The Assessment Task
You are working in a tax consultancy firm and you have received the following cases:
From: joanne ash
To :taxadvisor
Hi,
While I was searching the HMRC website I got across some information regarding the tax
residency and the double tax treaty between the UK and China. I did not quite understand this
information and I am not sure whether I need to pay tax in the UK or not. I am not sure if you can
explain the residency rule of the UK and China and answer my query. I think you need to
know the following information.
I am a British citizen. I have previously been resident in the UK, spending more than 275 days here
each tax year. On 6 April 2019, I purchased a property in china, and during 2019-20 I mainly lived
and worked there. However, I still have a house in the UK where my husband and family live. I visit
the UK on a regular basis, staying in the family home. During 2019-20, a total of 80 days were
spent in the UK, of which 35 were for work.
Best regards
Joanne Ash
(15marks)

From : John Hunter
To :taxadvisor
Hi,
One of my friends told me that self-employed people can enjoy more benefits in comparison with
employed people. Also, he informed me that capital gain is charged at 10% while trade income is
charged at 20% according to the current finance act. I am not sure what are the criteria to
differentiate between employment and self-employment. Similarly, I am not sure whether I
can classify my income as trade income or capital gain income. Can you please clarify for
me these differences and help me to know what type of tax I need to pay? I think you need to
know the following information:
I have worked for five companies throughout the current year. I provided them with IT solutions and
services. While I am on duties I was using my own laptop. Usually I can provide services for more
than one company during some weeks. I can take some day off the work without asking for holiday
leave. In addition to the IT solutions, I supplied my employers with some IT equipment on regular
basis. I buy the equipment online and I make some minor additions and changes before I sell them
to my employer.
Best regards
John Hunter
(15 marks)
From : Martin James
To :taxadvisor
Hi,
I received an employment offer to work as a sales manager in one multinational company which
have two branches (UK and China). The company offered me two options. The first option is to
stay in the UK and work in the headquarters, while the second option is to move to China and work
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in the branch for a period of 12 months. I am not quite familiar with either the UK or the Chinese
tax system and I am unsure how much I need to pay Tax in each country, if any. Can you please
let me know how much I need to pay tax for each option? Also, please explain to me the tax
treatment of each item of my payment package. I think you need to know the following
information:
Option 1: Work in the UK
1. During the tax year, Martin will be paid a gross annual salary of £250,000 by Herb plc.
2. Martin will be provided with the use of a company house which has an annual value of £6,500
and which cost his employer £325,000. Martin makes no contribution towards the cost of the
house or towards its running costs which cost the company £1,500.
3. The company will provide Martin with a loan of £70,000. The interest rate on the loan is 0.5%
4. Throughout the tax year Martin will have access to Herb plc’s company gym which is only open
to employees of the company. The cost of providing this benefit will be £1,500.
5. Throughout the tax year, the company will provide Martin with a home entertainment system for
his personal use. The home entertainment system cost Herb plc £25,000 on 6 April 2016.
6. In the first six months of the tax year, Martin need to use his private motor car for both private
and business journeys. The total business mileage driven by Martin throughout the first six
months are estimated to be 14,000 miles, with all of this mileage reimbursed by Herb plc at the
rate of 30p per mile.
7. During the last six months of the tax year, the company will provide Martin with a petrolpowered motor car which has a list price of £65,000, and an official CO2 emission rate of 127
grams per kilometre. The company will pay all the running costs.
8. During the tax year Martin need to pay an annual professional subscription of £1,800 which is
relevant to his employment with Herb plc. he is also planning to pay an annual membership fee
of £6,700 to a tennis club which he uses to entertain Herb plc’s suppliers. Herb plc will not
reimburse Martin for either of these costs.
Option 2: Work in China RMB
Monthly salary 120,000
Annual Bonuses 100,000
Meal allowance on a reimbursement basis 10,000
Rental allowance in cash 30,000
Reimbursement of air-tickets on business trips 9,000
Reimbursement of air-tickets on the third home leave in 2017 8,000
Reimbursement of costs for Martin to learn Putonghua in China 7,500
Reimbursement of School tuition fees in China for Martin’s children 2,400
Reimbursement of car rental for private use 25,000
Employer’s contribution on social security 8,600
Employee’s contributions on social security 4,600
Best regards
Martin James
(20marks)
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Case study 2 ( 40 Marks)
Sam Ltd is a multinational company that operates in UK and several countries around the world.
The company produces its products in China and sells them to other companies within the group.
Sam Ltd is the parent company in the UK (the headquarter) and directly owns seven subsidiaries
around the world.
i) Sam Ltd’s income statement for the year ended 31/12/2019 (UK headquarter)
Gross profit brought down from trading account 1780,000
Add: Rental income 10,000
Loan interest receivable 5,000
Dividends received 25,000
Bank interest receivable 1,500
Patent royalties receivable (Note 1) 6,000
Profit on sale of building (Note 2) 6,500 54,000
1834,000
Less: Operating expenses (Note 3) (560,000)
Net profit for the year 1,274,000
Note:
1. Gross patent royalties of £6,000 were received in the year and a further £500 was owing to
the company at the end of the year. None was owed to the company at the start of the year.
The income statement shows the total of £6,000. The patents are held for trade purposes.
2. The chargeable gain on the sale of the building is £3,500.
3. Operating expenses include: £
Directors’ fees 100,000
Depreciation of tangible fixed assets 102,500
Customer entertaining expenses 2,400
Gift Aid donation paid in the year 1000
The company informed you that they have the following information regarding their machinery.
The brought forward balance from last year for tax purposes was£125,000. This balance
includes the value of a lift and other integral features of the buildings of £65,000. The remining
balance is the value of general machinery and cars with CO2 emission of less than 110 g/km.
The following addition and disposals of machinery took place during the year. The company
acquired two vehicles – the first cost £20,000 and has C02 emissions of 42g/km; and the second
cost £15,000 and has C02 emissions of 120g/km. Also, the company bought a plant for £25,000
and motor van for £37,000. The company disposed of one of its old cars for £10,000. The
original cost of the disposed of car was£12,000. The disposed of car was originally used by the
director for both business and private use (private use 25%).
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ii) The accounting departments in other subsidiaries around the world provide the
following figures:
Country Taxable income Revenues Exchange rate
USA £500,000 £3,000,000 £1= $1.4
Hong Kong SAR £300,000 £2,000,000 £1= HK$10
Ireland £200,0001 £1,000,000 £1= €1.2
Vietnam £200,000 £2,000,000 £1= ₫28,000
China £700,000 £3,000,000 £1= ¥8.7
Singapore £250,000 £2,000,000 £1=S$1.7
Indonesia £150,000 £5,000,000 £1=Rp17,500
REQUIRED:
You are the main tax accountant in Sam Ltd and you are required to provide a professional tax
report to the chief financial officer about the following points:
1) What are the correct tax treatments for each of the above listed items (You need to
make references to the applicable tax rules and regulations), and to calculate the
corporation tax liability payable by the company to the UK government and to other
countries around the world.
(20 marks)
2) Provide some suggestions to Sam ltd on how to reduce their total tax liability
Note: your suggestions should be around international aspects of tax planning
(20 marks).
Learning Outcomes
The learning outcomes that are being assessed in this assignment are:
Subject-Specific Knowledge, Understanding & Application
a) Demonstrate understanding of the complexity of various national tax systems
b) Evaluate the strategies MNCs use to plan and manage international tax
c) Critically discuss the challenges of double taxation and the opportunities for
harmonisation
Employability skills
e) Initiate a reflective, independent and lifelong approach to learning
f) Communicate information and present complex arguments, clearly and
accurately, to a high standard of presentation in writing