and a foot note is given that ” The disposal value for motor car [3] is restricted to the original cost figure of £8,500″. What is the relevant rule here? May I request you to explain this also.

Thanks and regards in advance.

Quote: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/323611/hs252.pdf
Available capital allowances: Capital allowances are not given on all types of expenditure. The main exceptions are buildings, land and some intangibles such as trade marks and
goodwill. You can claim capital allowances for the following items: plant and machinery, business premises renovation in assisted areas and Northern Ireland”

[lakshmana iyer krishnan]

Dear sir
Thank you so much for the explanation as to how to calculate the benefit.
Thank you Ibrahim for raising the issue for the benefit of all

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