Section C

Scenario: AeroDynamics Heavy Industries Ltd

AeroDynamics Heavy Industries Ltd manufactures aircraft components. For the year ended 31 March 2024, the company’s draft statement of profit or loss shows a net profit before tax of £850,000.

The following information is relevant:

1. Trading Profit Adjustments:
The net profit includes:

• Depreciation: £120,000
• Client entertainment: £8,500
• Staff Christmas party (costing £120 per head): £6,000
• Qualifying charitable donations: £15,000
• Rental income from a surplus warehouse: £24,000

2. Capital Allowances:
The tax written down value of the main pool at 1 April 2023 was £45,000.
During the year, the company purchased new robotic assembly machinery for £1,200,000.
The company also completed construction of a new factory building on 1 May 2023 at a cost of £2,000,000 (excluding land). It was brought into use immediately.

3. Chargeable Gains:
On 15 August 2023, the company sold a piece of land for £300,000, realizing a chargeable gain of £80,000. The company immediately purchased a new warehouse for £350,000 and has elected to claim rollover relief.

Required:
Calculate AeroDynamics Heavy Industries Ltd’s Corporation Tax liability for the year ended 31 March 2024.

Note: You should clearly show the adjustment of trading profits, calculation of capital allowances (including Structures and Buildings Allowance), total taxable total profits (TTP), and the final tax liability.

**1. Adjusted Trading Profit:** Net Profit: £850,000 Add back: - Depreciation: £120,000 - Client entertainment: £8,500 - Staff party: £0 (Allowable, <£150/head) - Qualifying charitable donations: £15,000 (Deducted later) Deduct: - Rental income: (£24,000) (Assessed as property income) Adjusted profit before capital allowances = £969,500 **2. Capital Allowances:** *Machinery (Main Pool):* Pool b/f: £45,000 Additions: £1,200,000 AIA claimed: £1,000,000 (Max limit) Excess to pool: £200,000 Pool balance for WDA = £45,000 + £200,000 = £245,000 WDA @ 18% = £44,100 Total Plant & Machinery CA = £1,000,000 + £44,100 = £1,044,100 *Structures and Buildings Allowance (SBA):* Cost: £2,000,000 Rate: 3% per annum. Brought into use 1 May 2023. Months in use = 11 months (May to March). SBA = £2,000,000 x 3% x 11/12 = £55,000 Total Capital Allowances = £1,044,100 + £55,000 = £1,099,100 *Tax Adjusted Trading Profit (Loss):* £969,500 - £1,099,100 = (£129,600) Trading Loss. **3. Property Income:** Rental income = £24,000 **4. Chargeable Gains:** Gain on land: £80,000 Proceeds: £300,000. Reinvestment: £350,000. Since all proceeds are reinvested in a qualifying business asset (warehouse), full rollover relief is available. Chargeable gain = £0. (The £80k gain reduces the base cost of the new warehouse). **5. Taxable Total Profits (TTP):** The company has a trading loss of £129,600. It can offset this against total profits of the current year. Total profits before loss relief = Property Income (£24,000) + Gains (£0) = £24,000. Offset trading loss against total profits: £24,000. Remaining trading loss to carry forward = £129,600 - £24,000 = £105,600. Profits after loss relief = £0. Qualifying Charitable Donations (£15,000) cannot create or augment a loss, so they are lost for this year. TTP = £0. **6. Corporation Tax Liability:** £0 @ 25% = £0.