Newsletter 58

Monday 21 October 2024

Your weekly SQE Prep Quiz has arrived

Dear Subscriber,

I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.

Question: James is a solicitor representing a client, Rachel, in a contentious divorce case. During a meeting, Rachel discloses to James that she has been hiding a substantial amount of assets from her spouse to avoid them being considered in the divorce settlement. Rachel instructs James not to disclose these assets during negotiations and court proceedings, but James is aware that failing to disclose this information could mislead the court and contravene legal obligations. James is now facing a dilemma regarding his professional and ethical responsibilities.

Which of the following best describes James’ ethical obligation under the Solicitors Regulation Authority (SRA) Code of Conduct?

1. James must follow Rachel’s instructions and keep the assets confidential due to his duty of confidentiality.

2. James must disclose the hidden assets to the court to comply with his duty to act with integrity and to uphold the rule of law.

3. James should withdraw from representing Rachel to avoid breaching his duty of confidentiality while also avoiding misleading the court.

4. James should continue representing Rachel but make no mention of the hidden assets unless asked directly by the court.

5. James can report Rachel’s behaviour to the opposing party as a means of resolving the ethical conflict.

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Answer and feedback to last week’s question: EcoBuild Ltd., a construction company, has recently completed its financial year and is preparing its tax returns. The company has incurred significant expenses on research and development (R&D) for developing new eco-friendly building materials. EcoBuild Ltd. has also made charitable donations to environmental organizations and has paid dividends to its shareholders. As part of its tax planning, the company wants to understand which expenses may be eligible for tax deductions or reliefs under UK corporate tax law. Which of the following expenses is EcoBuild Ltd. most likely eligible to claim as a tax deduction or relief under UK corporate tax law?

1. Dividends paid to shareholders

2. Charitable donations made to environmental organizations

3. Research and development (R&D) expenses on eco-friendly materials

4. Capital gains on the sale of company assets

5. Interest on loans taken to pay dividends to shareholders

Correct Answer: 3. Research and development (R&D) expenses on eco-friendly materials. Feedback: Under UK corporate tax law, companies can claim relief for qualifying research and development (R&D) expenses. The UK government provides R&D tax relief as an incentive for companies that invest in innovative projects and developments, such as the creation of eco-friendly building materials in this case. EcoBuild Ltd. can likely claim R&D tax relief on these expenses, which may reduce its corporate tax liability. Option 1 is incorrect because dividends paid to shareholders are not tax-deductible for the company; they are distributed profits and not considered a business expense. Option 2 may be partially correct, as certain charitable donations can qualify for tax relief, but this depends on the specific type of donation and the organization involved. R&D relief is more directly applicable in this scenario. Option 4 is incorrect because capital gains are subject to capital gains tax, not deductible as an expense, though there may be other reliefs or allowances related to capital gains. Option 5 is incorrect because interest on loans taken specifically to pay dividends does not qualify as a tax-deductible business expense. Therefore, EcoBuild Ltd. is most likely eligible to claim tax relief for its R&D expenses, which align with the UK’s incentives for innovation and development.

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You will hear from me again soon.

All the best

Dr Ioannis Glinavos

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