| INTRODUCTION | |
| You work for a company that wants to forecast its tax obligations and payments over the coming ten | |
| years, from 1 January 2016 until 31 December 2025. They have already worked out their forecast taxable | |
| profit amount in each month from 1 January 2015 until 31 December 2025, but need you to calculate the | |
| forecast tax obligations and payments for each relevant period. The company has no trading history in this | |
| country and therefore no tax payments are due from pre-2015 operations. Tax payments will commence | |
| from the 2016 calendar year, based on the taxable profit from the previous calendar year and the | |
| company tax rates and tax rules as set out below. | |
| The monthly taxable profit figures and all the inputs below are provided in the workbook for this case | |
| study. | |
| The government has announced that the company tax rate will change frequently over the next 10 years | |
| as follows: | |
| Date start Date end Company tax rate applicable | |
| 1 January 2015 31 March 2015 15% | |
| 1 April 2015 17 May 2016 14% | |
| 18 May 2016 22 September 2016 17% | |
| 23 September 2016 31 March 2019 18% | |
| 1 April 2019 15 August 2020 19% | |
| 16 August 2020 11 November 2020 18% | |
| 12 November 2020 2 February 2021 14% | |
| 3 February 2021 30 June 2021 18% | |
| 1 July 2021 2 February 2022 14% | |
| 3 February 2022 22 February 2022 15% | |
| 23 February 2022 31 March 2024 12% | |
| 1 April 2024 15 May 2025 11% | |
| 16 May 2025 Onwards 12% | |
| For months where more than one tax rate is applicable, you should determine an average rate to apply | |
| weighted by the number of days which the relevant tax rate applies to that month. | |
| The tax charge in each period is calculated by multiplying the applicable tax rate to the taxable profit | |
| profile given in the inputs booklet | |
| The tax payable is calculated by adjusting the tax charge for losses, which are added a tax loss pool | |
| which works as follows: | |
| If the tax charge in a month is positive and there are no losses available in the pool, tax payable in | |
| that month is equal to the tax charge. | |
| If the tax charge in a month is positive and there are losses available in the pool, the tax payable | |
| in the month is the tax charge reduced by the lesser of the amount of the charge and the balance | |
| of the tax loss pool. Any losses used in this way must be removed from the tax loss pool. | |
| If the tax charge in a month is negative it should be added to the tax loss pool and the tax payable | |
| in that month is zero. | |
| Assume that the balance in the tax loss pool at the start of the modeled timeline is zero. | |
| Once you have calculated the tax payable in each month, you must annualize it to calculate the | |
| company’s tax liability for a year. The company’s tax year is the calendar year. | |
| The annual tax liability is then paid in the subsequent calendar year in the following proportions: | |
| 60% in April | |
| 25% in August | |
| 15% in December | |
| The following section is only relevant to questions 39-41. | |
| The government is considering a change to tax legislation as follows: | |
| If a tax loss is not used within two years after it was created it expires and must be removed from the tax | |
| loss pool. For example, if a loss is created in April 2015 and has not been used by the end of April 2017 it | |
| will expire at the end of April 2017. Assume that losses are used and expired in order or age (oldest first). | |
| You have been asked to determine what the impact of this would be on the company’s tax payments. | |