THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Larger Companies and Groups
November 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
• Identification and Application
• Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,You are a tax manager at Langston Adams LLP, a firm of Chartered Tax Advisers. One of your
longstanding clients is Baffin Hood plc, the parent company of a large group that operates a number of
automotive repair centres. Baffin Hood plc is quoted on the Alternative Investment Market and is currently
controlled by its founder and his family.
Your tax partner, James Langston, has received an email (EXHIBIT A) from Michelle White, the Finance
Director at Baffin Hood plc concerning the potential acquisitions of two businesses operating in the same
industry, Beneke Orr Ltd and M&D Garages.
James has asked you to prepare a report to the board of Baffin Hood plc.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Michelle White to James Langston
EXHIBIT B: Minutes of Baffin Hood plc Board of Directors meeting
EXHIBIT C: Pre-seen information
Requirement:
Prepare a report to the board of Baffin Hood plc advising on the acquisitions of Beneke Orr Ltd
and M&D Garages.
Continued
Page 2 of 8 APS TOLC
,Continuation
EXHIBIT A
Email from Michelle White to James Langston
To:
From:
Date: 1 November 2022
Subject: Potential acquisitions
James
As you are aware, our group has been highly successful at acquiring underperforming businesses in the
automotive repair industry, turning them around and integrating them into our existing business
operations. In line with our continued drive to expand our group, we have identified two potential
businesses that we could acquire: Beneke Orr Ltd and M&D Garages. Should we proceed with the
purchases we would expect to complete by 31 December 2022.
Beneke Orr Ltd
This UK tax resident company operates in the North of England. It has made losses in the last two years
as the shareholders, who are all UK resident individuals, have lost interest in the business and no longer
wish to be involved in the running of the business.
If we were to purchase this company, we anticipate a swift return to profitability under our ownership,
which would allow us to benefit from the tax losses.
Baffin Hood plc’s share price should increase in the medium to long term due to our continuing successful
strategy of acquiring under-performing businesses and adding value by improving the performance of
those businesses. Given that we have previously provided a good level of return through dividends, we
think the vendors may be prepared to accept consideration in the form of shares in Baffin Hood plc.
However, Simon Green and his family might wish to retain a majority shareholding in Baffin Hood plc.
The vendors have also indicated that they would prefer consideration in the form of loan notes over cash
because of the potential tax advantage. The loan notes would be classified as Qualifying Corporate Bonds
for both Corporation Tax and Capital Gains Tax purposes. The current share price is £6.25 and this is a
reasonable value to use in any calculations regarding the acquisition.
We would like your advice, from a tax perspective, on whether the consideration for Baffin Hood plc’s
acquisition of Beneke Orr Ltd should be in the form of cash, loan notes or an issue of shares.
M&D Garages
This is an unincorporated business which operates in the Republic of Ireland. It is owned by two Irish
residents, Sandy Maskell and Jess Dunne, who will only consider a cash offer for the assets of the
business. Both owners are looking to retire and will not want any continuing involvement in the business.
Although we have advisers in Ireland who will advise in detail on any Irish tax issues, we are keen to
receive your advice on how best to structure the acquisition of M&D Garages. We are confident that we
can significantly improve the performance of M&D Garages.
Financing
In relation to the two potential acquisitions, any cash consideration will need to be sourced by bank loans.
However, we are mindful that we are already subject to Corporate Interest Restriction disallowances and
this seems likely to continue for at least the next four years.
Attached to this letter are notes of a recent board meeting (EXHIBIT B) where we discussed the two
potential acquisitions.
Please contact me if you have any questions.
Regards
Continued
Michelle White
Finance Director
Baffin Hood plc
Page 3 of 8 APS TOLC
, Continuation
EXHIBIT B
Minutes of Baffin Hood plc Board of Directors meeting
Date: 28 October 2022
Directors present:
Simon Green, Chief Executive Officer
Michelle White, Finance Director
Steve Taylor, Operations Director
Review of potential acquisitions
Beneke Orr Ltd
The following details regarding the potential purchase by Baffin Hood plc of all the shares of Beneke Orr
Ltd were discussed.
Purchase price: £25 million
The fundamentals of this business are sound. However, in recent years the senior managers have
underperformed due to the lack of day-to-day involvement by the vendors. The business can be turned
around very quickly to generate the following results:
Current (2022) performance and forecast following the acquisition:
31 December 2022 2023 2024 2025 2026
£ million £ million £ million £ million £ million
Sales 40 42 45 48 50
Cost of Sales (30) (28) (27) (25) (25)
Administration (10) (13) (9) (8) (8)
EBITDA* 0 1 9 15 17
Depreciation (5) (6) (6) (6) (6)
EBIT** (5) (5) 3 9 11
*Earnings before interest, tax, depreciation and amortisation
**Earnings before interest and tax
We do not expect the EBITDA projections in the forecasts to be materially different from the “tax-EBITDA”
Corporate Interest Restriction amounts.
The company is currently projected to have Corporation Tax trading losses of £10 million to carry forward
as at 31 December 2022, all of which were incurred post 1 April 2017.
M&D Garages
The following details regarding the potential purchase of this unincorporated business were discussed.
Purchase price: £15 million
The main issue with this business is that the two owners had a dispute a number of years ago and now
refuse to cooperate together. Indeed, in certain locations two garages (one being run by Sandy Maskell
and the other being run by Jess Dunne) actually compete for the same customers. There is considerable
scope of cost savings and rationalisation, albeit the changes will take a couple of years to implement and
the full benefits will not materialise until the fourth year.
Continued
Page 4 of 8 APS TOLC
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Larger Companies and Groups
November 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
• Identification and Application
• Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,You are a tax manager at Langston Adams LLP, a firm of Chartered Tax Advisers. One of your
longstanding clients is Baffin Hood plc, the parent company of a large group that operates a number of
automotive repair centres. Baffin Hood plc is quoted on the Alternative Investment Market and is currently
controlled by its founder and his family.
Your tax partner, James Langston, has received an email (EXHIBIT A) from Michelle White, the Finance
Director at Baffin Hood plc concerning the potential acquisitions of two businesses operating in the same
industry, Beneke Orr Ltd and M&D Garages.
James has asked you to prepare a report to the board of Baffin Hood plc.
The following exhibits are provided to assist you:
EXHIBIT A: Email from Michelle White to James Langston
EXHIBIT B: Minutes of Baffin Hood plc Board of Directors meeting
EXHIBIT C: Pre-seen information
Requirement:
Prepare a report to the board of Baffin Hood plc advising on the acquisitions of Beneke Orr Ltd
and M&D Garages.
Continued
Page 2 of 8 APS TOLC
,Continuation
EXHIBIT A
Email from Michelle White to James Langston
To:
From:
Date: 1 November 2022
Subject: Potential acquisitions
James
As you are aware, our group has been highly successful at acquiring underperforming businesses in the
automotive repair industry, turning them around and integrating them into our existing business
operations. In line with our continued drive to expand our group, we have identified two potential
businesses that we could acquire: Beneke Orr Ltd and M&D Garages. Should we proceed with the
purchases we would expect to complete by 31 December 2022.
Beneke Orr Ltd
This UK tax resident company operates in the North of England. It has made losses in the last two years
as the shareholders, who are all UK resident individuals, have lost interest in the business and no longer
wish to be involved in the running of the business.
If we were to purchase this company, we anticipate a swift return to profitability under our ownership,
which would allow us to benefit from the tax losses.
Baffin Hood plc’s share price should increase in the medium to long term due to our continuing successful
strategy of acquiring under-performing businesses and adding value by improving the performance of
those businesses. Given that we have previously provided a good level of return through dividends, we
think the vendors may be prepared to accept consideration in the form of shares in Baffin Hood plc.
However, Simon Green and his family might wish to retain a majority shareholding in Baffin Hood plc.
The vendors have also indicated that they would prefer consideration in the form of loan notes over cash
because of the potential tax advantage. The loan notes would be classified as Qualifying Corporate Bonds
for both Corporation Tax and Capital Gains Tax purposes. The current share price is £6.25 and this is a
reasonable value to use in any calculations regarding the acquisition.
We would like your advice, from a tax perspective, on whether the consideration for Baffin Hood plc’s
acquisition of Beneke Orr Ltd should be in the form of cash, loan notes or an issue of shares.
M&D Garages
This is an unincorporated business which operates in the Republic of Ireland. It is owned by two Irish
residents, Sandy Maskell and Jess Dunne, who will only consider a cash offer for the assets of the
business. Both owners are looking to retire and will not want any continuing involvement in the business.
Although we have advisers in Ireland who will advise in detail on any Irish tax issues, we are keen to
receive your advice on how best to structure the acquisition of M&D Garages. We are confident that we
can significantly improve the performance of M&D Garages.
Financing
In relation to the two potential acquisitions, any cash consideration will need to be sourced by bank loans.
However, we are mindful that we are already subject to Corporate Interest Restriction disallowances and
this seems likely to continue for at least the next four years.
Attached to this letter are notes of a recent board meeting (EXHIBIT B) where we discussed the two
potential acquisitions.
Please contact me if you have any questions.
Regards
Continued
Michelle White
Finance Director
Baffin Hood plc
Page 3 of 8 APS TOLC
, Continuation
EXHIBIT B
Minutes of Baffin Hood plc Board of Directors meeting
Date: 28 October 2022
Directors present:
Simon Green, Chief Executive Officer
Michelle White, Finance Director
Steve Taylor, Operations Director
Review of potential acquisitions
Beneke Orr Ltd
The following details regarding the potential purchase by Baffin Hood plc of all the shares of Beneke Orr
Ltd were discussed.
Purchase price: £25 million
The fundamentals of this business are sound. However, in recent years the senior managers have
underperformed due to the lack of day-to-day involvement by the vendors. The business can be turned
around very quickly to generate the following results:
Current (2022) performance and forecast following the acquisition:
31 December 2022 2023 2024 2025 2026
£ million £ million £ million £ million £ million
Sales 40 42 45 48 50
Cost of Sales (30) (28) (27) (25) (25)
Administration (10) (13) (9) (8) (8)
EBITDA* 0 1 9 15 17
Depreciation (5) (6) (6) (6) (6)
EBIT** (5) (5) 3 9 11
*Earnings before interest, tax, depreciation and amortisation
**Earnings before interest and tax
We do not expect the EBITDA projections in the forecasts to be materially different from the “tax-EBITDA”
Corporate Interest Restriction amounts.
The company is currently projected to have Corporation Tax trading losses of £10 million to carry forward
as at 31 December 2022, all of which were incurred post 1 April 2017.
M&D Garages
The following details regarding the potential purchase of this unincorporated business were discussed.
Purchase price: £15 million
The main issue with this business is that the two owners had a dispute a number of years ago and now
refuse to cooperate together. Indeed, in certain locations two garages (one being run by Sandy Maskell
and the other being run by Jess Dunne) actually compete for the same customers. There is considerable
scope of cost savings and rationalisation, albeit the changes will take a couple of years to implement and
the full benefits will not materialise until the fourth year.
Continued
Page 4 of 8 APS TOLC
