THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Taxation of Owner-Managed Businesses
May 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• 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.
• Except as set out below or indicated by additional information in the question, you may
assume that 2020/21 legislation (including rates and allowances) continues to apply for
2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans
and the reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, 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.
,1. Dafydd is a sheep and cattle farmer in North Wales. He has previously prepared accounts
to 30 September each year but in 2020, he decided to extend his year end to 31 March
and therefore prepared accounts for the 18-month period to 31 March 2021.
The draft profit for the period was £19,000 after deducting the following expenses:
1) Depreciation of £36,000. This includes £5,400 in respect of a loader, acquired
under a finance lease.
2) Leasing costs of £4,800 for a car, with CO2 emissions of 185 g/km used 50% by
an employee for private purposes. The costs are broken down as £3,600 for rental
and £1,200 for maintenance.
3) Repairs of £14,000 on the access road to the farm.
4) Drainage and fence repairs of £6,500 in respect of a field which was purchased at
a low cost due to its condition. The works were required to bring the land into a
useable condition.
5) Household costs of £4,000 for a farm cottage occupied by a farm employee and
of £3,750 for the farmhouse occupied by Dafydd, which is used 25% for business
purposes.
In addition, a lamb was butchered for Dafydd’s use which cost £70 and could have been
sold for £100.
The main pool balance brought forward at 1 October 2019 was £4,000 and the special
rate pool balance brought forward was £7,000. The following equipment transactions
took place during the period:
1) Lightweight panels costing £4,000 were bought, which will be used to partition a
barn during lambing in March, but then removed for the rest of the year.
2) A new car for an employee’s use at a cost of £10,000 plus VAT of £2,000. The
employee’s business use is 60%. The CO2 emissions of the car are 105 g/km.
3) Solar panels were installed on the farmhouse at a cost of £10,000. They will
generate power for the farmhouse.
4) A tractor was written off in an accident in February 2021. The tractor was sold for
scrap proceeds of £6,000 in March 2021. Insurance proceeds of £45,000 were
received in June 2021. Dafydd purchased a replacement tractor from his brother
at its £60,000 market value in March 2021. His brother had purchased the tractor
for £80,000 when new.
5) On 24 March 2021, Dafydd paid a deposit of £12,000 as part of a hire purchase
agreement for a combine harvester, which has a total cost of £75,000 and which
will be delivered in early summer ready to be used for harvesting in August 2021.
The balance is repayable over 48 months from April 2021.
Continued
Page 2 of 10 AT OMB
,1. Continuation
The following work was carried out on buildings during the period:
1) An outbuilding was improved in August 2020 as follows:
(a) Provision of a drainage system at a cost of £3,750.
(b) Provision of a cold water system £2,600.
2) Between 1 September 2020 and 31 December 2020, a disused barn was
renovated at a cost of £45,000. The cost included:
(a) £4,000 for the preparation of the land.
(b) £1,500 for planning costs.
(c) £5,500 for a new electrical installation.
3) In October 2020 a new slurry store was built at a cost of £3,000.
4) In November and December 2020, the walls and floor of a barn were altered to
allow the installation of a grain dryer in May 2021. The cost of the work was
£14,000, including planning costs of £1,500.
Requirement:
Calculate with explanations:
1) The adjusted profit for the period ended 31 March 2021. (5)
2) The capital allowances available for the period ended 31 March 2021. (15)
Total (20)
Page 3 of 10 AT OMB
, 2. Castle Foods Ltd specialises in the manufacture and sale of handmade cheeses from its
small factory in Lincolnshire. The company is owned and managed by Dean Jones and
his wife. Jones Farms LLP, which operates a dairy farm providing milk to the company
and to other customers, is a partnership between Castle Foods Ltd and Dean Jones. The
mixed partnership rules do not apply to this LLP.
Dean’s partnership capital account has been overdrawn by £40,000 since 1 January
2019. This is expected to continue to be the case for the foreseeable future.
Dean has provided the company’s draft profit and loss account for the year ended 31
December 2020.
Notes £ £
Turnover 245,000
Cost of sales
Opening stock 34,000
Purchases and direct costs of production 1 162,500
Closing stock (65,000)
(131,500)
Gross Profit 113,500
Other income:
Share of profit of Jones Farms LLP 2 134,500
Overheads:
Staff costs 68,000
Premises costs 30,000
Premises repairs 3 5,650
Office costs 3,000
Bank charges 500
Advertising and marketing 4 4,000
Travel and entertainment 5 6,500
Legal and professional fees 6 8,000
Interest payable 7 4,050
Loss on sale of assets 5,200
Depreciation 10,500
Sundry expenses 8 3,450
(148,850)
Net Profit/(Loss) £99,150
Continued
Page 4 of 10 AT OMB
ADVANCED TECHNICAL
Taxation of Owner-Managed Businesses
May 2021
TIME ALLOWED
3 HOURS 30 MINUTES
• 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.
• Except as set out below or indicated by additional information in the question, you may
assume that 2020/21 legislation (including rates and allowances) continues to apply for
2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans
and the reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, 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.
,1. Dafydd is a sheep and cattle farmer in North Wales. He has previously prepared accounts
to 30 September each year but in 2020, he decided to extend his year end to 31 March
and therefore prepared accounts for the 18-month period to 31 March 2021.
The draft profit for the period was £19,000 after deducting the following expenses:
1) Depreciation of £36,000. This includes £5,400 in respect of a loader, acquired
under a finance lease.
2) Leasing costs of £4,800 for a car, with CO2 emissions of 185 g/km used 50% by
an employee for private purposes. The costs are broken down as £3,600 for rental
and £1,200 for maintenance.
3) Repairs of £14,000 on the access road to the farm.
4) Drainage and fence repairs of £6,500 in respect of a field which was purchased at
a low cost due to its condition. The works were required to bring the land into a
useable condition.
5) Household costs of £4,000 for a farm cottage occupied by a farm employee and
of £3,750 for the farmhouse occupied by Dafydd, which is used 25% for business
purposes.
In addition, a lamb was butchered for Dafydd’s use which cost £70 and could have been
sold for £100.
The main pool balance brought forward at 1 October 2019 was £4,000 and the special
rate pool balance brought forward was £7,000. The following equipment transactions
took place during the period:
1) Lightweight panels costing £4,000 were bought, which will be used to partition a
barn during lambing in March, but then removed for the rest of the year.
2) A new car for an employee’s use at a cost of £10,000 plus VAT of £2,000. The
employee’s business use is 60%. The CO2 emissions of the car are 105 g/km.
3) Solar panels were installed on the farmhouse at a cost of £10,000. They will
generate power for the farmhouse.
4) A tractor was written off in an accident in February 2021. The tractor was sold for
scrap proceeds of £6,000 in March 2021. Insurance proceeds of £45,000 were
received in June 2021. Dafydd purchased a replacement tractor from his brother
at its £60,000 market value in March 2021. His brother had purchased the tractor
for £80,000 when new.
5) On 24 March 2021, Dafydd paid a deposit of £12,000 as part of a hire purchase
agreement for a combine harvester, which has a total cost of £75,000 and which
will be delivered in early summer ready to be used for harvesting in August 2021.
The balance is repayable over 48 months from April 2021.
Continued
Page 2 of 10 AT OMB
,1. Continuation
The following work was carried out on buildings during the period:
1) An outbuilding was improved in August 2020 as follows:
(a) Provision of a drainage system at a cost of £3,750.
(b) Provision of a cold water system £2,600.
2) Between 1 September 2020 and 31 December 2020, a disused barn was
renovated at a cost of £45,000. The cost included:
(a) £4,000 for the preparation of the land.
(b) £1,500 for planning costs.
(c) £5,500 for a new electrical installation.
3) In October 2020 a new slurry store was built at a cost of £3,000.
4) In November and December 2020, the walls and floor of a barn were altered to
allow the installation of a grain dryer in May 2021. The cost of the work was
£14,000, including planning costs of £1,500.
Requirement:
Calculate with explanations:
1) The adjusted profit for the period ended 31 March 2021. (5)
2) The capital allowances available for the period ended 31 March 2021. (15)
Total (20)
Page 3 of 10 AT OMB
, 2. Castle Foods Ltd specialises in the manufacture and sale of handmade cheeses from its
small factory in Lincolnshire. The company is owned and managed by Dean Jones and
his wife. Jones Farms LLP, which operates a dairy farm providing milk to the company
and to other customers, is a partnership between Castle Foods Ltd and Dean Jones. The
mixed partnership rules do not apply to this LLP.
Dean’s partnership capital account has been overdrawn by £40,000 since 1 January
2019. This is expected to continue to be the case for the foreseeable future.
Dean has provided the company’s draft profit and loss account for the year ended 31
December 2020.
Notes £ £
Turnover 245,000
Cost of sales
Opening stock 34,000
Purchases and direct costs of production 1 162,500
Closing stock (65,000)
(131,500)
Gross Profit 113,500
Other income:
Share of profit of Jones Farms LLP 2 134,500
Overheads:
Staff costs 68,000
Premises costs 30,000
Premises repairs 3 5,650
Office costs 3,000
Bank charges 500
Advertising and marketing 4 4,000
Travel and entertainment 5 6,500
Legal and professional fees 6 8,000
Interest payable 7 4,050
Loss on sale of assets 5,200
Depreciation 10,500
Sundry expenses 8 3,450
(148,850)
Net Profit/(Loss) £99,150
Continued
Page 4 of 10 AT OMB
