Mark is employed by ABC Ltd, a small family company, in which he holds 20,000 £1 ordinary shares; the remaining 80% are held by the other senior employees.
The company accounts show the following information:
Year to 30 November 2019 2020
Salary to Mark (paid at the end of each month) 28,500 33,000
Bonus to Mark (paid in the following February) 4,200 2,700
The following information is provided in respect of 2019/20.
(1) The senior employees have been able to use the company yacht moored on the south coast for two weeks each year since its purchase. Mark spent his fortnight on the boat along with his family.
The yacht cost the company £42,000 in 2014 (current value £33,000) and running and maintenance expenses amounted to £6,000 during the year.
(2) Mark belongs to a private medical scheme and the company paid the required premium of £270 (including £50 for his family),
(3) Mark took meals in the fully subsidised executive canteen; the cost for the year being £735. Another fully subsidised canteen was available for the other staff.
(4) When at the company premises Mark has use of a 3,500 cc Range Rover car owned by the company which emits 268 g/km of CO2. It had a list price of £62,000 when new in 2014 and costs £4,800 a year to run. It is garaged at the company’s head office and is also used by all the directors for business purposes.
Mark is also provided with a three-year-old 2 litre Mini (list price £16,500) with CO2 emissions of 149 g/km. Mark is provided with private fuel. Both cars run on petrol, and the list price includes delivery and number plates.
(5) He pays 3% of his basic salary into the company’s occupational pension scheme. The company contributes an amount equal to 7% of his salary.
(6) Mark is provided with a 2% interest rate loan from his employer of £20,000 which was granted three years ago to assist with the purchase of his daughter’s residence. He has no other loans and has paid interest only on a monthly basis.
(7) The company also loaned Mark one of its personal computers, with a printer, for use at home so that he could improve his IT skills. The equipment had cost the company £2,800 (including £350 for the printer) in June 2017. The market value of the equipment when it was first provided to Mark on the 6 April 2019 was £2,010.
(8) From 6 June 2019 he lived in Southampton in a house owned by the company which cost £80,000 in 1995. Its market value on 6 June 2019 was £138,000. The annual value for the period from 6 June 2019 to 5 April 2020 can be taken as £900.
The company paid the following expenses in connection with the house during his period of residence in 2019/20.
Council tax 550
The furniture in the house is estimated to have cost £7,200.
(9) Mark received a dividend of 40p per share in May 2019.
a) Compute Mark’s income tax liability for 2019/20.Assume the official rate of interest for 2019/20 is 2.5%. (15 marks)
- b) Recalculate Mark income tax liability for 2019/20 assuming that he paid £4,000 to the charity under Gift Aid Donation Scheme. (5 marks)
(Total: 20 marks)