Test your understanding
(1). Joe is self-employed. During the year ended 5 April 2021, he purchased a new motor car with CO2 emissions of 122 grams per kilometre. The motor car is used by an employee, and 30% of the mileage is for private journeys.
How will the motor car be treated when calculating Joe’s capital allowances?
A It will be kept separate, with writing down allowances at the rate of 18% subject to a private use adjustment
B It will be included in the special rate pool
C It will be included in the main pool
D It will be kept separate, with writing down allowances at the rate of 6% subject to a private use adjustment
(2). During the year ended 31 March 2021, Circle Ltd incurred leasing costs of £2,700 in respect of a motor car with CO2 emissions of 144 grams per kilometre.
How much of the leasing costs will be deductible in calculating Circle Ltd’s trading profit for the year ended 31 March 2021?
(3). Simone uses her own motor car for business travel. During the tax year 2020–21, she drove 13,600 miles in the performance of her duties, without any reimbursement from her employer.
What expense claim can Simone make in respect of her business travel?
(4). Janine was provided with a new petrol powered company car on 6 February 2021. The motor car has a list price of £18,900 and an official CO2 emission rate of 122 grams per kilometre.
What is Janine’s taxable benefit in respect of the company car for the tax year 2020–21?
(5). Bernard is self-employed, and has a motor car which is used 60% for business mileage. During the quarter ended 31 March 2021, he spent £720 on fuel for both business and private mileage. The relevant quarterly scale charge is £246. Both figures are inclusive of VAT.
How much input VAT can Bernard claim in respect of fuel for the quarter ended 31 March 2021?
(6). You should assume that today’s date is 20 March 2020.
Sammi Smith is a director of Smark Ltd. The company has given her the choice of being provided with a leased company motor car or, alternatively, being paid additional director’s remuneration and then privately leasing the same motor car herself.
Company motor car
The motor car will be provided throughout the tax year 2020–21, and its provision will result in a taxable benefit of £30,340 for Sammi. The motor car will have an official CO2 emission rate of 200 grams per kilometre, and will be leased by Smark Ltd at an annual cost of £27,720.
The lease payments will cover all the costs of running the motor car except for fuel. Smark Ltd will not provide Sammi with any fuel for private journeys.
Additional director’s remuneration
As an alternative to having a company motor car, Sammi will be paid additional gross director’s remuneration of £28,000 during the tax year 2020–21. She will then privately lease the motor car.
Sammi’s current annual director’s remuneration is £65,000. Smark Ltd prepares its accounts to 5 April.
(a) Advise Sammi Smith of the income tax and national insurance contribution (NIC) implications for the tax year 2020–21 if she (1) is provided with the company motor car, and (2) receives additional director’s remuneration of £28,000. (3 marks)
(b) Advise Smark Ltd of the corporation tax and NIC implications for the year ended 5 April 2021 if the company (1) provides Sammi Smith with the company motor car, and (2) pays Sammi Smith additional director’s remuneration of £28,000.
(1). You should assume that the 19% rate of corporation tax for the financial year 2020 continues to apply.
(2). You should ignore value added tax (VAT) and the NIC employment allowance. (5 marks)
(c) Determine which of the two alternatives is the most beneficial from the point of view of Smark Ltd. (2 marks)