ACCA ATX ^UK Syllabus A1. Income tax - Capital allowances - Past Papers ^{6 / 8}

Your manager has had a meeting with Farina and Lauda, potential new clients, who are partners in the FL Partnership.
The memorandum recording the matters discussed, together with an email from your manager, is set out below.

Memorandum

To           The files
From      Tax manager
Date       5 December 2013
Subject   FL Partnership

Background

Farina and Lauda began trading as the FL Partnership on 1 May 2008. Accounts have always been prepared to 31 March each year. They are each entitled to 50% of the revenue profits and capital profits of the business.

On 1 March 2014, the whole of the FL Partnership business will be sold as a going concern to JH plc, a quoted trading company. The consideration for the sale will be a mixture of cash and shares. Capital gains tax relief on the transfer of a business to a company (incorporation relief) will be available in respect of the sale.

The sale of the business on 1 March 2014
The assets of the FL Partnership business have been valued as set out below. All of the equipment qualified for capital allowances.

Email from your manager

I want you to prepare a memorandum for the client file in respect of the following:

(i) Capital allowances
A DETAILED explanation of the calculation of the capital allowances of the FL Partnership for its final trading period ending with the sale of its equipment to JH plc for £150,000 on 1 March 2014.

Tax manager

Required: 
(b) Prepare the memorandum requested in the email from your manager. The following marks are available.
(i) Capital allowances. (5 marks)

Note: Ignore value added tax (VAT).
Professional marks will be awarded in part (b) for the overall presentation of the memorandum, the provision of relevant advice and the effectiveness with which the information is communicated. (4 marks)

Liza requires detailed advice on rollover relief, capital allowances and group registration for the purposes of value added tax (VAT).

Liza’s business interests:
– Liza’s business interests, which have not changed for many years, are set out below.

– All six companies are UK resident trading companies with a 31 March year end.
– All of the minority holdings are owned by individuals, none of whom is connected with Liza or with each other.

A building (‘Building I’) sold by Bar Ltd:
– Bar Ltd sold Building I on 31 May 2013 for £860,000.
– Bar Ltd had purchased the building on 1 June 2007 for £315,000 plus legal fees of £9,000.
– On 5 June 2007, Bar Ltd had carried out work on the building’s roof at a cost of £38,000 in order to make the building fit for use.
– On 1 July 2012, Bar Ltd spent £14,000 repainting the building.
– Bar Ltd used Building I for trading purposes apart from the period from 1 January 2009 to 30 June 2010.
– It is intended that the chargeable gain on the sale will be rolled over to the extent that this is possible.

A replacement building (‘Building II’) purchased by Bar Ltd:
– Bar Ltd purchased Building II, new and unused, for £720,000 on 1 May 2013.
– Bar Ltd uses two thirds of this building for trading purposes; the remaining one-third is rented out.

The trading activities of the Bar Ltd and Hoop Ltd groups of companies:
– The number of transactions between the Bar Ltd group and the Hoop Ltd group is increasing.
– Vault Ltd makes zero rated supplies; all of the other five companies make standard rated supplies.

Required:
(b) Explain the capital allowances that are available in respect of the electrical, water and heating systems that were acquired as part of Building II. (2 marks)